THE REGIONAL ASYMMETRIC RESPONSES TO CENTRAL BANK’S MONETARY POLICY IN PAKISTAN

Naseem Faraz () and Zainab Iftikhar
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Zainab Iftikhar: #x2020;Pakistan Institute of Development Economics (PIDE), Quaid-i-Azman University Campus, Islamabad, Pakistan‡Université Catholique de Louvain, 1, Place de l’Université, B-1348 Louvain-la-Neuve, Belgium

The Singapore Economic Review (SER), 2020, vol. 65, issue 02, 351-364

Abstract: Literature on differential impacts of monetary policy across regions discusses several factors which may be responsible for asymmetrical effects of monetary policy. As far as Pakistan is concerned, limited evidence is available for both mechanism and impact of monetary policy. In this study, we examine asymmetries in responses of real output of provinces to central bank’s monetary policy in Pakistan. We also attempt to explore the potential sources of these asymmetries. The Structural Vector Autoregression (SVAR) model is employed to examine each province’s response to unanticipated monetary policy shocks. The generalized impulse response functions from SVAR reveal that monetary policy has varied effects across the provinces. In two regions — Punjab and Sindh — monetary policy shocks cause variations in provincial outputs in similar ways. These responses are also comparable to the response of national output to changes in monetary policy but with considerable differences in magnitudes. While other provinces Khyber Pakhtunkhawa (KPK) and Balochistan show less sensitivity to unanticipated change in monetary policy. The less sensitive regions exhibit dissimilar responses both in timings and magnitudes. These dissimilarities in regional responses draw attention to devise an effective national monetary policy that might consider the cross-provincial differences in responses to central monetary policy in Pakistan.

Keywords: Monetary policy; asymmetries in effects; provincial outputs; Pakistan (search for similar items in EconPapers)
Date: 2020
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DOI: 10.1142/S0217590817500035

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