An Analysis of Macroeconomic State and Prospects of Pakistan during Recent Global Financial Turmoil

Mahmood, Haroon and Rehman, Kashif-ur- (2013): An Analysis of Macroeconomic State and Prospects of Pakistan during Recent Global Financial Turmoil.

Abstract

The overall economic situation of the world is facing a threat with a deep and prolonged recession as the consequence of the squeeze in the fiscal system which was triggered by housing mortgage crisis in the United States. The importunate financial ramification of the worldwide macroeconomic inequality smoothed the progress of the expansion of the housing fizz with the amplification of toxic assets that burst in September 2008 as many of the major investment and commercial banks and leasing institutions collapsed. This study aims to contribute in summarizing these events and the diffusion of this financial turmoil through the advanced economies like United States and the Eurozone to the developing economy of Pakistan. The paper analyzes specifically Pakistan’s current macroeconomic situation during this financial crisis. It also discusses the consequences of the surge in food and oil prices. This study also evaluates the government’s response to the deteriorating conditions and proposes a number of policy measures.

• Item Type: MPRA Paper
• Language: English
• Keywords: Macroeconomic situation, Financial turmoil, Recession, Housing bubble. Government response
• Subjects: E - Macroeconomics and Monetary Economics > E6 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook > E66 - General Outlook and Conditions

References

[1] Adams, C. 2006. “Global Current Account Imbalances.” Lee Kuan Yew School of Public Policy, National University of Singapore.

[2] Ahya, C. 2008. ”Capital Inflows—A Critical Macro Link.” Global Economic Forum, Morgan Stanley, http://www.morganstanley.com/views/gef/archive/2008/20080930-Tue.html

[3] ADB. 2004. "Asian Development Outlook 2004". Asian Development Bank, Manila.

[4] ADB. 2007. "Key Indicators 2007". Asian Development Bank, Manila.

[5] Akbari, A. H., and W. Rankaduwa. 2006. “Inflation Targeting in a Small Emerging Market economy:The Case of Pakistan.” SBP-Research Bulletin 2(1):169–90.

[6] Barro, R. 1997. "Determinants of Economic Growth: A Cross-Country Empirical Study". MIT Press: Cambridge, MA.

[7] Bernanke, B., T. Laubach, F. S. Mishkin, and A. S. Posen. 1999. "Inflation Targeting: Lessons from the International Experience". Princeton: Princeton University Press.

[8] Blinder, A. 1987. "Hard Heads Soft Hearts". Reading: Addison-Wesley.

[9] Bruno, M. 1995. “Does Inflation Really Lower Growth?" Finance and Development September.

[10] Bruno, M. , and W. Easterly. 1998. “Inflation Crises and Long-Run Growth.” Journal of Monetary Economics 41:2–26.

[11] Business Recorder. 2008. “S & P Downgrading of Pakistan’s Credit Rating,” May 20. www.silobreaker.com/DocumentReader.aspx.

[12] Chaudhry, A. A., and T. T. Chaudhry. 2008. “The Effects of Rising Food and Fuel Costs on Poverty in Pakistan.” Lahore School of Economics.

[13] Chaudhry, M. A., and M. A. S. Choudhary. 2006. “Why the State Bank of Pakistan Should Not Adopt Inflation Targeting.” SBP Research Bulletin 2(1):195–209.

[14] Davidson, P. 2006. “Can, or Should, a Central Bank Inflation Target?” Journal of Post Keynesian Economics 28(4, Summer):689–703.

[15] Dawn Internet. 2008. “Rupee Rebounds Against the Dollar.” May 26. Available: www.dawn.com/2008/05/26/ebr21.htm.

[16] Dornbusch, R. 2000. “Containing High Inflation.” In R. Dornbusch, ed., Keys to Prosperity. Free Markets, Sound Money, and a Bit of Luck. Cambridge.

[17] Eisner, R. 1995. “Our NAIRU Limit: The Governing Myth of Economic Policy.” American Prospect 6(March):58–63.

[18] Eisner, R., 1995. “Our NAIRU Limit: The Governing Myth of Economic Policy.” American Prospect.

[19] International Monetary Fund. 2004. “Global Financial Stability Report 2004, Market Developments and Issues”. www.imf.org/external/pubs/ft/GFSR/2004/02/index.htm.

[20] Khan, M. , and A. Senhadji. 2001. “Threshold Effects in the Relationship between Inflation and Growth.” IMF Staff Papers 48:1–21.

[21] Kriesler, P., and M. Lavoie. 2007. “The New Consensus on Monetary Policy and its Post-Keynesian Critique.” Review of Political Economy 19(3, July):387–404.

[22] Lubna, S., U. Khalid, and S. Akhtar. 2008. “Unpaid Family Workers; Unraveling the Mystery of Falling Unemployment”. Center for Research on Poverty Reduction and Income Distribution, Islamabad. http://www.crprid.org/Publications/unpaidfamily.pdf

[23] Ministry of Finance. 2008. “Update on Pakistan’s Economy." Debt Office, Ministry of Finance, http://www.finance.gov.pk/admin/images/updates/FDI%20May%2008.pdf

[24] Ministry of Internal Affairs and Communications, Statistics Bureau and the Director-General for Policy Planning (Statistical Standards). 2008. www.stat.go.jp/english/data/getujidb/index.htm. Downloaded 14 July.

[25] Moinuddin. 2007. “Choice of Monetary Policy Regime: Should SBP Adopt Inflation Targeting”. SBP Working Paper Series No.19. State Bank of Pakistan, Karachi

[26] Office of Federal Housing Enterprise Oversight. 2008. “Mortgage Markets and the Enterprises in 2007.” www.ofheo.gov.

[27] The Nation, 2008. “Moody’s Downgrades Pakistan Rating, May 22." www.nation.compk/pakistan-news-newspaper-daily-english-online/Politics/22-May-2008/Moodys-downgrades-Pakistan-rating