Over the time period, the structure of the economy does not remain same. This study examines the interaction between economic growth and its determinants for Pakistan. Since fixed parameter approaches do not take into account effect of structural changes on parameter constancy, the study employs Kalman Filter based time-varying parameter approach for the empirical analysis. Result shows significant effect of inflation, gross fixed capital formation, gross national expenditures and remittances received on economic growth of the country. However, the effect of significant macroeconomic determinants on growth process of the country is not constant but time-varying.
Key words: Kalman Filter, Rolling Regression, Inflation, Economic Growth.