The Impact of Monetary Policy on Consumption and Investment: Evidence from Pakistan
Author: Kazam Raza

The present thesis highlights the analysis of Pakistan’s monetary policy transmission channels i.e. interest rate, consumer price index, exchange rate to consumption and investment. The annual data of all variables included monetary and macroeconomic variables were taken from 1977-2019. To investigate the internal relationship i.e. relationship between short run and long run monetary policy and macroeconomic variables, this study has used VAR (impulse response function), Vector Error Correction Model (VECM) and Johansen and Julius test with respect to I(1) order of all included variables in the model. The results show that interest rate and consumer price index on gross fixed capital formation having negative relationship for whole system including IRFs and VECM model. Also, consumption in comparison with GDP shows highly significant and positive relationship because the relationship between income and expenditure is often called a consumption schedule. Moreover, the results show that monetary variables contribute the greatest impact on consumption and investment. Finally, we also found that, the impact of monetary policy on consumption and investment varies over time. Supervisor:- Dr. Farhat Mehmood Co-Supervisor:- Dr. Hafsa Hina

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Supervisor: Farhat Mahmood

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