The Taylor Rule and the Macroeconomic Performance in Pakistan
Wasim Malik () and
Ather Ahmed ()
No 2007:34, PIDE-Working Papers from Pakistan Institute of Development Economics
A widely agreed proposition in modern economics is that policy rules have greater advantage over discretion in improving economic performance. Simple monetary policy instrument rules are feasible options for developing countries lacking the pre-requisites for more sophisticated targeting rules. Notwithstanding the focus of modern literature on the issue, the State Bank of Pakistan (SBP) has never declared itself to be following any type of rule. Surprisingly, this topic has remained out of research focus (among the academia and the practitioners) in Pakistan. This is the first attempt to deal with a rule-based monetary policy strategy in the case of the SBP. We have estimated the Taylor rule and simulated the economy using this rule as a monetary policy strategy. Our results indicate that the SBP has not been following the Taylor rule. In fact, the actual policy can be taken as an extreme deviation from it. On the other hand, counterfactual simulation confirms that macroeconomic performance can be improved, in terms of stability in inflation and output, when a simple Taylor rule is adopted. In this regard the parameter values (especially the inflation target) in the rule must be set according to the conditions of the economy under consideration rather than by relying on the ones suggested by the Taylor rule.
Keywords: Taylor Rule; Macroeconomic Performance; Counterfactual Simulation (search for similar items in EconPapers)
JEL-codes: E31 E47 E52 (search for similar items in EconPapers)
Pages: 28 pages
New Economics Papers: this item is included in nep-cba, nep-cwa, nep-mac and nep-mon
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (15) Track citations by RSS feed
Downloads: (external link)
https://www.pide.org.pk/pdf/Working%20Paper/WorkingPaper-34.pdf First Version, 2007 (application/pdf)
Journal Article: Taylor Rule and the Macroeconomic Performance in Pakistan (2010)
Working Paper: The Taylor Rule and the Macroeconomic Performance in Pakistan (2007)
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:pid:wpaper:2007:34
Access Statistics for this paper
More papers in PIDE-Working Papers from Pakistan Institute of Development Economics Contact information at EDIRC.
Bibliographic data for series maintained by Khurram Iqbal ().