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Dynamics of inflation and inflation uncertainty in Pakistan

Author

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  • Kashif Munir
  • Nimra Riaz

Abstract

This study analyses the dynamics of inflation and inflation uncertainty in Pakistan, while inflation has been disaggregated into food inflation and non-food inflation from July 1998 to March 2018. The study follows two step procedure, an ARMA-GARCH model is used in the first step with the generated conditional variance used as measure of inflation uncertainty, while Granger causality test is performed in the second step to find the relationship between the variables. Mean equation of inflation, food inflation, and non-food inflation show that past inflation has significant effect on current inflation, while variance equation shows high persistence of inflation. Unidirectional causality exists from inflation to inflation uncertainty as well as from food inflation to food inflation uncertainty and supports the Friedman-Ball hypothesis. Monetary authorities have to adopt price stability as the primary objective, while core inflation has to be taken as a target of monetary policy, instead of headline inflation.

Suggested Citation

  • Kashif Munir & Nimra Riaz, 2020. "Dynamics of inflation and inflation uncertainty in Pakistan," International Journal of Monetary Economics and Finance, Inderscience Enterprises Ltd, vol. 13(2), pages 130-145.
    • Handle: RePEc:ids:ijmefi:v:13:y:2020:i:2:p:130-145
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    Cited by:

    1. Abdul Qahar KHATIR & Burcu GÜVENEKAuthor-Name: Fatih MANGIR, 2021. "The Relationship between Inflation and Inflation Uncertainty: Empirical Evidence from Turkey," Journal of Academic Value Studies, Journal of Academic Value Studies, vol. 6(4), pages 331-340, Month: Fe.

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