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Estimation of Relationship between Inflation and Relative Price Variability: Granger Causality and ARDL Modelling Approach

Author

Listed:
  • Saghir Pervaiz Ghauri

    (Indus University, Karachi, Pakistan)

  • Rizwan Raheem Ahmed

    (Indus University, Karachi, Pakistan)

  • Jolita Vveinhardt

    (Lithuanian Sports University, Kaunas, Lithuania)

  • Dalia Streimikiene

    () (Lithuanian Sports University, Kaunas, Lithuania)

Abstract

The objective of this research paper is to examine the relationship between relative price variability and inflation by using consumer price index (CPI) of Pakistan. The outcomes of the research further divided into food and non-food groups too. The monthly data of CPI was taken from the Pakistan Bureau of Statistics, from August 2001 to July 2011 (with 2000-01 base) for 92 composite commodities with 12 sub-groups. We employed the Granger causality testing approach for the evaluation of any possible influence of one indicator to another. In this scenario, it is viable to state that there is a presence of causality and bidirectional feedback between the variables or the two variables are independent. The major issue is to identify a suitable statistical method that enables us to analyze the association among the variables. The findings of this study demonstrated that there is a probable relationship between inflation (DPt) and both un-weighted measures of price variability (VPt and SPt) for the whole items that have been considered for the analysis. Apart from that, this association also exists between food and non-food categories of CPI basket.

Suggested Citation

  • Saghir Pervaiz Ghauri & Rizwan Raheem Ahmed & Jolita Vveinhardt & Dalia Streimikiene, 2017. "Estimation of Relationship between Inflation and Relative Price Variability: Granger Causality and ARDL Modelling Approach," The AMFITEATRU ECONOMIC journal, Academy of Economic Studies - Bucharest, Romania, vol. 19(44), pages 249-249, February.
  • Handle: RePEc:aes:amfeco:v:s10:y:2017:i:18:p:249
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    More about this item

    Keywords

    CPI basket; consumer price index; food & non-food group; inflation; Granger-causality; relative price variability;

    JEL classification:

    • B23 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Econometrics; Quantitative and Mathematical Studies
    • E30 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - General (includes Measurement and Data)
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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