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Real interest rate volatility in the Pakistani economy: A regime switching approach

Author

Listed:
  • Fahad Javed Malik

    (Monash University)

  • Mohammad Nishat

    (Institute of Business Administration, Karachi)

Abstract

This paper assesses the volatility of short term real interest rates in Pakistan using the Markov switching model and drawing on monthly data from January 1964 to March 2016. This model holds that if a random walk pattern is not visible in the real interest rate series, fluctuations are temporary and the interest rate will eventually converge around the mean value. The results reveal that real interest rates in Pakistan have exhibited high volatility since 1973 due to high budget deficits and other sources of instability in the economy.

Suggested Citation

  • Fahad Javed Malik & Mohammad Nishat, 2017. "Real interest rate volatility in the Pakistani economy: A regime switching approach," Business Review, School of Economics and Social Sciences, IBA Karachi, vol. 12(2), pages 22-32, July-Dece.
    • Handle: RePEc:aho:journl:v:12:y:2017:i:2:p:22-32
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    File URL: https://businessreview.iba.edu.pk/articles/VolatilityRealInterestRateUpdated.pdf
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    Cited by:

    1. Waqas Mehmood & Rasidah Mohd-Rashid & Abd Halim Ahmad, 2023. "The Variability of IPO Issuance: Evidence from Pakistan Stock Exchange," Global Business Review, International Management Institute, vol. 24(5), pages 1025-1040, October.
    2. Emel Siklar & Ilyas Siklar, 2021. "Time Series Dynamics of Short Term Interest Rates in Turkey," Business and Economic Research, Macrothink Institute, vol. 11(1), pages 92-108, March.

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