Real interest rate volatility in the Pakistani economy: A regime switching approach

Fahad Javed Malik () and Mohammad Nishat
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Fahad Javed Malik: Monash University
Mohammad Nishat: Institute of Business Administration, Karachi

Business Review, 2017, vol. 12, issue 2, 22-32

Abstract: This paper assesses the volatility of short term real interest rates in Pakistan using the Markov switching model and drawing on monthly data from January 1964 to March 2016. This model holds that if a random walk pattern is not visible in the real interest rate series, fluctuations are temporary and the interest rate will eventually converge around the mean value. The results reveal that real interest rates in Pakistan have exhibited high volatility since 1973 due to high budget deficits and other sources of instability in the economy.

Keywords: Interest; rate; ·; volatility; ·; Markov; switching; model. (search for similar items in EconPapers)
Date: 2017
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Persistent link: https://EconPapers.repec.org/RePEc:aho:journl:v:12:y:2017:i:2:p:22-32

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