Measuring the effects of monetary policy in Pakistan: A factor augmented vector autoregressive approach

Kashif Munir and Abdul Qayyum

MPRA Paper from University Library of Munich, Germany

Abstract: This paper examines the effects of monetary policy in Pakistan economy using a data rich environment. We used the Factor Augmented Vector Autoregressive (FAVAR) methodology, which contains 115 monthly variables for the period 1992:01 to 2010:12. We compare the results of VAR and FAVAR model and the results showed that FAVAR model explains the effects of monetary policy which are consistent with theory and better than VAR model. VAR model shows the existence of price puzzle and liquidity puzzle in Pakistan while FAVAR model did not provide any evidence of puzzles. FAVAR model supports the effectiveness of interest rate channel in Pakistan.

Keywords: Monetary Policy; VAR; FAVAR (search for similar items in EconPapers)
JEL-codes: C32 E52 (search for similar items in EconPapers)
Date: 2012-01-16
New Economics Papers: this item is included in nep-mon
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Measuring the effects of monetary policy in Pakistan: a factor-augmented vector autoregressive approach (2014)
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