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Three Attempts at Inflation Forecasting in Pakistan

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  • International Monetary Fund

Abstract

This paper presents three empirical approaches to forecasting inflation in Pakistan. The preferred approach is a leading indicators model in which broad money growth and private sector credit growth help forecast inflation. A univariate approach also yields reasonable forecasts, but seems less suited to capturing turning points. A vector autoregressive (VAR) model illustrates how monetary developments can be described by a Phillips-curve type relationship. We deal with potential parameter instability on account of fundamental changes in Pakistan's economic system by restricting our sample to more recent observations. Gregorian and Islamic calendar seasonality are addressed by using 12-month moving averages.

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  • International Monetary Fund, 2005. "Three Attempts at Inflation Forecasting in Pakistan," IMF Working Papers 05/105, International Monetary Fund.
  • Handle: RePEc:imf:imfwpa:05/105
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    1. Daniel Leigh & Marco Rossi, 2002. "Leading Indicators of Growth and Inflation in Turkey," IMF Working Papers 02/231, International Monetary Fund.
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    More about this item

    Keywords

    Forecasting; Inflation; Leading indicators; Pakistan; ARIMA; VAR; monetary policy; money demand; money growth; demand for money; Forecasting and Other Model Applications; Prices; Business Fluctuations; and Cycles: Forecasting and Simulation;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E37 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Forecasting and Simulation: Models and Applications

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