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Inflation and Inflation Uncertainty Nexus: Empirical Evidence from Pakistan

Author

Listed:
  • Sajid Amin Javed

    (Pakistan Institute of Development Economics,Islamabad, Pakistan.)

  • Saud Ahmad Khan

    (School of Economics, International Islamic University, Islamabad, Pakistan.)

  • Azad Haider

    (School of Economics, Quaid-e-Azam University,Islamabad, Pakistan.)

  • Farzana Shaheen

    (Federal Urdu University of Arts, Sciences and Technology,Islamabad, Pakistan.)

Abstract

This study examines relationship between Inflation and Inflation uncertainty for Pakistan using monthly data over 1957:1-2007:12. ARMA-GARCH model is applied to estimate conditional volatility of inflation. Findings of the study support Friedman-Ball hypothesis for Pakistan as Granger-causality test reveals that inflation affects inflation uncertainty positively. We find no evidence for inflation uncertainty affecting inflation rates as suggested by Cukierman & Meltzer (1986) and only unidirectional relation is evident with causality running from inflation to inflation uncertainty. High volatility persistence for inflation is also confirmed. Results of the study may be useful for policymakers at central bank to devise more efficient monetary policy.

Suggested Citation

  • Sajid Amin Javed & Saud Ahmad Khan & Azad Haider & Farzana Shaheen, 2012. "Inflation and Inflation Uncertainty Nexus: Empirical Evidence from Pakistan," International Journal of Economics and Financial Issues, Econjournals, vol. 2(3), pages 348-356.
  • Handle: RePEc:eco:journ1:2012-03-12
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    References listed on IDEAS

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    Cited by:

    1. repec:eco:journ1:2018-02-43 is not listed on IDEAS
    2. repec:eee:riibaf:v:42:y:2017:i:c:p:75-93 is not listed on IDEAS
    3. Alimi, R. Santos, 2017. "Association between inflation rates and inflation uncertainty in quantile regression," MPRA Paper 79683, University Library of Munich, Germany.
    4. Said Zamin Shah & Said Zamin Shah & Ahmad Zubaidi Baharumshah & Muzafar Shah Habibullah & Law Siong Hook, 2017. "The Asymmetric Effects of Real and Nominal Uncertainty on Inflation and Output Growth: Empirical Evidence from Bangladesh," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 377-386.
    5. repec:eco:journ1:2017-05-24 is not listed on IDEAS

    More about this item

    Keywords

    Friedman-Ball Hypothesis; Inflation Uncertainty; GARCH; Granger Causality;

    JEL classification:

    • E0 - Macroeconomics and Monetary Economics - - General
    • E23 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Production
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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