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Testing Fiscal Dominance Hypothesis in a Structural VAR Specification for Pakistan

Testing Fiscal Dominance Hypothesis in a Structural VAR Specification for Pakistan AbstractThis research aims to test the fiscal dominance hypothesis for Pakistan through a bivariate structural vector auto regression (SVAR) specification, covering time period 1977 – 2016. This study employs real primary deficit (non interest government expenditures minus total revenues) and real primary liabilities (sum of monetary base and domestic public debt) as indicators of fiscal measures and monetary policy respectively. A structural VAR is retrieved both for entire sample period and four sub periods (1977 – 1986, 1987 – 1997, 1998 – 2008, and 2009 – 2016). This study identifies the presence of fiscal dominance for the entire sample period and the sub period from 1987 – 2008. The estimates reveal an interesting phenomenon that fiscal dominance is significant in the elected regimes and weaker in the presence of military regimes in Pakistan. From a policy perspective, this research suggests increased autonomy of central bank to achieve long term price stability and reduced administration costs to ensure efficient democratic regime in Pakistan. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Scientific Annals of Economics and Business de Gruyter

Testing Fiscal Dominance Hypothesis in a Structural VAR Specification for Pakistan

Scientific Annals of Economics and Business , Volume 65 (1): 13 – Mar 1, 2018

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Publisher
de Gruyter
Copyright
© 2018 Rozina Shaheen, published by De Gruyter Open
eISSN
2501-3165
DOI
10.2478/saeb-2018-0003
Publisher site
See Article on Publisher Site

Abstract

AbstractThis research aims to test the fiscal dominance hypothesis for Pakistan through a bivariate structural vector auto regression (SVAR) specification, covering time period 1977 – 2016. This study employs real primary deficit (non interest government expenditures minus total revenues) and real primary liabilities (sum of monetary base and domestic public debt) as indicators of fiscal measures and monetary policy respectively. A structural VAR is retrieved both for entire sample period and four sub periods (1977 – 1986, 1987 – 1997, 1998 – 2008, and 2009 – 2016). This study identifies the presence of fiscal dominance for the entire sample period and the sub period from 1987 – 2008. The estimates reveal an interesting phenomenon that fiscal dominance is significant in the elected regimes and weaker in the presence of military regimes in Pakistan. From a policy perspective, this research suggests increased autonomy of central bank to achieve long term price stability and reduced administration costs to ensure efficient democratic regime in Pakistan.

Journal

Scientific Annals of Economics and Businessde Gruyter

Published: Mar 1, 2018

References