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The relevance and relative robustness of sources of inflation bias in Pakistan

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  • Hayat, Zafar
  • Balli, Faruk
  • Rehman, Muhammad

Abstract

We empirically examine the relevance and relative robustness of stabilization and non-stabilization sources of inflation bias for the typical discretionary monetary policy strategy of Pakistan. First, the stabilization and non-stabilization sources of inflation bias are identified, and their proxy variables are constructed. Second, a robustness evaluation strategy is developed based on bivariate and multivariate analysis of cointegrating relationships among inflation bias indicators and potential sources thereof to determine their long-term relevance and relative robustness or fragility. The stabilization sources of inflation bias such as exploitation of the inflation output trade-off for growth stimulation and the central bank’s preference for growth stabilization are the most relevant and relatively robust sources of inflation bias vis-à-vis the non-stabilization sources. Among the non-stabilization sources, only openness is partially relevant but is fragile.

Suggested Citation

  • Hayat, Zafar & Balli, Faruk & Rehman, Muhammad, 2017. "The relevance and relative robustness of sources of inflation bias in Pakistan," Economic Modelling, Elsevier, vol. 63(C), pages 283-303.
  • Handle: RePEc:eee:ecmode:v:63:y:2017:i:c:p:283-303
    DOI: 10.1016/j.econmod.2017.02.008
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    1. repec:dug:actaec:y:2017:i:6:p:253-266 is not listed on IDEAS
    2. repec:eee:jpolmo:v:40:y:2018:i:6:p:1083-1103 is not listed on IDEAS

    More about this item

    Keywords

    E31; E52; E58; Stabilization and non-stabilization sources of inflation bias; Relative robustness; Pakistan;

    JEL classification:

    • 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
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies

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