Impact of Interest Rate and Global Financial Crisis on Budget Deficit: A Transfer Function Analysis
Author: Nazish Mehboob

Fiscal budget is an important macroeconomic condition for every country. It allows country to maintain balance in the sectors and to reach the defined goals according to the planned budget. Unfortunately, since two decades, Pakistan has run a short of budget which lead Pakistan to the level that it borrow loans from the domestic and international sources. Government cannot repay the loan due to high interest payments and result is over debted government and deficit transmission to the forth coming years. This study investigates the impact of lending interest rate and global financial crisis on budget deficit in case of Pakistan by using transfer function model. Annual time series data from 1972 to 2015 on three variables namely budget deficit, lending interest rate and GDP have been used. This study found that in case of interest rate model, budget deficit is dependent upon third and fifth lag of interest rate and on its own second lag. While in case of structural break of global financial crisis, 26% variation in budget deficit is explained by the global phenomenon of financial crisis. Supervisor:- Dr. Abdul Qayyum

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Keywords : Budget Deficit, Crisis, Global Financial, Interest Rate
Supervisor: Abdul Qayyum

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