سیاست های پولی قوانین برای یک کشور در حال توسعه: شواهد از پاکستان

This paper estimates forward-looking monetary policy rules to examine the interest rate setting behavior of the State Bank of Pakistan. Considering the external constraints on monetary policy, core inflation and a country-specific measure of the output gap, we demonstrate that the State Bank of Pakistan reacts to changes in inflation, the output gap and the federal funds rate.

Following the seminal work by Taylor (1993), considerable research has been done to establish the extent to which a monetary policy rule can explain the dynamics of policy rates. Since the end of the 1990s, the analysis of monetary policy rules in developing countries has become increasingly important after economic reforms and subsequent transitions to new policy regimes. However, these countries have specific characteristics that differ from those of developed countries. Monetary policies in developing countries are influenced by the world's major central banks, i.e., the Federal Reserve Bank, the European Central Bank and the Bank of Japan. Due to the existence of external constraints, central banks in developing countries stabilize exchange rates. Hence, the analysis of monetary policy rules in these countries requires a model specification different from that of developed countries. Monetary policy rules estimated for developing countries are typically based on the assumption that the length of their business cycles is comparable to that in developed countries. However, business cycles are much shorter in developing countries than in developed countries (Rand & Tarp, 2002). Previous empirical studies concerning monetary policy rules used headline inflation to examine the interest rate setting behavior of central banks. According to these policy rules, a central bank that seeks to stabilize inflation will increase its policy rate in response to a rise in inflation regardless of whether this rise is temporary or permanent. However, in reality central banks do not react to a temporary rise in inflation. Since the beginning of the 1990s, the State Bank of Pakistan, has undergone various reforms. In the post-reform period, the monetary policy framework was characterized by a transition from direct instruments to indirect instruments. The Bank was empowered to formulate and conduct an independent monetary policy. Since the above-mentioned issues are not considered by previous studies on monetary policy rules in developing countries,1 this paper takes these observations into account and provides a comprehensive empirical analysis of monetary policy rules in Pakistan. In this paper, we propose a forward looking monetary policy rule for Pakistan consisting of core inflation, a country-specific measure of the output gap, and the federal funds rate. We review the previous work on monetary policy rules in the next section. In Section 3, we propose forward-looking monetary policy rules for Pakistan. We describe the estimation methodology and data selection in Section 4 and present our empirical evidence on different specifications of monetary policy rules in Section 5. We set out our conclusions in Section 6.

The existence of external constraints on monetary policy in developing countries requires a model specification different from that of developed countries. This paper provides an empirical analysis of monetary policy rules for Pakistan. We propose a forward-looking monetary policy rule for Pakistan consisting of core inflation, the country-specific measure of the output gap and the US federal funds rate. We estimate two measures of core inflation: the ex food and energy CPI and the Structural VAR measure of core inflation. The output gap is estimated by taking into account the length of the country's business cycle. We use the Generalized Method of Moments to estimate forward-looking monetary policy rules for Pakistan. Our results suggest that simple Taylor rules do not explain the interest rate setting behavior of the State Bank of Pakistan. A monetary policy rule consisting of the Structural VAR measure of core inflation, the country-specific output gap and the federal funds rate provides a theoretically more appealing description of the dynamics of interest rate setting than any other specification. We find evidence that the State Bank stabilizes both inflation and the output gap. The empirical results suggest that the State Bank of Pakistan is heavily influenced by the US Fed's monetary policy. This analysis has important theoretical and policy implications. First, Pakistan's monetary policy is constrained by the Fed's monetary policy. The State Bank of Pakistan intervenes in the foreign exchange market to stabilize the exchange rate. The Pak rupee seems to be loosely pegged to the US dollar. Hence, an analysis of Pakistan's monetary policy requires the inclusion of the federal funds rate in the reaction function of the State Bank of Pakistan. Second, monthly variations in headline inflation contain noisy components. In this situation, a core inflation measure provides a reasonable specification of the dynamics of policy rates. Third, business cycles in developing countries are much shorter than those in developed countries. Therefore, the analysis of the interest rate setting behavior of a central bank in a developing country must take that country's business cycle length into account.