The Affect of Political Instability and Inflation on Pakistan

1438 WordsFeb 1, 20186 Pages
This paper issued by the State Bank of Pakistan talks about the affect of Political Instability and Inflation on our country. Pakistan since independence has been a victim of political instability ranging from political dismissals, cabinet changes or assassinations. This instability has had an adverse affect on our policy formulation, implementation and effectiveness in terms of economic stabilization. Due to an unstable political environment we are unable to implement a set of consistent and coherent policies. This greatly affects the working of a government and reduces its ability to bear shocks which ultimately cause a macroeconomic disequilibrium such as inflation. The conventional view of political instability similar to the weak form Fiscal Theory Price Level is that it leads to high inflation due to governments’ reliance on seigneiorage. However, this relationship does not hold true for countries like Pakistan which are low or moderately inflated countries. In this circumstance the predictions of strong form FTPL are more relevant in which price level is determined irrespective of money growth. This is more pertinent when it is analyzed with the predictions of Political Economy of Macroeconomic policy which contextualizes the price level determination without money growth. However political instability is not considered to be a determinant for the calculation of inflation. Inflation is rather considered as a monetary phenomenon. In this paper, we study the effects of

More about The Affect of Political Instability and Inflation on Pakistan

Open Document