Impact of Capital Movements on Sterilization and Monetary Policies in Pakistan: Evidence from Multiple Specifications
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Khushik, Ali Gul [1]
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[1] University of Sindh
University of Sindh
Pakistán
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- Localización: Estudios de economía aplicada, ISSN 1133-3197, ISSN-e 1697-5731, Vol. 39, Nº 3, 2021 (Ejemplar dedicado a: SUSTAINABLE ECONOMICS)
- Idioma: inglés
- Texto completo no disponible (Saber más ...)
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Resumen
This paper aims at evaluating the effectiveness of central bank of Pakistan’s sterilization policy to neutralize the impact of capital movements on domestic monetary conditions. We also estimate how the sterilization efforts are frustrated/offset by fresh capital inflows. Sterilization coefficient and offset coefficients are estimated through Monetary Policy Reaction Function and Capital Flow Equation respectively. To check robustness of our results, we apply three different econometric techniques including Vector Error Correction Method, Two Staged Least Squares and Generalized Method of Moments. Using monthly data, we use one full sample: from 1982M1 to 2018M12 and two subsamples: i.e. from 1982M1 to 2001M09 and from 2001M10 to 2018M12. The results from the two equations from all specifications show that sterilization coefficients are relatively smaller than the offset coefficients implying that it is difficult for Pakistan to sterilize the impact of foreign capital inflows on domestic money base. Larger offset coefficients, on the other hand, particularly for the second subsample, indicate that Pakistan cannot conduct independent monetary policy under the free float exchange rate regime adopted in 2000. Our results from both equations are robust to all specifications and for all samples and subsamples. Major implication of our finding is that Pakistan cannot conduct independent monetary policy in after resorting to free float exchange rate regime.
