The Relative Effectiveness of Monetary and Fiscal Policies on Economic Stability in Pakistan

Abstract

In this study the role of monetary and fiscal policies in economic stability of Pakistan is studied using time series data for the period 1973-2014. The objective of this study is to discover the ways by which fiscal and monetary policies can be established to boost economic growth and stability of price level in Pakistan. The Augmented Dickey Fuller unit root procedure is used to check the time series properties. The Autoregressive Distributed Lag Model technique is used to find the long-run relationship between fiscal /monetary policy and economic stability. The study concludes that the variable CIR1 is insignificant in the determination of price level in Pakistan and the variable GDE1 and the variable IDT1 are significant in the determination of price level in Pakistan. The increase in the variable GDE1 and the variable IDT1 will increase the price level in Pakistan. The study concludes that fiscal policy plays important role to the steadiness of domestic price level in Pakistan.