EQUILIBRIUM VERSUS DISEQUILIBRIUM THEORIES OF BUSINESS CYCLES: Evidence from Pakistan Economy

This paper tests the Keynesian, monetary and real business cycle theories using annual data from Pakistan covering period 1953-2004. An error-correction equation to explain inflation is presented that passes the Chow test for parameter stability and fits the data well. Based on this error- correctio...

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Veröffentlicht in:Pakistan economic and social review 2005-07, Vol.43 (1), p.1-20
Hauptverfasser: CHAUDHARY, MUHAMMAD ASLAM, CHOUDHARY, MUNIR A. S., EJAZ, MEHAK
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Sprache:eng
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Zusammenfassung:This paper tests the Keynesian, monetary and real business cycle theories using annual data from Pakistan covering period 1953-2004. An error-correction equation to explain inflation is presented that passes the Chow test for parameter stability and fits the data well. Based on this error- correction equation a vector error correction model is estimated to provide evidence on the dynamics between prices, money, interest rates and real output. Variance decomposition and impulse responses from this vector-error correction model support the disequilibrium (Keynesian) business cycle theory which claims that effects of monetary shocks on real output do not die down quickly.
ISSN:1011-002X