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

Muhammad Nasir () and Wasim Malik ()

No 2011:70, PIDE-Working Papers from Pakistan Institute of Development Economics

Abstract: Monetary policy has changed in a number of ways during the last two decades . Along with the other characteristics, modern monetary policy is forward-looking, and the central banks respond contemporaneously to structural shocks that are expected to make inflation deviate from the future targets. This study aims at investigating this aspect of the monetary policy for Pakistan. Using a modified version of Structural Vector Autoregression (SVAR) developed by Enders and Hurn (2007), we have found a weak response of policy to supply-side shocks as the correlation coefficient between the demand and supply shocks is only 0.041. Moreover, the results show that the demand shocks have no significant contribution to output variability. On the other hand, both the demand and supply shocks, along with the 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)
Pages: 20 pages
Date: 2011
New Economics Papers: this item is included in nep-mac
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Citations: View citations in EconPapers (6)

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Related works:
Journal Article: 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:wpaper:2011:70

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