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Terms-of-Trade Volatility and Inflation in Pakistan

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  • Kiran Ijaz

    ()
    (Graduate student, Allama Iqbal Open University, Islamabad, Pakistan.)

  • Muhammad Zakaria

    ()
    (Assistant Professor, COMSATS Institute of Information Technology, Islamabad, Pakistan)

  • Bashir A. Fida

    ()
    (Assistant Professor, Modern College of Business and Science, Muscat, Oman.)

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    Abstract

    This empirical study examines the effects of terms-of-trade (TOT) volatility on inflation in Pakistan, using annual data for the period 1972 to 2012. The results show that TOT volatility has a significant negative effect on inflation in Pakistan. This result is robust to alternative equation specifications and TOT volatility measures. Output growth has a negative effect on inflation while foreign export prices have a positive effect on inflation. Both the depreciation of the nominal exchange rate and money supply increase the inflation rate. The fiscal deficit and world oil prices are also found to increase domestic inflation.

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    Bibliographic Info

    Article provided by Department of Economics, The Lahore School of Economics in its journal Lahore Journal of Economics.

    Volume (Year): 19 (2014)
    Issue (Month): 1 (Jan-June)
    Pages: 111-132

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    Handle: RePEc:lje:journl:v:19:y:2014:i:1:p:111-132

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    Related research

    Keywords: Terms of trade; inflation; Pakistan. markets; forecasting; exchange rate volatility; Pakistan.;

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