Fiscal policy transmission mechanism in Pakistan: A general equilibrium analysis
This paper explores the impact of fiscal spending on key macroeconomic indicators for Pakistan economy using an estimated open economy new Keynesian dynamic stochastic general equilibrium (DSGE) model. Results show that a positive shock to government consumption leads to fall in private consumption,...
| Main Authors: | , , |
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| Format: | Article |
| Language: | English |
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Institute of Business Administration
2020-06-01
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| Series: | Business Review |
| Subjects: | |
| Online Access: | https://ir.iba.edu.pk/businessreview/vol15/iss1/10/ |
| _version_ | 1797857860516839424 |
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| author | Muhammad Raashid Abdul Saboor Shahzad Ahmad |
| author_facet | Muhammad Raashid Abdul Saboor Shahzad Ahmad |
| author_sort | Muhammad Raashid |
| collection | DOAJ |
| description | This paper explores the impact of fiscal spending on key macroeconomic indicators for Pakistan economy using an estimated open economy new Keynesian dynamic stochastic general equilibrium (DSGE) model. Results show that a positive shock to government consumption leads to fall in private consumption, private investment and exports owing to negative wealth effect, rise in interest rate and domestic currency appreciation, respectively. Imports and inflation also rise. Estimated values of present value fiscal multipliers are 0.54, 0.29 and 0.18 after 1 year, 5 years and 10 years, respectively. These results show that although positive in the short run, yet the magnitude of the fiscal multiplier is very low in the case of Pakistan. Sensitivity analysis shows that the value of the multiplier marginally rises with rise in degree of price stickiness. Transitory shocks have a substantially higher multiplier relative to persistent shocks. |
| first_indexed | 2024-04-09T21:03:38Z |
| format | Article |
| id | doaj.art-0c7f0680ee474135863de2ca79d139f6 |
| institution | Directory Open Access Journal |
| issn | 1990-6587 2788-9599 |
| language | English |
| last_indexed | 2024-04-09T21:03:38Z |
| publishDate | 2020-06-01 |
| publisher | Institute of Business Administration |
| record_format | Article |
| series | Business Review |
| spelling | doaj.art-0c7f0680ee474135863de2ca79d139f62023-03-29T04:33:37ZengInstitute of Business AdministrationBusiness Review1990-65872788-95992020-06-011515066https://doi.org/10.54784/1990-6587.1009Fiscal policy transmission mechanism in Pakistan: A general equilibrium analysisMuhammad Raashid 0Abdul Saboor 1Shahzad Ahmad 2Pir Mehr Ali Shah Arid Agriculture University, Rawalpindi, Pakistan Pir Mehr Ali Shah Arid Agriculture University, Rawalpindi, Pakistan State Bank of Pakistan and Institute of Business Administration, Karachi, Pakistan This paper explores the impact of fiscal spending on key macroeconomic indicators for Pakistan economy using an estimated open economy new Keynesian dynamic stochastic general equilibrium (DSGE) model. Results show that a positive shock to government consumption leads to fall in private consumption, private investment and exports owing to negative wealth effect, rise in interest rate and domestic currency appreciation, respectively. Imports and inflation also rise. Estimated values of present value fiscal multipliers are 0.54, 0.29 and 0.18 after 1 year, 5 years and 10 years, respectively. These results show that although positive in the short run, yet the magnitude of the fiscal multiplier is very low in the case of Pakistan. Sensitivity analysis shows that the value of the multiplier marginally rises with rise in degree of price stickiness. Transitory shocks have a substantially higher multiplier relative to persistent shocks.https://ir.iba.edu.pk/businessreview/vol15/iss1/10/general equilibriummodels and applicationsfiscal policy |
| spellingShingle | Muhammad Raashid Abdul Saboor Shahzad Ahmad Fiscal policy transmission mechanism in Pakistan: A general equilibrium analysis Business Review general equilibrium models and applications fiscal policy |
| title | Fiscal policy transmission mechanism in Pakistan: A general equilibrium analysis |
| title_full | Fiscal policy transmission mechanism in Pakistan: A general equilibrium analysis |
| title_fullStr | Fiscal policy transmission mechanism in Pakistan: A general equilibrium analysis |
| title_full_unstemmed | Fiscal policy transmission mechanism in Pakistan: A general equilibrium analysis |
| title_short | Fiscal policy transmission mechanism in Pakistan: A general equilibrium analysis |
| title_sort | fiscal policy transmission mechanism in pakistan a general equilibrium analysis |
| topic | general equilibrium models and applications fiscal policy |
| url | https://ir.iba.edu.pk/businessreview/vol15/iss1/10/ |
| work_keys_str_mv | AT muhammadraashid fiscalpolicytransmissionmechanisminpakistanageneralequilibriumanalysis AT abdulsaboor fiscalpolicytransmissionmechanisminpakistanageneralequilibriumanalysis AT shahzadahmad fiscalpolicytransmissionmechanisminpakistanageneralequilibriumanalysis |