Impact of Monetary Policy on Private Investment: Evidence from Pakistan

Research Article

This study analyzes the impact of real discount rate, government investment and foreign direct investment on private investment in Pakistan by using annual time series data over the period of 1975-2015. The research used Augmented Dickey Fuller (ADF) unit root test, Johansen and Juuselieus's co-integration technique, Auto Regressive Distributed Lag (ARDL) bound testing model, Error Correction Model (ECM) and Causality Analysis to analyze the relationship. Results of ECM and cointegration analysis suggest that a significant negative short and long run relationship exists between private investment and real discounted rate of return. Whereas, causality analysis confirms the unidirectional causality exists between real discounted rate of return and private investment. It is recommended that government and monetary institution of Pakistan has to be very clear and careful while formulation monetary policy, especially with reference to enhance the private investment in the country.

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