Asymmetric Effects Of Monetary Policy In Pakistan: Lstvar Approach
Author: Neelum Zobia

This study investigates the asymmetries in the effects of monetary policy on output and inflation in case of Pakistan using nonlinear VAR framework. Employing quarterly data of money supply, output and prices from 1975Q1 to 2012Q4 in Logistics Smooth Transition Vector Auto Regression (LSTVAR) model; all three types of asymmetries are tested. The impulse response analysis provides some evidence for asymmetric effects of large sized positive and negative monetary policy shocks. Expansionary monetary policy shocks have stronger effects on prices while contractionary monetary policy shocks have stronger effects on output. Large sized money supply shocks have greater effects on prices and output as compared to small sized shocks. Similarly when initial state of the economy is low growth, then the monetary policy shock has more output effect while with that of high growth state, it is more effective for prices. Similarly when the economy is in falling inflation periods, the effects of monetary policy shock on prices are more pronounced as compared to that with initially rising inflation periods. The results provide some support for the view that aggregate supply curve is convex. The empirical analysis indicates that policy makers should consider these nonlinearities in monetary policy transmission, since in the presence of these asymmetries, any action based on the assumption of linearity of system may lead to the undesirable outcomes. Supervisor:- Dr. Wasim Shahid Malik

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Keywords : Asymmetric Effects, Lstvar Approach, MONETARY POLICY, Pakistan
Supervisor: Wasim Shahid Malik

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