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Trade-off between Inflation, Interest and Unemployment Rate of Pakistan: Revisited

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  • Sumera Arshad

    (Department of Economics, University of the Punjab, Lahore, Pakistan)

  • Amajd Ali

    (Department of Economics, University of the Punjab, Lahore, Pakistan)

Abstract

This study analyses the interrelationship of unemployment rate, interest rate and inflation rate in Pakistan over the period from 1974 to 2013. Autoregressive Distributed Lag (ARDL) model has been employed to find co-integration among variables of the models. Vector Error-Correction model is utilized for analysing short run dynamics of the models. The results do not provide significance trade-off between unemployment rate and inflation rate. Trade off exists in interest rate analysis over short run with inflation rate and unemployment rate. The empirical results show population growth and exchange rate have negative whereas external debt plays a positive role in determining unemployment rate in Pakistan. Money supply is revealed as major cause of inflation while exchange rate and imports have contributed negatively in inflation. The rate of interest has positive impact on domestic credit to private sector whereas it is negatively related to exchange rate.

Suggested Citation

  • Sumera Arshad & Amajd Ali, 2016. "Trade-off between Inflation, Interest and Unemployment Rate of Pakistan: Revisited," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 5(4), pages 193-209, December.
  • Handle: RePEc:rfh:bbejor:v:5:y:2016:i:4:p:193-209
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    More about this item

    Keywords

    Inflation Rate; Unemployment Rate; Interest Rate;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • J6 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers
    • E40 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - General

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