Relationship between Monetary Policy, Domestic Prices, Financial Development and Economic Growth: Evidence from Pakistan
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Keywords

Real Interest Rate
Exchange Rate
Broad Money Supply
Trade Openness
FDI Inflows
External Debt
Pakistan

How to Cite

Anam Bibi, Syed Tahir Hussain Shah, Syed Imran Rais, Khalid Zaman, Abdul Mansoor, & Shakira Ejaz. (2020). Relationship between Monetary Policy, Domestic Prices, Financial Development and Economic Growth: Evidence from Pakistan. Journal of Economic Info, 7(1), 11-25. https://doi.org/10.31580/jei.v7i1.1178

Abstract

The objective of the study is to examine the relationship between monetary policy, domestic prices, financial development and economic growth in a context of Pakistan by using a consistent time series data from 1980 to 2016. The results show that real interest rate increases exchange rate that negatively influenced on country’s economic growth, which confirmed that contractionary monetary policy is ineffective to stabilize country’s economic growth. The trade linearization policies hurt Pakistan’s economic growth, which invalidate the positive effect of globalization in developing countries. The inbound FDI has a positive impact on economic growth, whereas exchange rate and changes in price level both have a negative impact on inbound FDI in a country. The domestic saving rate substantially increases inbound FDI in a country. The positive impact of money supply on inflation confirmed the monetarist view of inflation, i.e., money supply leads to inflation. Thus, the overall conclusion confirmed the sound viability of expansionary monetary policy in a given country for sustained growth.

https://doi.org/10.31580/jei.v7i1.1178
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