The asymmetric effects of fiscal and monetary policy instruments on Pakistan's environmental pollution

Maintaining a balance between environmental quality and economic growth is now one of the common goals of fiscal and monetary policies in developed and developing economies. This study examines the asymmetric impacts of fiscal and monetary policy instruments on environmental pollution in Pakistan over the period 1985-2019 by employing the asymmetric or nonlinear autoregressive distributed lag (NARDL) framework. The outcomes indicate that in Pakistan, a positive and negative shock in fiscal policy instruments has a significant increasing influence on carbon emissions in the short run, while a positive and negative shock in fiscal policy instruments has a significant decreasing impact on environmental pollution in long run. However, negative and positive shock in monetary policy instruments enhances carbon emissions in short-run, whereas positive shock in monetary policy instruments decreases carbon emissions in the long run. Therefore, the policymakers may consider the usage of fiscal and monetary policy instruments to maintain economic growth along with lowering the environmental pollution.

Automated summary

This study in Pakistan finds that the impacts of different fiscal and monetary policy instruments vary, with positive and negative shocks in fiscal policy affecting carbon emissions differently in the short and long run, and positive shocks in monetary policy having a contradictory effect in terms of carbon emissions over time. Policymakers should consider utilizing both types of policy instruments to balance economic growth and environmental protection.