Uncertainty in Fiscal and Monetary Policy and its Impact on Economic Growth: An Analysis from Pakistan

Uncertainty or shocks in macroeconomic policies have been a debated issue all over the world because these shocks severely influence the growth of economies. To analyze the impacts of these shocks in the context of Pakistan, the current study determined the role of fiscal and monetary policy uncertainty by taking the time series data for the period 1971-2020. In this regard, GARCH and ARDL cointegration model were applied. Empirical evidence revealed that in the long-run, fiscal uncertainty in terms of government expenditure positively affects the economy and monetary uncertainty in terms of money supply negatively affects the economy. While, in the short-run, uncertainty of both policies has a negative influence on the economic growth of Pakistan. The study also gauged other factors, such as, exchange rate, interest rate, and inflation with respect to their impact on economic growth. It was found that these factors positively and significantly sway growth in the long-run