Dynamic interactions of money, interest rate, prices, and real aggregate economic activity in selected SAARC countries.
Date
2002
Authors
Ahmed, Mudabber.
Journal Title
Journal ISSN
Volume Title
Publisher
Dalhousie University
Abstract
Description
This study investigates the dynamic interactions among key aggregate macro variables in three South Asian Association for Regional Cooperation (SAARC) countries, namely, Bangladesh, India, and Pakistan. In particular, several monetarist's hypotheses and relative strength of supply shocks and demand shocks are investigated. A related purpose has been to examine how well theoretical predictions of IS-LM model fit the developing countries data. Another objective has been to determine the role of key variables in the post financial liberalization era of the three countries as they adopted neo-liberal prescriptions for financial reform at the beginning of 1990s. Structural Vector Autoregressive (SVAR) models are estimated and the objectives are accomplished in three different ways: (i) by conducting bivariate, multivariate and block causality tests; (ii) by estimating variance decompositions and impulse response functions under the recursive and the non-recursive identification schemes; and (iii) by applying historical decomposition technique.
The results do not suggest a monocausal explanation of cyclical fluctuations. Neither the real business cycle view that focuses primarily on aggregate supply shock nor an extreme monetary view that focuses on monetary action is supported. Contribution of monetary policy to price and output movement depends on the identification strategy. While adoption of certain identification scheme produces puzzling dynamic effects, adoption of another scheme might help solve this problem. The dynamic properties of the estimated models support most of the theoretical predictions of IS-LM model. Contractionary monetary policy has a negative impact on output in all the three countries and for all the identification schemes adopted.
The results also suggest that monetary policy plays a leading role in determining price in all the three countries after they have adopted neo-liberal prescriptions for financial reform at the beginning of 1990s. Interest rate plays a major role in output determination in both Bangladesh and Pakistan while it does not play any role in India in the post liberalization period.
Thesis (Ph.D.)--Dalhousie University (Canada), 2002.
The results do not suggest a monocausal explanation of cyclical fluctuations. Neither the real business cycle view that focuses primarily on aggregate supply shock nor an extreme monetary view that focuses on monetary action is supported. Contribution of monetary policy to price and output movement depends on the identification strategy. While adoption of certain identification scheme produces puzzling dynamic effects, adoption of another scheme might help solve this problem. The dynamic properties of the estimated models support most of the theoretical predictions of IS-LM model. Contractionary monetary policy has a negative impact on output in all the three countries and for all the identification schemes adopted.
The results also suggest that monetary policy plays a leading role in determining price in all the three countries after they have adopted neo-liberal prescriptions for financial reform at the beginning of 1990s. Interest rate plays a major role in output determination in both Bangladesh and Pakistan while it does not play any role in India in the post liberalization period.
Thesis (Ph.D.)--Dalhousie University (Canada), 2002.
Keywords
Economics, General.