Reassessing Non-linearity in the Monetary Policy of Pakistan: Using Smooth Transition Regression Model
DOI:
https://doi.org/10.59926/jodprp.vol10/2026/6%20%20%20%20%20%20%20%20Keywords:
Non-linear Monetary Policy, Smooth Transition Regression Model, STR, Taylor Rule, Monetary Policy of PakistanAbstract
This study examines whether monetary policy in Pakistan responds in the same way under different economic conditions or changes when the economy moves between weak and stronger activity. Quarterly data from 1995 to 2020 are analysed through an extended Taylor Rule and a Smooth Transition Regression framework. The results show two policy regimes. When the output gap is below the estimated threshold, inflation receives greater attention from the monetary authority. When the output gap is above the threshold, the response to output conditions becomes stronger. The findings indicate that the State Bank of Pakistan’s policy response is not fully symmetric and varies with the state of the economy.
JEL Classification Codes: E52, E58, C22
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Copyright (c) 2026 Dr Hasan Shahzad, Umar Shahzad, Dr Abdul Saboor
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