The Role of Money in Explaining Business Cycles for a Developing Economy: The Case of Pakistan

Shahzad Ahmad (), Farooq Pasha and Muhammad Rehman ()
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Muhammad Rehman: State Bank of Pakistan

No 74, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: This paper theoretically evaluates the role of money and monetary policy in propagating business cycle fluctuations of Pakistan’s economy. We introduce the role of money via money in utility (MIU) and cash in advance constraint (CIA) in simple closed economy DSGE models and analyze monetary policy through a money growth rule as well as Taylor type interest rate rule. We establish the theoretical and empirical linkages between nominal and real variables of Pakistan’s economy for post financial liberalization era. We find that the cash base economy models under money growth rule matches the data relatively better compared to cashless economy with Taylor rule.

Keywords: General Equilibrium Models; Modeling and Simulations; Monetary Policy (search for similar items in EconPapers)
JEL-codes: D58 E27 E52 (search for similar items in EconPapers)
Pages: 62 pages
Date: 2016-04
New Economics Papers: this item is included in nep-dge, nep-mac, nep-mon and nep-upt
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: The Role of Money in Explaining Business Cycles for a Developing Economy: The Case of Pakistan (2014)
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