Fiscal Disturbances and Inflation: Evidence from Pakistan

The objective of this research paper is to investigate the fiscal theory of price level in an open economy, like Pakistan. For empirical evidence, annually time series data from 1976 to 2015 has been used. While applying the ARDL approach the findings of the study reports that the intervention of the government is essential for the economy. Because when monetary policy in an open economy fails, the fiscal policy of the government reacts dynamically to influence the price level. So this study concludes that the government should focus on a fiscal policy that can control the double digit inflation rate and macroeconomic fluctuations in the economy.