Implications of Monetary Policy for Corporate Sector and Economic Growth in Pakistan

Safia Shabbir ()
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Safia Shabbir: State Bank of Pakistan

No 61, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: Using micro data on non-financial listed companies in Pakistan, over the period of 2000-2010, this paper emphasizes the impact of monetary policy on economic growth through balance sheet channel. At first step, monetary tightening deteriorates the net worth of the firms and leads to cash flow squeeze which in turn affects the economic growth. We find this impact to last for three years over the balance sheets of the firms. Since industrial sector drives the economic growth, we forecast corporate profitability at the second step. Empirical investigation shows that corporate profitability reverts to its mean at the rate of 25 percent. During peak, mean reversion is 30 percent while it is 19 percent during trough implying that recession stays relatively longer and economic revival is slow during recessionary phase.

Keywords: Monetary policy; monetary transmission; balance sheet channel; forecasting; profitability; economic growth (search for similar items in EconPapers)
JEL-codes: C33 E50 E52 G12 H32 O10 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2013-05
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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