The effects of the Taliban returning to Afghanistan and its effects on the monetary and fiscal policies of the country.

Abstract

This paper speaks about the effects of the Taliban returning to Afghanistan and its effects on the monetary and fiscal
policies of the country. This paper provides adequate background information and context by talking about the
historical overview of Afghanistan which includes the social, cultural, and geographical history. Consequently, it
also exhibits the reasons that caused the Taliban to take over the country with reference to the U.S.A, 9/11 attacks
and finally the return of U.S.A troops from Afghanistan in 2021. This paper then explains the meaning of monetary
and fiscal policy while enumerating the roles and tools of the policies and the functioning. It then compares the
monetary and fiscal policy of Afghanistan before and after Taliban’s takeover due to the lack of official data and
literature, this paper also proposes to first estimate a Taylor rule for the central bank of Afghanistan prior to the
Taliban’s takeover and then predict the central bank’s reaction function to current output and inflation. A
comparison between interest rates and current interest rates sheds more light on the impact of the Taliban over
monetary policy. Finally, the paper presents a macro snapshot, acting as a comparative study between the inflation
of Afghanistan and its neighbours.