Khan, Abdul Qayyum Khan and Khattak, Naeem Ur Rehman Khattak and Khattak, M Saghir and Hussain, Anwar Hussain (2008): Inter-Dependencies in Budget Deficit and its Financing Sources in Pakistan (1960-2005). Published in: Sarhad Journal of Agriculture , Vol. 24, No. 4 (2008): pp. 763-769.
Download (74kB) | Preview
The paper critically appraises causality, susceptibility to innovation of budget deficit, domestic borrowing from banking system and foreign borrowing. Secondary data is used, which was taken from annual Economic Survey of Pakistan (various issues), and International Financial Statistics (2005). For analysis, Vector Autoregressive (VAR) model with Impulse Response Function (IRF), Error Variance Decomposition and Granger Causality test is used. The study revealed that any innovation of one standard deviation took seven years for budget deficit and more than ten years for domestic bank borrowing and foreign borrowing to be effective. The variation in budget deficit is mostly explained by itself. Most of the variation in domestic bank borrowing is explained by budget deficit, while variation in foreign borrowing is mostly explained by budget deficit and domestic bank borrowing. Two unilateral causality are found and no bilateral causality, and in mostly independent relationships have been detected. Based on the finding the study suggests parallel and harmonized fiscal and monetary policy to reduce foreign reserves outflow. Fiscal policy is more vulnerable to shocks or innovations and monetary policy took longer time to become effective, so the gap between monetary policy formation and its implementation must be reduced.
|Item Type:||MPRA Paper|
|Original Title:||Inter-Dependencies in Budget Deficit and its Financing Sources in Pakistan (1960-2005)|
|English Title:||Inter-Dependencies in Budget Deficit and its Financing Sources in Pakistan (1960-2005)|
|Keywords:||Budget Deficit, Causality, Domestic Bank Borrowing,Foreign Borrowing, Inter-Dependencies|
|Subjects:||B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics
A - General Economics and Teaching > A1 - General Economics > A10 - General
|Depositing User:||ANWAR HUSSAIN|
|Date Deposited:||22. Oct 2012 13:16|
|Last Modified:||30. Dec 2015 23:27|
Ahking, F.W. and S. M. Miller. 1985. The relationship between government deficits, money growth, and inflation. J. Macroecon. 7: 447-467.
Bachman, D. 1992. Why is the U.S. current account deficit so large? Evidence from Vector Autoregressions. Southern Econ. J. 59: 232-240.
Barro, R. J. 1974. Are government bonds net wealth?J.Polit. Econ. 82(6): 1095-1117.
Barro, R. J. 1978. Comments from an unreconstructed Ricardian. J. Monetary Econ. 4(3): 569-581.
Bisignano, J. and K. D. Hoover. 1982. Monetary and fiscal impact on exchange rate. Econ. Rev. (Federal Reserve Bank of San Francisco). pp. 19-33.
Bundt, T. and A. Solocha 1988. Debt deficits and dollar. J. Policy Model. 10(4): 581- 600.
Burney, N.A. and N. Akhtar. 1992. Government budget deficits and exchange rate determination: evidence from Pakistan . The Pakistan Dev. Review. 31 (4): 871-882. Govt. of Pakistan. Pakistan Econ. Survey, Various Issues, Islamabad.
Granger, C.W.J. 1969. Investigating causal relationships by economics models and cross spectral models. Econometrica. 37: 424-438.
Haq, T.A. 2003. Fiscal strategy for growth and employment in Pakistan: An alternative consideration. Employment Strategy Deptt. (EARU Employment paper 2003/56).
Hussain, F. and T. Mahmood. 2001. The stock market and the economy of Pakistan. The Pak. Dev. Rev. 40(2): 107-114.
IMF. 2005. Int. Financial Statistics.Washington, D.C. Int. Monet. Fund.
Johansen, S. 1988. Statistical analysis of cointegrated vectors. J. Econ. Dynamics and Control. 12: 231-254.
Johansen, S. 1991. Estimation and hypothesis testing of co-integrating vectors in Gaussian Vector Autregression Models. Econometrica. 59: 551-1580.
Nishat, M. and M. Saghir 1991. The stock market and Pakistan economy. Savings and Dev. 15(2):131-145.
Shah, M. A. 2002. The growth of poverty in Pakistan– issues and causes. Presentation made in NIPA Lahore. Retrieved on Jan.16, 2007, from http://www.adb.org/Documents/Speeches/2002/ms2002095.asp (Verified on Oct. 12, 2007).
Sims, C.A. 1972. Money, income and causality. Amer.Econ. Rev. 62: 540-552.