A Small-Size Macroeconometric Model for Pakistan Economy

Muhammad Nadim Hanif, Zulfiqar Hyder, Muhammad Amin Khan Lodhi, Mahmood ul Hassan Khan, Irem Batool

.

DOI: 10.4236/ti.2011.22008                

Abstract

This paper attempts to develop a small size macro-econometric model for Pakistan to analyze the effects of monetary policy on key macro variables through forecasting and simulations. The model comprises of 17 equations, out of which 11 are behavioral equations while the rest are either identities or definitional equations. OLS method is used to estimate the behavioral equations by using annual data from FY73-FY06. The paper analyzes results of policy simulations to quantify the impact of shocks to various exogenous variables.

Keywords

Macroeconometric Model

Conflicts of Interest

The authors declare no conflicts of interest.

References

[1]	L. R. Klein, “Econometric Fluctuations in the United States,” Wiley, New York, 1950.
[2]	L. R. Klein and A. S. Goldberger, “An Econometric Model of the United States, 1929-1952,” North-Holland Publishing, Amsterdam, 1955.
[3]	R. C. Fair, “A Model of Macroeconomic Activity,” The Empirical Model, Ballinger Publishing Company, Pensacola, Vol. 2, 1976.
[4]	R. C. Fair, “Specification, Estimation, and Analysis of Macroeconometric Models,” Harvard University Press, Cambridge, 1984.
[5]	S. N. H. Naqvi, A. H. Khan, N. M. Khilji and A. M. Ahmad, “The PIDE Macroeconometric Model of Pakistan’s Economy,” Pakistan Institute of Development Economics, Karachi, 1983.
[6]	S. N. H. Naqvi and A. M. Ahmad, “Preliminary Revised P.I.D.E. Macro-Econometric Model of Pakistan’s Economy,” Pakistan Institute of Development Economics, Karachi, 1986.
[7]	H. A. Pasha, M. A. Hasan, A. G. Pasha, Z. H. Ismail, A. Rasheed, M. A. Iqbal, R. Ghaus, A. R. Khan, N. Ahmed, N. Bano and N. Hanif, “Integrated Social Policy and Macro-Economic Planning Model for Pakistan,” Social Policy and Development Centre, Karachi, 1995.
[8]	S. Chisti, M. A. Hasan and S. F. Mahmud, “Macroeconometric Modeling and Pakistan’s Economy: A Vector Autoregression Approach,” Journal of Development Economics, Vol. 38, No. 2, 1992, pp. 353-370. doi:10.1016/0304-3878(92)90004-S
[9]	R. E. Hall, “Stochastic Implications of the Life Cycle-Permanent Income Hypothesis: Theory and Evidence,” Journal of Political Economy, Vol. 86, No. 6, 1978, pp. 971-987. doi:10.1086/260724
[10]	T. M. Brown, “Habit Persistence and Lags in Consumer Behavior,” Econometrica, Vol. 20, No. 3, 1952, pp 355-371. doi:10.2307/1907409
[11]	K. Hyder, “Crowding-out Hypothesis in a Vector Error Correction Framework: A Case Study of Pakistan,” Pakistan Development Review, Vol. 41, No. 4, 2001, pp. 633-650.
[12]	Cyrus, Sassanpour and Moinuddin, “Experiments with Money Demand Functions for Pakistan,” SBP Bulletin, State Bank of Pakistan, Karachi, 1993.
[13]	A. H. Khan, “Financial Liberalization and the Demand for Money in Pakistan,” Pakistan Development Review, Vol. 33, No. 4, 1994, pp. 997-1010.
[14]	A. Qayyum, “Modelling the Demand for Money in Pakistan,” Pakistan Development Review, Vol. 44, No. 3, 2005, pp. 233-252.
[15]	Moinuddin, “Choice of Monetary Policy Regime: Should SBP Adopt Inflation Targeting,” SBP Working Paper, No. 19, 2007.
[16]	S. Edwards and M. Khan, “Interest Rate Determination in Developing Countries—A Conceptual Framework,” IMF Staff Papers, Vol. 32, 1985, pp. 377-403.
[17]	S. R. Pindyck and L. D. Rubinfeld, “Econometric Models and Economic Forecasts,” 4th Edition, McGraw-Hill/Irwin, New York, 1997.
[18]	M. A. Khan, “Short-Run Effects of Unanticipated Changes in Monetary Policy: Interpreting Macroeconomic Dynamics in Pakistan,” State Bank of Pakistan Working Paper, Vol. 4, No. 1, 2008, pp. 1-30.
[19]	C. A. Sims, “Interpreting the Macroeconomic Time Series Facts,” European Economic Review, Vol. 36, No. 5, 1992, pp. 975-1011. doi:10.1016/0014-2921(92)90041-T