Transmission Mechanism of Monetary Policy in Pakistan

Noor Ahmed (), Hastam Shah (), Asif Idrees Agha and Yasir Ali Mubarik
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Noor Ahmed: State Bank of Pakistan
Hastam Shah: State Bank of Pakistan
Asif Idrees Agha: State Bank of Pakistan
Yasir Ali Mubarik: State Bank of Pakistan

No 9, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: This paper uses vector autoregressions to examine the monetary transmission mechanism in Pakistan. The results point to a transmission mechanism in which banks play an important role. A monetary tightening leads to a fall in domestic demand, primarily investment demand financed by bank lending, which translates into a gradual reduction in price pressures that eventually reduces the overall price level with a significant lag. We also find an active asset price channel. The exchange rate channel is less significant by comparison.

Keywords: Monetary policy transmission; interest rate; vector auto-regression. (search for similar items in EconPapers)
JEL-codes: E50 E52 E58 (search for similar items in EconPapers)
Pages: 30 pages
Date: 2005-07
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (62)

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