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Intrinsic Inflation Persistence in a Developing Country

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  • Hanif, Muhamad Nadim
  • Malik, Muhamad Jahanzeb
  • Iqbal, Javed

Abstract

This study estimates degree of intrinsic inflation persistence in Pakistan using aggregate price index, group level price indices, and individual commodity prices. We find no evidence of a unit root in (MoM) inflation at any level, except for house rent. Using monthly data from 1959 to 2011 we find that the estimate of (overall) inflation persistence is 0.16, which is low but significant. During 2001-2011 (overall) inflation persistence is insignificant. Food inflation does not exhibit any persistence during the last decade. However, the degree of persistence is very high (0.80) and significant for core inflation (NFNE), which weakens slightly (to 0.69) when we account for commodities price shock of 2008. At micro level, the estimated degree of inflation persistence for various groups is found to be relatively higher, in almost 60 percent of the cases, compared to corresponding degree of persistence at aggregate level. This may be because in micro analysis we consider only those commodities for which the estimated degree of inflation persistence is significant.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43152.

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Date of creation: 01 Jun 2012
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Handle: RePEc:pra:mprapa:43152

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Keywords: Persistence; Inflation; Food Inflation; Core Inflation;

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  1. Bilke, L., 2005. "Break in the Mean and Persistence of Inflation: a Sectoral Analysis of French CPI," Working papers, Banque de France 122, Banque de France.
  2. Choudhary, M. Ali & Naeem, Saima & Faheem, Abdul & Hanif, Nadim & Pasha, Farooq, 2011. "Formal sector price discoveries: preliminary results from a developing country," MPRA Paper 32368, University Library of Munich, Germany.
  3. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics, Faculty of Economics, University of Cambridge 9526, Faculty of Economics, University of Cambridge.
  4. Batini, Nicoletta, 2002. "Euro area inflation persistence," Working Paper Series, European Central Bank 0201, European Central Bank.
  5. Gali, Jordi & Gertler, Mark, 1999. "Inflation dynamics: A structural econometric analysis," Journal of Monetary Economics, Elsevier, Elsevier, vol. 44(2), pages 195-222, October.
  6. Khundrakpam, Jeevan K., 2008. "How Persistent is Indian Inflationary Process, Has it Changed?," MPRA Paper 50927, University Library of Munich, Germany.
  7. Bilke, Laurent, 2005. "Break in the mean and persistence of inflation: a sectoral analysis of French CPI," Working Paper Series, European Central Bank 0463, European Central Bank.
  8. Souvik Gupta & Magnus Saxegaard, 2009. "Measures of Underlying Inflation in Sri Lanka," IMF Working Papers 09/167, International Monetary Fund.
  9. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, Elsevier, vol. 108(1), pages 1-24, May.
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Cited by:
  1. Hanif, Muhammad Nadim, 2012. "A Note on Food Inflation in Pakistan," MPRA Paper 45009, University Library of Munich, Germany, revised 11 Mar 2013.

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