Volatility of Monetary Policy in a Developing Economy : In Context of Pakistan

This study is to analyze the volatility of the monetary policy in less developed countries like Pakistan is carried out for the period of 37 years from 1971 to 2007. Different econometrics techniques are used i.e. unit root analysis, Johnson co integration technique & error correction mechanism for long run and short run association respectively. Further objective of this study is to examine some hypothesis of the MacKinnon model with reference to Pakistan's economy and scrutinize the instruments of monetary policy and determinants of money supply in Pakistan. The estimated results show that there is a long-run equilibrium association among variables but we didn't able to predict short run equilibrium in first three models except the last model which reflects that real rate of interest and real private investment significantly effect the real money demand in the long run. The empirical results show that time deposits and broad money have a less volatile behavior in case of Pakistan's economy and also explain that stock of money reserve causes a large portion of variation in money supply