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Title Impact of Fiscal Policy on Output Gap: A Case Study of Pakistan

Author(s) Mr. Farhan Yasin

Abstract This preliminary study characterizes the dynamic effects of fiscal policy shocks on output gap (i.e. the difference between actual and potential output) in Pakistan and attempts to measure output gap using the production function approach. The contribution of this study to understand the nature of the fiscal policy variables and their impact on output gap in Pakistan over the short and long run. It employs a five variables Structural Vector Auto Regression model covering the time period 1975-2015. The identification problem of SVAR model is handled using the two approaches that is, the recursive approach also known as Cholesky decomposition and identification approach of Blanchard and Perotti. Interestingly this study suggests that impulse responses through both identification approaches behave in a similar fashion. Since the Blanchard and Perroti approach uses information about the elasticity of fiscal variables to economic activity which enables to identify the automatic response of fiscal policy, this study reveals a significant role of both the government expenditure and taxes in explaining the changes in output gap and in case of inflation study observed that Pakistan economy has been observing varying episodes of excess supply and demand pressures. The study recommended that government spending should be made to increase in the time of recession. Keyword: Output gap, Fiscal policy and Structural Vector Auto Regressive Model

Type Thesis/Dissertation MS

Faculty Management Sciences

Department Economics

Language English

Publication Date 2019-09-26

Subject Economics

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Name	Timestamp	Action
a6ee6b496a.pdf	2019-11-28 12:01:20	Download