Abstract
This study uses the bound testing approach using time series data from
1980 to 2015. The objective is to investigate the impact of institutional
qualityon the design and execution of monetary policy by the central
bank in Pakistan. We incorporate the quality of institutions in the
Taylor interest rate rules. The findings of this paper reveals that state
bank of Pakistan least consider the Taylor rules in the formulation and
operation of monetary policy in Pakistan. Our findings further report
that quality of institutions has contemporaneous effects in the short run
while monetary policy is not responsive to the institutional quality in
the long run. Furthermore, monetary policy is highly responsive to
inflation in the country. The discount rate reduces to increasing output
gap in the short run but there is a pro-cyclical behavior of monetary
policy in relation to output gap in the long run. State Bank of Pakistan
does not follow the interest rate rules.
Muhammad Shahid, Abdul Qayyum. (2019) Empirically Assessing the Impact of Institutional Quality on Monetary Policy in Pakistan , Journal of Managerial Sciences, Volume 13, Issue 1.
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