External Monetary Constraints Imposed by Developed Economies on Developing Economies: Empirical
Journal Title: International Journal of Business and Applied Social Science - Year 2019, Vol 5, Issue 8
Abstract
The problem with the most of the developing economies is that their monetary policy is constrained by external shocks and developed economies central banks especially FED and ECB. In this research, we examine the effects of major external shocks like global oil price shocks, foreign interest rate shocks and global food price shocks on the major macro variables of Pakistan which creating hurdles for the SBP to achieve its monetary policy objectives independently. The results stating that the global oil priceand global food price shocks have direct impacts on the major macro variables of Pakistan and put inflationary pressure on the Pakistan economy which making difficultfor the central bank to achieve its predetermined dual objective of monetary policy i.e.full employment and stable inflation. Additionally, we examine how the changes in US monetary policy effects Pakistan economy and find that positive foreign interest rate shock hasminor impacts on the major macro variables of Pakistan except forthe exchange rate and domestic inflation rates which is also imposing an external constraint on the monetary policymaking process of Pakistan central bank. In a nutshell, all these external shocks are creating hurdles and imposing monetary constraints on the Pakistan which making difficulties for Pakistani central bank to achieve its monetary policy objectives.
Authors and Affiliations
Muhammad Ali Rizwan, Muhammad Zeeshan Younas, Hafiza Sadaf Zahra
Keywords
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- EP ID EP625598
- DOI 10.33642/ijbass.v5n8p2
- Views 160
- Downloads 0
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