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The Effects of Remittances on Inflation (CPI and WPI) and Exchange Rate: A Case of Pakistan

Author

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  • Saghir Pervaiz GHAURI

    (Faculty of Management Sciences, Indus University, Block-17, Gulshan, Karachi, Pakistan. Scientific affiliation: international economics.)

  • Rizwan Raheem AHMED

    (Faculty of Management Sciences, Indus University, Block-17, Gulshan, Karachi, Pakistan. Scientific affiliation: international economics.)

  • Jolita VVEINHARDT

    (Lithuanian Sports University, Institute of Sport Science and Innovations, Sporto str. 6, Kaunas, Lithuania. Scientific affiliation: international economic.)

  • Dalia STREIMIKIENE

    (Lithuanian Sports University, Institute of Sport Science and Innovations, Sporto str. 6, Kaunas, Lithuania. Scientific affiliation: international economics.)

  • Khalid Sarwar QURESHI

    (Faculty of Management Sciences, Iqra University, Gulshan campus, Karachi, Pakistan. Scientific affiliation: international economics.)

Abstract

The objective of this research is to determine the effects of workers' remittances (WR) on long-term inflation in the case of Pakistan. We use the consumer price index (CPI) and the wholesale price index (WPI) as indicators of inflation and the market determined exchange rate (EXR) regime. The data of workers' remittances (WR), CPI, WPI and EXR from July 2001 to December 2016 have been used for this analysis. The outcomes of Johansen cointegration confirmed the long run association between WR and CPI and EXR, and WR and WPI and EXR. Moreover, the WR and CPI food and EXR, and WR and WPI food and EXR also demonstrated a long run association. The results of Toda-Yamamoto Wald test and Granger causality VEC/Exogeneity Wald test concluded that there is a presence of one- way causality from workers remittances to CPI and WPI. Similar results have been revealed for food groups of both inflation indicators (CPI and WPI). Therefore, it is concluded that the influx of workers' remittances causes inflation in the case of Pakistan when the exchange rate (EXR) is also included in the VAR model.

Suggested Citation

  • Saghir Pervaiz GHAURI & Rizwan Raheem AHMED & Jolita VVEINHARDT & Dalia STREIMIKIENE & Khalid Sarwar QURESHI, 2019. "The Effects of Remittances on Inflation (CPI and WPI) and Exchange Rate: A Case of Pakistan," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 146-165, June.
    • Handle: RePEc:rjr:romjef:v::y:2019:i:2:p:146-165
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    Cited by:

    1. Rizwan Raheem AHMED & Dalia STREIMIKIENE & Saghir Pervaiz GHAURI & Muhammad AQIL, 2021. "Forecasting Inflation by Using the Sub-Groups of both CPI and WPI: Evidence from Auto Regression (AR) and ARIMA Models," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(2), pages 144-161, June.
    2. Khiev Virak & Yuriy Bilan, 2022. "The role of formal and informal remittances as the determinants of formal and informal financial services," Equilibrium. Quarterly Journal of Economics and Economic Policy, Institute of Economic Research, vol. 17(3), pages 727-746, September.

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    More about this item

    Keywords

    workers remittances; consumer price index; wholesale price index; inflation; exchange rate; Johansen cointegration; Granger causality;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • D13 - Microeconomics - - Household Behavior - - - Household Production and Intrahouse Allocation
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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