Causal Ordering Between Inflation and Productivity of Labor and Capital: An Empirical Approach for Pakistan
AbstractThis study attempts to analyze the causal relationship between inflation and productivity of labor and capital, in Pakistan’s economy by covering the period from 1960-M1 to 2007-M12. For this purpose Vector Autoregression (VAR) approach is used, which is based on error correction model (ECM). Using this approach we have showed the causal ordering between inflation and exchange rate management policy controlling for, monetary variables like broad money (M-2) and discount rate, which are endogenous in case of Pakistan. We considered the relationship of inflation with two measures of productivity (average and marginal productivity) of labor and capital controlling for capital labor ratio. The objective of this paper is to identify the relative importance of each of these inflation channels by generating Impulse Response Functions (IRFs) to confirm the response of a shock on a variable upon itself and other variables over the four years of time span. Our study concludes that there is a unidirectional causality from inflation to labor productivity through capital labor ratio. And also, there is bidirectional causality between inflation and capital productivity through capital labor ratio. And lastly each channel takes almost fifteen months (on average) for input productivities to affect or affected by inflation.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 16486.
Date of creation: 06 Aug 2009
Date of revision:
Productivity; Inflation; Vector Autoregression;
Find related papers by JEL classification:
- C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models
- B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
- C01 - Mathematical and Quantitative Methods - - General - - - Econometrics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2009-08-22 (All new papers)
- NEP-CWA-2009-08-22 (Central & Western Asia)
- NEP-MAC-2009-08-22 (Macroeconomics)
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Husain, Fazal & Mahmood, Tariq, 1998.
"Causality between Money and Prices:Evidence from Pakistan,"
2720, University Library of Munich, Germany.
- Fazal Husain & Tariq Mahmood, 1998. "Causality between Money and Prices: Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 37(4), pages 1155-1161.
- Husain, Fazal & Mahmood, Tariq, 1998. "Causality Between Money and Prices: Evidence from Pakistan," MPRA Paper 5021, University Library of Munich, Germany.
- Magda E. Kandil & Ida Aghdas Mirzaie, 2003. "The Effects of Exchange Rate Fluctuations on Output and Prices: Evidence from Developing Countries," IMF Working Papers 03/200, International Monetary Fund.
- Christopher F Baum & Sylvia Hristakeva, 2001. "DENTON: Stata module to interpolate a flow or stock series from low-frequency totals via proportional Denton method," Statistical Software Components S422501, Boston College Department of Economics, revised 12 Aug 2011.
- Fazal Husain & Kalbe Abbas, 2000. "Money, Income, Prices, and Causality in Pakistan. A Trivariate Analysis," PIDE-Working Papers 2000:178, Pakistan Institute of Development Economics.
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