Research ArticleOpen AccessGoogle Scholar indexed
Fiscal Imbalances and Interest Rate Change in Pakistan: A Co-Integration Analysis
M.Sc (Hons) Development Economics, Institute of Agricultural and Resource Economics, University of Agricul-ture Faisalabad, Faisalabad, Pakistan
Institute of Agricultural and Resource Economics, University of Agriculture Faisalabad, Faisalabad, Pakistan
Department of Economics & Agricultural Economics, PMAS-Arid Agriculture University, Rawalpindi, Pakistan
Department of Business Administration, National Textile University, Faisalabad, Pakistan
Department of Business Administration, National Textile University, Faisalabad, Pakistan
Department of Business Administration, National Textile University, Faisalabad, Pakistan
- 1 M.Sc (Hons) Development Economics, Institute of Agricultural and Resource Economics, University of Agricul-ture Faisalabad, Faisalabad, Pakistan
- 2 Institute of Agricultural and Resource Economics, University of Agriculture Faisalabad, Faisalabad, Pakistan
- 3 Department of Economics & Agricultural Economics, PMAS-Arid Agriculture University, Rawalpindi, Pakistan
- 4 Department of Business Administration, National Textile University, Faisalabad, Pakistan
- 5 Department of Business Administration, National Textile University, Faisalabad, Pakistan
- 6 Department of Business Administration, National Textile University, Faisalabad, Pakistan
Theoretical Economics Letters·Volume 05 (2015)·Pages 616–623·Published 28 September 2015·DOI10.4236/tel.2015.55072
Copy link · social · email
Abstract
The study investigated the relationship among fiscal deficit, public debt, inflation, international interest rates and the interest rate change in Pakistan using time series data for the period 1981-2011. Augmented Dickey Fuller Unit root test was used to check stationarity of time series data. The study employed co-integration approach to check the long-run relationship among variables. The findings of the study showed a positive and significant relationship between explanatory variables and interest rate change. The study suggested that the fiscal deficit, public debt and double digit inflation should be controlled in order to decrease the interest rate and interest rate fluctuation in Pakistan.
KeywordsInterest RateCo-IntegrationPakistan
- Gigineishvili, N. (2011) Determinants of Interest Rate Pass-Through: Do Macroeconomic Conditions and Financial Market Structure Matter? IMF Working Paper No. 11, African Department, 176.
- Bonga-Bonga, L. (2011) Budget Deficit and Long-Term Interest Rates in South Africa. African Journal of Business Management, 6, 3954-3961.
- ADB (2004) Pakistan Economic Update (July 2003-June 2004). Asian Development Bank, Mandaluyong.
- Cohen, D. and Garnier, O. (1991) The Impact of Forecasts of Budget Deficits on Interest Rates in the United States and Other G-7 Countries, Federal Reserve Board.
- Canzoneri, M.B., Cumby, R.E. and Diba, B.T. (2002) Should the European Central Bank and the Federal Reserve Be Concerned about Fiscal Policy? Federal Reserve Bank of Kansas City, 333-389.
- Laubauch, T. (2003) New Evidence on the Interest Rate Effects of Budget Deficits and Debt. Board of Governors of the Federal Reserve System.
- Gale, W.G. and Orszag, P.R. (2003) Economic Effects of Sustained Budget Deficits. National Tax Journal, 56, 463-485. http://dx.doi.org/10.17310/ntj.2003.3.02
- Bashir, R. (2004) Pakistan’s Fiscal Deficit.
- Dai, Q. and T. Philippon. (2004) Government Deficits and Interest Rates: A No-Arbitrage Structural VAR Approach. New York University, New York.
- Kameda, K. (2008) Budget Deficits, Government Debt and Interest Rates in Japan: An Analysis Using Published Budgetary Forecasts. Kwansei Gakuin University, Nishinomiya.
- Engen, E. and Hubbard, G. (2004) Federal Government Debt and Interest Rates. American Enterprise Institute, Working Paper No. 105, Washington DC.
- Shapiro, M.D. (2005) Federal Government Debt and Interest Rates. NBER Macroeconomics Annual, 19, 83-160.
- Gosselin, M.A. and Lalonde, R. (2005) MUSE: The Bank of Canada’s New Projection Model of United States Economy. Bank of Canada Technical Report No. 6.
- Utami, S.T. and Inanga, E.L. (2009) Exchange Rates, Interest Rates, and Inflation Rates in Indonesia: The International Fisher Effect Theory. International Research Journal of Finance and Economics, 26, 151-169. http://www.eurojournals. com/finance.htm
- Brzezina, M.B. (2002) The Relationship between Real Interest Rates and Inflation. National Bank of Poland Working Papers 23, National Bank of Poland, Economic Institute.