Real interest rate volatility in the Pakistani economy: A regime switching approach

Authors

Fahad Javed Malik, Monash University, AustraliaFollow
Mohammed Nishat, Institute of Business Administration, Karachi, Pakistan

Abstract

This paper assesses the volatility of short term real interest rates in Pakistan using the Markov switching model and drawing on monthly data from January 1964 to March 2016. This model holds that if a random walk pattern is not visible in the real interest rate series, fluctuations are temporary and the interest rate will eventually converge around the mean value. The results reveal that real interest rates in Pakistan have exhibited high volatility since 1973 due to high budget deficits and other sources of instability in the economy.

Keywords

Interest rate, volatility, Markov switching model

DOI

https://doi.org/10.54784/1990-6587.1041

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Recommended Citation

Malik, F. J., & Nishat, M. (2017). Real interest rate volatility in the Pakistani economy: A regime switching approach. Business Review, 12(2), 22-32. Retrieved from https://doi.org/10.54784/1990-6587.1041