Javid, Muhammad and Munir, Kashif (2011): The price puzzle and monetary policy transmission mechanism in Pakistan: Structural vector autoregressive approach. Forthcoming in: The Pakistan Development Review , Vol. 49, No. 4 (2011)
Download (318kB) | Preview
This paper address the issue of monetary policy effectiveness and the price puzzle, a positive response of prices to monetary tightening, in Pakistan. Study examines the effects of monetary policy shock on price level and other macroeconomic variables such as output, exchange rate and money supply within the structural VAR framework over the period 1992: M1 to 2010:M08. We find that a contractionary monetary policy shock has a positive effect on prices and the output increase over some horizon following the monetary tightening but continuously falls after initial rise. The results also indicate that monetary contractions in Pakistan over period reviewed associated with persistent depreciation of domestic currency value relative to the U.S. dollar.
|Item Type:||MPRA Paper|
|Original Title:||The price puzzle and monetary policy transmission mechanism in Pakistan: Structural vector autoregressive approach|
|English Title:||The price puzzle and monetary policy transmission mechanism in Pakistan: Structural vector autoregressive approach|
|Keywords:||Monetary policy, Price puzzle, Structural VAR, Pakistan|
|Subjects:||E - Macroeconomics and Monetary Economics > E5 - Monetary Policy, Central Banking, and the Supply of Money and Credit > E52 - Monetary Policy
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates
|Depositing User:||Muhammad Javid|
|Date Deposited:||04. May 2011 12:25|
|Last Modified:||14. Feb 2013 11:26|
Agha, A. I., Noor, A., Yasir, A. M., and Hastam, S. (2005) Transmission Mechanism of Monetary Policy in Pakistan.SBP-Research Bulletin Volume 1, Number 1.
Barth, Marvin.J and Ramsey Valerie A. (2000) The Cost Channel of Monetary Transmission National Bureau of Economic Research, Working Paper 7675.
Bernanke, B., (1986) Alternative explanations of the money-income correlation. In: Brunner, K.
Metzler, A.H. (Eds.), Real Business Cycles, Real Exchange Rates, and Actual Policies. Carnegie-Rochester Series on Public Policy 25. North-Holland, Amsterdam, pp. 49-99.
Blanchard, O.J., Watson, M.W., 1986. Are business cycles all alike? In: Gordon, R. (Ed.), The American Business Cycle: Continuity and Change. University of Chicago Press, Chicago, IL, pp.123-156.
Castelnuovo, E. and Palolo, S. (2010) Monetary Policy Inflation Expectations and the Price Puzzle. The Economic Journal, doi:10.1111/j.1468-0297.2010.02368.
Giordani, P. (2004) An Alternative explanation of the price puzzle. Journal of Monetary Economics 15, 1271-1296.
Grilli, V. Roubini, N. (1995) Liquidity and exchange rates: puzzling evidence from the G-7 countries. Working paper, Yale University, CT.
Hanson,M.S. (2004) The price puzzle reconsidered. Journal of Monetary Economics 51, 1685-1413
Kim, Soyoung (1999) Do monetary Policy shocks matter in the G-7 Countries? Using common identification assumptions about monetary policy across countries. Journal of International Economics 48, 387-412
Kim, Soyoung and Nouriel Roubini (2000) Exchange Rate anomalies in the Industrial Countries: A Solution with a Structural VAR Approach. Journal of Monetary Economics 45, 561-586.
Krusec Dejan (2010), The “price puzzle” in the monetary transmission VARs with long-run restrictions. Economic Letters, 106, 147-150.
PIDE Monetary Policy Viewpoint October (2010) Qayyum,A (2008), Does Monetary Policy Play Effective Role in Controlling Inflation in Pakistan” http://mpra.ub.uni-muenchen.de/13080/
Omer, M. and O., F., Saqib (2008) Monetary Targeting in Pakistan: A Skeptical Note. State Bank of Pakistan Working Paper SeriesNo.25.
Sims, C.A., 1986. Are forecasting models usable for policy analysis? Federal Reserve Bank of Minneapolis Quarterly Review 10, 2-16.
Sims C.A and Tao Zha (2006) Does Monetary Policy Generate Recession? Macroeconomic Dynamics, 10, 231-272.
Sims, C.A., Zha, T. (1995) Does monetary policy generate recessions? Using less aggregate price data to identify monetary policy. Working paper, Yale University, CT.
Sims, C.A. (1992).Interpreting the macroeconomic time series facts: The effects of monetary policy. European Economic Review, 36, 975-1000.
Enders, Walter (2004) Applied Econometric Time Series 2nd edition John Wiley & Sons