This study aims to draw a policy
decision between public
investment and public consumption by designing a
Dynamic Stochastic General Equilibrium (DSGE)
model for the economy of Pakistan which is
experiencing persistent shocks that have stressed
the growth pattern. The DSGE model has a
microeconomic foundation and justifies locus
critics by envisioning an artificial economy. The
model is evaluated and set to best fit for data
through an exercise of moment matching.
Government consumption shocks and Government
Investment shocks are used to trace out the
behaviour of the economy. The analysis confirms
that Pakistan economy could go for capital
formation through public investment but it results
in compromised public consumption and structural
unemployment. It is further concluded that the
export base and long-run public investment
programs are needed to achieve sustainable
development in the economy.
1-Muhammad Raashid PhD Scholar, Pir Mehr Ali Shah Arid Agriculture University Rawalpindi, Punjab, Pakistan. 2-Abdul Saboor Dean, Faculty of Social Sciences, Pir Mehr Ali Shah Arid Agriculture University Rawalpindi, Punjab, Pakistan 3-Aneela Afzal Assistant Professor, Department of Sociology, Pir Mehr Ali Shah, Arid Agriculture University, Rawalpindi, Punjab, Pakistan.
Fiscal Policy, Analysis, Public Investment, Consumption, DSGE model.