Pakistan Institute of Development Economics

THE PAKISTAN DEVELOPMENT REVIEW 

Growth Effects of Fiscal and Monetary Policies in Pakistan

Empirical indication on the growth effectiveness of monetary and fiscal policies is still debatable. Hence, this study aims to investigate this inconclusiveness by illustrating depictions by two major schools of thought in economics that is Keynesian and Monetarists. To meet the objective we have empirically estimated both short run and long run dynamics of fiscal and monetary policies. The Johansson and Juselius (1990) approach of co-integration in a VECM setting is used for empirical analysis, which is based on time series data over the period of 1972 to 2015. The results of Trace test and Maximum Eigenvalue validate the existence of cointegration among fiscal policy, monetary policy and economic growth in case of Pakistan. The result of impulse response function shows that both fiscal and monetary policies positively affect the growth of GDP per capita in the long run.

Muhammad Usman And Miraj-ul-haq

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