The relationship of interest rate with macro-economic determinants: Pakistan’s evidence  

Oleh:

Gul, Sajid

Jenis: Article from Proceeding
Dalam koleksi: SIBR-Thammasat 2014 Conference on Interdisciplinary Business & Economics Research June 5th- 7th, 2014 di Emerald Hotel Bangkok, page 1-25.
Topik: interest rate; Money supply; Real Exchange rate.
Fulltext: b14-075.pdf (834.68KB)

Isi artikel

The study describes the relationship of interest rate (by taking Discount rate in interest rate-DR) with macro-economic determinants. For this purpose the study analyses quarterly time series of the relevant variables from 1998 quarter 1 to 2012 quarter 2. The study tests the proposed hypotheses using econometric models that are widely accepted and practiced in academic research in the areas of economics and finance. In the first place the study investigates that whether all-time series variables (interest rate and the set of Seven (7) macro-economic variables that are total Reserve less gold (TRLG), Inflation through whole sale price index (WSPI), unit value of Import (UVOIM), Unit value of Export (UVOEX), Manufacturing Production (MP), Real Exchange rate (REER) and Money supply (M2)) are stationary or not. Then the study investigates the multiple regression properties of the variables under investigation in multivariate form. According to the study results on full sample there is no signifying relationship among the selected variables, along with different sub-samples. Findings of the study show a relation between interest rate and real exchange rate, it explains that both interest rate and exchange rate can depend on each other. The finding explains the reliance of Discount rate and total reserve less gold on each other. Rises of total reserve less gold increases the discount rate and fall in reserves causes a decrease in the discount rate showing a direct relation between them. The findings of the study suggest that there is a long run relationship between Interest Rates and whole sale price index/inflation at 5 % level of significance. 10% level of significance in the relation between discount rate and exports is found in this study, this result explains a direct relation between interest rate and exports as they can rely on each other. The unit value of imports showed a significant relation with interest rate only once in the period of subsample.

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