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Output Composition of Monetary Policy Transmission in Pakistan

Kamal, Asmma (2016): Output Composition of Monetary Policy Transmission in Pakistan.

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Abstract

This paper employs an unrestricted vector autoregressive (VAR) model, identified using a recursive Cholesky decomposition, to examine the output composition of the monetary policy transmission mechanism in Pakistan. The results indicate that a contractionary monetary policy shock leads to a relatively larger decline in private consumption compared to private investment with a significant lag. Furthermore, preliminary analysis suggests that the consumption channel plays a more important role than investment channel in contributing to the output reactions resulting from policy rate (interbank rate) shocks during the period 1995Q3 2010Q2 analysed in this study.

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