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Inflation in Pakistan

  • Mohsin S. Khan

    (Middle East and Central Asia Department of the International Monetary Fund.)

  • Axel Schimmelpfennig

    (Middle East and Central Asia Department of the International Monetary Fund.)

This paper examines the factors that explain and help forecast inflation in Pakistan. A simple inflation model is specified that includes standard monetary variables (money supply, credit to the private sector), an activity variable, the interest and the exchange rates, as well as the wheat support price as a supply-side factor. The model is estimated for the period January 1998 to June 2005 on a monthly basis. The results indicate that monetary factors have played a dominant role in recent inflation, affecting inflation with a lag of about one year. Private sector credit growth and broad money growth are also good leading indicators of inflation which can be used to forecast future inflation developments.

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File URL: http://www.pide.org.pk/pdf/PDR/2006/Volume2/185-202.pdf
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Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 45 (2006)
Issue (Month): 2 ()
Pages: 185-202

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Handle: RePEc:pid:journl:v:45:y:2006:i:2:p:185-202
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  1. James G. MacKinnon, 1995. "Numerical Distribution Functions for Unit Root and Cointegration Tests," Working Papers 918, Queen's University, Department of Economics.
  2. Madhavi Bokil & Axel Schimmelpfennig, 2006. "Three Attempts at Inflation Forecasting in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(3), pages 341-368.
  3. Pesaran, H. Hashem & Shin, Yongcheol, 1998. "Generalized impulse response analysis in linear multivariate models," Economics Letters, Elsevier, vol. 58(1), pages 17-29, January.
  4. Zulfiqar Hyder & Sardar Shah, 2005. "Exchange Rate Pass-Through to Domestic Prices in Pakistan," Macroeconomics 0510020, EconWPA.
  5. Koop, Gary & Pesaran, M. Hashem & Potter, Simon M., 1996. "Impulse response analysis in nonlinear multivariate models," Journal of Econometrics, Elsevier, vol. 74(1), pages 119-147, September.
  6. James H. Stock & Mark W. Watson, 1989. "New Indexes of Coincident and Leading Economic Indicators," NBER Chapters, in: NBER Macroeconomics Annual 1989, Volume 4, pages 351-409 National Bureau of Economic Research, Inc.
  7. James G. MacKinnon & Alfred A. Haug & Leo Michelis, 1996. "Numerical Distribution Functions of Likelihood Ratio Tests for Cointegration," Working Papers 1996_07, York University, Department of Economics.
  8. Massimiliano Marcellino, 2005. "Leading Indicators: What Have We Learned?," Working Papers 286, IGIER (Innocenzo Gasparini Institute for Economic Research), Bocconi University.
  9. Khan, Mohsin S. & Senhadji, Abdelhak S. & Smith, Bruce D., 2006. "Inflation And Financial Depth," Macroeconomic Dynamics, Cambridge University Press, vol. 10(02), pages 165-182, April.
  10. David Hendry & Hans-Martin Krolzig, 2004. "We Ran One Regression," Economics Series Working Papers 2004-W17, University of Oxford, Department of Economics.
  11. By Mohsin S. Khan & Abdelhak S. Senhadji, 2001. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1.
  12. Ben S. Bernanke, 2005. "Inflation in Latin America: a new era?," Speech 88, Board of Governors of the Federal Reserve System (U.S.).
  13. repec:fip:fedgsq:y:2005:i:feb11 is not listed on IDEAS
  14. Paul De Grauwe & Magdalena Polan, 2005. "Is Inflation Always and Everywhere a Monetary Phenomenon?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 239-259, 06.
  15. Nathan S. Balke & Kenneth M. Emery, 1994. "Understanding the price puzzle," Economic and Financial Policy Review, Federal Reserve Bank of Dallas, issue Q IV, pages 15-26.
  16. Ashfaque H. Khan & Mohammad Ali Qasim, 1996. "Inflation in Pakistan Revisited," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 35(4), pages 747-759.
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