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SPECIFICATION
OF THE
MACROECONOMETRIC
MODEL
OF
PAKISTAN*
By
Dr. Hafiz A. Pasha, Shahid Kardar
and Muhammad Imran
*
All rights reserved. No part of the methodology may be reproduced, distributed, or transmitted in any form or by any means,
including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the
authors.
Authors: Dr. Hafiz A. Pasha, Shahid Kardar and Muhammad Imran 1 | Page
Specification of the Macroeconometric Model of Pakistan
List of Variables
Policy Variables
BCE Budgetary Current Expenditure
BDE Budgetary Development Expenditure
DENC Percentage Increase in Energy Cost
DMD Impact of Non-tariff Measures on Imports
EXR Exchange Rate
FEF Extent of Fiscal Effort through Additional Taxation
NTXR Non-Tax Revenue
RO Extent of Roll-over of Maturity of External Debt
RW Real Wage Rate
SIT Share of Indirect Taxes
STD Percentage of Financing of Debt by External Borrowing
SUBS Level of Subsidies
Exogenous Variables
GCP Growth Rate of Dollar Prices on Imported Capital Goods
GMP Growth Rate International Prices of Imports
GXP Growth Rate International Prices of Exports
IMF Level of Borrowing from IMF
NFI Net Factor Income from Abroad
POP Population
SBFI Secondary Income Account
WT World Import of Goods and Services
Endogenous Variables
S Changes in Stocks
BDG Budget Deficit
BDP Budget Deficit (as % of GDP)
CG Public Consumption Expenditure
CHED Change in External Debt
CP Private Consumption Expenditure
DDB Domestic Financing of Budget Deficit
DDRS Level of Domestic Debt
DFB External Financing of Budget Deficit
DFR$ Change in Foreign Exchange Reserves
DMS Change in Money Supply
DPED Rate of Inflation
ED$ Level of External Government Debt in US$
EDRS Level of External Government Debt in Rupees
EMP Employed Labor Force
FAS$ Balance in the Financial Account
FR$ Level of Foreign Exchange Reserves
GDE Government Debt (as % of GDP)
GDRS Total Government Debt
GPCI Per Capita Income Growth
IG Public Investment Expenditure
INTX Level of Indirect Taxes
INVR Level of Investment (as % of GDP)
IP Private Investment Expenditure
Authors: Dr. Hafiz A. Pasha, Shahid Kardar and Muhammad Imran 2 | Page
Specification of the Macroeconometric Model of Pakistan
Authors: Dr. Hafiz A. Pasha, Shahid Kardar and Muhammad Imran 3 | Page
Specification of the Macroeconometric Model of Pakistan
RATE OF INFLATION
1. Domestic Price Index:
Authors: Dr. Hafiz A. Pasha, Shahid Kardar and Muhammad Imran 4 | Page
Specification of the Macroeconometric Model of Pakistan
MONEY SUPPLY
1. Change in Money Supply:
𝐷𝑀𝑆 = 𝐹(𝑌𝑀, 𝑃𝐷, 𝐵𝐷𝐺, 𝑁𝐼𝑅)
2. Level of Money Supply:
𝑀𝑀 = 𝑀𝑀−1 + 𝐷𝑀𝑆
BUDGETARY POSITION
1. Tax Revenues:
𝑇𝑋𝑅 = 𝐹(𝑌𝑀, 𝑃𝐷, 𝑀, 𝑈𝑉𝐼𝑀, 𝐹𝐸𝐹 ∗ , 𝑇𝑋𝑅−1 )
2. Indirect Tax Revenues:
Authors: Dr. Hafiz A. Pasha, Shahid Kardar and Muhammad Imran 5 | Page
Specification of the Macroeconometric Model of Pakistan
Authors: Dr. Hafiz A. Pasha, Shahid Kardar and Muhammad Imran 6 | Page
Specification of the Macroeconometric Model of Pakistan
EMPLOYMENT
1. Level of Employment:
POVERTY
1. Growth Rate of Per Capita Income:
̅̅̅̅̅̅
𝑃𝑂𝑃
𝐺𝑃𝐶𝐼 = 𝑌𝐺𝑅 − ( − 1) × 100
𝑃𝑂𝑃−1
SUMMARY OF EQUATIONS
Module Number of Equations
GDP Size and Growth 10
Rate of Inflation 3
Level of Interest Rate 2
Money Supply 2
Level of Investment and Savings 2
Budgetary Position 12
Balance of Payments 12
Employment 1
Poverty 2
TOTAL 46
Authors: Dr. Hafiz A. Pasha, Shahid Kardar and Muhammad Imran 7 | Page