The Contemporaneous Correlation of Structural Shocks and Inflation-Output Variability in Pakistan

Muhammad Nasir () and Wasim Malik ()

The Pakistan Development Review, 2011, vol. 50, issue 2, 145-162

Abstract: Monetary policy has changed in a number of ways in the last two decades. Along with other characteristics, modern monetary policy is forward-looking and today central banks, to maintain credibility, respond contemporaneously to structural shocks that might make inflation deviate from the target in future. This study aims at investigating this aspect of monetary policy for Pakistan. Using the modified version of Structural Vector Autoregression (SVAR) developed by Enders and Hurn (2007), the authors have found a weak policy response to supply side shocks as the correlation coefficient between demand and supply shocks is only 0.041. Moreover, the results show that the demand shocks have no significant contribution in output variability. On the other hand, both demand and supply shocks, along with foreign supply shocks, significantly contribute to inflation variability.

Keywords: Monetary Policy; Contemporaneous Correlation; Pakistan; Structural Shocks; Vector Autoregression (search for similar items in EconPapers)
JEL-codes: E31 E42 E52 E58 (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (7)

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Related works:
Working Paper: The Contemporaneous Correlation of Structural Shocks and Inflation— Output Variability in Pakistan (2011)
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Persistent link: https://EconPapers.repec.org/RePEc:pid:journl:v:50:y:2011:i:2:p:145-162

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