Fiscal Imbalances and Interest Rate Change in Pakistan: A Co-Integration Analysis

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DOI: 10.4236/tel.2015.55072    2,136 Downloads   2,318 Views  


The study investigated the relationship among fiscal deficit, public debt, inflation, international interest rates and the interest rate change in Pakistan using time series data for the period 1981-2011. Augmented Dickey Fuller Unit root test was used to check stationarity of time series data. The study employed co-integration approach to check the long-run relationship among variables. The findings of the study showed a positive and significant relationship between explanatory variables and interest rate change. The study suggested that the fiscal deficit, public debt and double digit inflation should be controlled in order to decrease the interest rate and interest rate fluctuation in Pakistan.

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Islam, Z. , Ali, A. , Baig, I. , Baig, S. , Hashim, M. and Zia-Ur-Rehman, M. (2015) Fiscal Imbalances and Interest Rate Change in Pakistan: A Co-Integration Analysis. Theoretical Economics Letters, 5, 616-623. doi: 10.4236/tel.2015.55072.


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