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Three Attempts at Inflation Forecasting in Pakistan

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  • Madhavi Bokil

    (University of California, USA.)

  • Axel Schimmelpfennig

    (Middle East and Central Asia Department of the International Monetary Fund.)

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    Abstract

    This paper presents three empirical approaches to forecasting inflation in Pakistan. The preferred approach is a leading indicators model in which broad money growth and private sector credit growth help forecast inflation. A univariate approach also yields reasonable forecasts, but seems less suited to capturing turning points. A vector autoregressive (VAR) model illustrates how monetary developments can be described by a Phillips-curve type relationship. We deal with potential parameter instability on account of fundamental changes in Pakistan’s economic system by restricting our sample to more recent observations. Gregorian and Islamic calendar seasonality are addressed by using 12-month moving averages.

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    Bibliographic Info

    Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

    Volume (Year): 45 (2006)
    Issue (Month): 3 ()
    Pages: 341-368

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    Handle: RePEc:pid:journl:v:45:y:2006:i:3:p:341-368

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    Keywords: Inflation; Forecasting; Pakistan;

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    1. Syed Muhammad Tariq & Kent Matthews, 1997. "The Demand for Simple-sum and Divisia Monetary Aggregates for Pakistan: A Cointegration Approach," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(3), pages 275-291.
    2. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
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