Determining nexus between monetary policy transmission channels and GDP of Pakistan

Abstract

The purpose of this research is to analyze long run and short run relationship of monetary policy transmission channels with GDP of Pakistan and research contains four channels that are mentioned in SBP and variables representing those channels are. Exchange rate, imports, interest rate, SBP advances and KSE 100 index which are independent variables and the GDP is taken for output as dependent variable and annual data from 1991-2017 is used. The results shows that there is co-integration among variables and therefore VECM was applied which shows significant long run relationship of independent variables with GDP as well as there is short run relationship with GDP, also exchange rate is very volatile with GDP. Further model specification is also used and results are meeting with assumptions of econometrics