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Does Volatility In Government Borrowing Leads To Higher Inflation? Evidence From Pakistan

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Listed author(s):
  • S. Adnan
  • H.A.S. BUKHARI
  • Safdar Ullah KHAN

Abstract

This study analyzes the impact of volatility in government borrowing from central bank (GBCB) on domestic inflation in Pakistan. This paper utilizes Generalized Auto Regressive Conditional Hetroskedasticity (GARCH) model to estimate volatility in GBCB using monthly data from July 1992 to June 2007. The empirical results, based on auto regressive distributed lag (ARDL) with bound testing technique suggest that domestic inflation in Pakistan is related with volatility in government borrowing from central bank in the long run. Furthermore, error correction model (ECM) estimates show that in the short run, inflation is also affected by volatility in GBCB.

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Article provided by Spiru Haret University, Faculty of Financial Management and Accounting Craiova in its journal Journal of Applied Economic Sciences.

Volume (Year): 3 (2008)
Issue (Month): 3(5)_Fall2008 ()
Pages: 187-202

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Handle: RePEc:ush:jaessh:v:3:y:2008:i:3(5)_fall2008:p:187-202
Contact details of provider: Web page: http://www2.spiruharet.ro/facultati/facultate.php?id=14

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Keywords: inflation; government borrowing; volatility; GARCH; ARDL; ECM;

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Find related papers by JEL classification:
  • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
  • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
  • E62 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Fiscal Policy

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Cited by:

  1. Shahid, Muhammad & Qayyum, Abdul & Shahid, Waseem, 2016. "Fiscal and Monetary Policy Interactions in Pakistan Using a Dynamic Stochastic General Equilibrium Framework," MPRA Paper 72595, University Library of Munich, Germany.
  2. 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.
  3. Nawaz, Muhammad & Iqbal, Muhammad Mazhar & Ali, Amanat & Zaman, Khalid, 2012. "Fiscal Theory of Price Level: A Panel Data Analysis for selected Saarc Countries," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(3), pages 152-170, September.

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