THE OPTIMUM MONETARY PREDICTORS DETERMINING ECONOMIC GROWTH IN PAKISTAN

Abstract

This purpose of this paper is to investigate the optimum monetary predictors that determine economic
growth of Pakistan. Though a country may have mix of policy measure either fiscal or monetary but
this study is focused on finding out the best and optimum predictors among several of mix blend. GDP
growth rate is taken as dependent variable and Exchange Rate (EXR), Consumer Price Index (CPI),
Worker Remittances; (WR), Interest Rate (INT), M2 money supply, Government Bank Borrowing
(GBB) taken as independent variables. Secondary data has been used for analysis from 1980 to 2015.
Augmented Dickey-Fuller tested for stationary and all variables found stationary at first difference.
Multiple regression is followed as all the factors were found stationary at first difference. GBB and
M2 found insignificant and EXR, CPI, INT and WR found significant in determining GDP. R-Squared
found very strong. No sign of autocorrelation is found. This study is an addition to the literature of
monetary policy and its implications. Worker Remittance, CPI and Exchange rate are suppose to be
more in study because the theoretical basis and literature were proponent for M2, CPI GBB and FDI
as predictors for economic growth. The result of the study is somewhat interesting and need to be
researched more.