In Pakistan, there is balance of trade constraint, so we go to IMF and those money generate political
business cycle.
In Pakistan, there is discretionary fiscal policy present which made through deliberation i.e. required
proper planning, budgeting and then approval from parliament. Currently Pakistan faces recession, so
Pakistani government increases its expenditures, recently during covid-19 situation, government
distribute Rs.12000 among poor through their ehsas program. Also they cut off taxes. One problem in
this situation is this that government forces private sector to come in construction sector to lead. In this
situation every private company hesitate to invest so government should lead this.
Interest rate targeting is done by the central bank in order to stabilize the economic conditions under
monetary policy. Central bank reduces interest rate in recession to spur economic output in short run to
increase aggregate demand. Through managing aggregate demand, central bank try low inflation and
reduce unemployment. State bank of Pakistan is doing the same in the situation of covid 19 , reduce
interest rate to 9%.
Recognition Lag:
This is applicable to both fiscal and monetary policies. This is dependent on data. It requires GDP data,
then their documentation, their interpretation. For example the recession occurs in two quarters of
year, suppose recession occurs in February, but it is not recognize at that moment. There is data
collection process and after two quarters, recession recognized in data. In Pakistan the situation is
worse, it recognize after 1 year data collection.
Implementation Lag:
Slow in case of fiscal policy. It takes lot of time to imply because there is planning, budgeting and
approval from parliament involves in this process. So this process takes time to imply.
Response Lag:
Slow transmission mechanism of monetary policy. After implementation there is time needed to come