Inflation in Pakistan

Pakistan development review 01/2006; 45(2):185-202.
Source: RePEc


This paper examines the factors that explain and help forecast inflation in Pakistan. A simple inflation model is specified that includes standard monetary variables (money supply, credit to the private sector), an activity variable, the interest and the exchange rates, as well as the wheat support price as a supply-side factor. The model is estimated for the period January 1998 to June 2005 on a monthly basis. The results indicate that monetary factors have played a dominant role in recent inflation, affecting inflation with a lag of about one year. Private sector credit growth and broad money growth are also good leading indicators of inflation which can be used to forecast future inflation developments.

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Available from: Axel Schimmelpfennig, Aug 19, 2014
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    • "The low income class people have very little option to save themselves from such regressive tax. And also cause the relative price changes and thus hinders for the optimal resource allocation (Khan & Schimmelpfennig, 2006). "
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    ABSTRACT: This study is going to examine the relationship among consumer price index (CPI), economic performance, and wheat support prices in order to determine the level of inflation in case of Pakistan. The analysis is made on the monthly time series data from January-1990 to December-2010. The CPI is used as an inflation indicator by taking the percentage change; the GDP is used as the growth variable for measuring economic performance. The ARDL technique had been used to investigate such relationship. The results derived by applying Wald Test suggest that there is a long run cointegrated relationship among the CPI, economic performance and wheat support price. In the short run, the wheat price does affect the inflation. The causality test results show that there is only unidirectional causality between wheat price and rate of inflation. In the end, it is suggested that the tight monetary policy is the not the solution of problem in order to control inflation, on other hand fiscal policy is also contributing in inflation.
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    • "Independent: M2, real GDP, import price M2 is insignificant Akbari and Rankaduwa (2006) 1982-2004 Dependent: CPI, WPI. Independent: exchange rate, foreign price, M2, large scale manufacturing index M2 is inelastic Khan and Schimmelpfennig (2006) 1998-2005 (monthly) Dependent: CPI inflation. Independent: M2, "
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    ABSTRACT: The objective of this study is to evaluate monetary targeting strategy in Pakistan by testing the Quantity Theory of Money and the income velocity of money stated by Monetarists and the endogenous money hypothesis postulated by the Post Keynesians. Our tests on the Pakistani data covering about thirty years reveal that the quantity theory is an inadequate explanation of inflation, income velocity of money is unstable, and money is endogenous. These results suggest rethinking on monetary targeting strategy in Pakistan.
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    ABSTRACT: This paper is an attempt to contribute to the ongoing debate: should central bank of Pakistan adopt inflation targeting or continue with the monetary targeting as a monetary policy strategy? A pre-requisite for monetary targeting strategy is a stable money demand function, which in turn requires stability in velocity. Instability in velocity on the other hand is believed to stem from the volatility of the interest rate. The paper explores the stability of velocity of money in Pakistan. The results show that the base and broad money velocities are independent of the interest rate fluctuations. It is also found that all the three velocities (with respect to M0, M1, and M2) have stable relationship with their determinants. These findings validate use of monetary aggregates as nominal anchor.
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