Abstract/Description

A significant body of literature explores and establishes the impact of monetary policy on output and prices, at least in the short run. However, the subsequent question is whether this effect is symmetric concerning the various states of the economy (see, Tenreyro and Thwaites, 2016; Bernstein, 2021; Eichenbaum et al., 2022; among others). This study contributes to the literature on state-dependent (non-linear) effects of unanticipated monetary policy shocks according to two important features of the economy. The amount of slack in the economy and the amount of the public-sector footprint in the market. Evaluating state-dependent effects is crucial because assuming symmetric effects under a different economic state for any policy action might not yield the expected results for policymakers. While substantial literature exists on this topic primarily focusing on the United States and other developed countries. However, this area remains largely unexplored in Pakistan. This study aims to address this gap by examining the asymmetric response of output to changes in monetary policy in Pakistan.

Keywords

Monetary policy, Asymmetry, Non-linearity

Location

S1 room, Adamjee building

Session Theme

Evolving Dynamics in Inflation, Monetary and Fiscal Policy

Session Type

Parallel Technical Session

Session Chair

Kalim Hyder, State Bank of Pakistan

Session Discussant

Ilfan Oh, Institute of Business Administration ; Karim Khan, Pakistan Institute of Development Economics

Start Date

10-12-2024 3:15 PM

End Date

10-12-2024 5:15 PM

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Dec 10th, 3:15 PM Dec 10th, 5:15 PM

Monetary Policy in Good Times and in Bad: Empirical Evidence from Pakistan

S1 room, Adamjee building

A significant body of literature explores and establishes the impact of monetary policy on output and prices, at least in the short run. However, the subsequent question is whether this effect is symmetric concerning the various states of the economy (see, Tenreyro and Thwaites, 2016; Bernstein, 2021; Eichenbaum et al., 2022; among others). This study contributes to the literature on state-dependent (non-linear) effects of unanticipated monetary policy shocks according to two important features of the economy. The amount of slack in the economy and the amount of the public-sector footprint in the market. Evaluating state-dependent effects is crucial because assuming symmetric effects under a different economic state for any policy action might not yield the expected results for policymakers. While substantial literature exists on this topic primarily focusing on the United States and other developed countries. However, this area remains largely unexplored in Pakistan. This study aims to address this gap by examining the asymmetric response of output to changes in monetary policy in Pakistan.