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Determinants oF Recent Inflation in Pakistan

Author

Listed:
  • Khan, Abdul Aleem
  • Ahmed, Qazi Masood
  • Hyder, Kalim

Abstract

The expansionary economic policies of the government and of the central bank (State Bank of Pakistan – SBP), which on one side resulted in impressive economic performance, stimulated a rise in the Consumer Price Index (CPI) on the other. This initiated a debate on the determinants of the recent inflation. Some blamed fiscal policy or monetary policy, while others blamed imported inflation, administered prices or mismanagement and loose control of the government. This study, adopting an econometric framework, focuses on the identification of the main determinants of recent inflation trends. Using data from the 1972-73 to 2005-06 period, applying ordinary least square method and verifying results through Breusch-Godfrey Serial Correlation LM and Augmented Dickey-Fuller tests, it finds that the most important determinants of inflation in 2005-06 were adaptive expectations, private sector credit and rising import prices. Whereas, the fiscal policy’s contribution to inflation was minimal.

Suggested Citation

  • Khan, Abdul Aleem & Ahmed, Qazi Masood & Hyder, Kalim, 2007. "Determinants oF Recent Inflation in Pakistan," MPRA Paper 16254, University Library of Munich, Germany, revised 2007.
  • Handle: RePEc:pra:mprapa:16254
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    File URL: https://mpra.ub.uni-muenchen.de/16254/1/MPRA_paper_16254.pdf
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    References listed on IDEAS

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    7. M. Aynul Hasan & Ashfaque H. Khan & Hafiz A. Pasha & M. Ajaz Rasheed, 1995. "What Explains the Current High Rate of Inflation in Pakistan?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 34(4), pages 927-943.
    8. Muhammad Aslam Chaudhry & Munir A. S. Choudhary, 2006. "Why the State Bank of Pakistan should not Adopt Inflation Targeting," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 2, pages 195-209.
    9. 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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    11. Jeannine Bailliu & Daniel Garcés & Mark Kruger & Miguel Messmacher, 2003. "Explaining and Forecasting Inflation in Emerging Markets: The Case of Mexico," Staff Working Papers 03-17, Bank of Canada.
    12. M. Aynul Hasan & Qazi Masood Ahmed, 1991. "Endogeneity of Monetary Policy Reaction Function: An Experience from Pakistan's Economy," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 30(4), pages 931-941.
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    Citations

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    Cited by:

    1. Kiran Ijaz & Muhammad Zakaria & Bashir A. Fida, 2014. "Terms-of-Trade Volatility and Inflation in Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 19(1), pages 111-132, Jan-June.
    2. Khatun, Fahmida & Ahamad, Mazbahul G., 2012. "Investigating the determinants of inflationary trends in Bangladesh: an ARDL bounds F-Test Approach," MPRA Paper 42572, University Library of Munich, Germany.
    3. 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.
    4. Hassan, Syeda Anam & Zaman, Khalid, 2012. "Effect of oil prices on trade balance: New insights into the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2125-2143.
    5. repec:taf:rjapxx:v:20:y:2015:i:4:p:559-576 is not listed on IDEAS
    6. Adnan Haider & Qazi Masood Ahmed & Zohaib Jawed, 2014. "Determinants of Energy Inflation in Pakistan: An Empirical Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 53(4), pages 491-504.
    7. repec:rej:journl:v:19:y:2016:i:61:p:3-46 is not listed on IDEAS
    8. Adnan KHURSHID & Yin KEDONG & Adrian Cantemir CALIN & Oana Cristina POPOVICI, 2016. "Do Remittances Hurt Domestic Prices? New Evidence from Low, Lower-Middle and Middle–Income Groups," Journal for Economic Forecasting, Institute for Economic Forecasting, vol. 0(4), pages 95-114, December.
    9. Saira Tufail & Sadia Batool, 2013. "An Analysis of the Relationship between Inflation and Gold Prices: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(2), pages 1-35, July-Dec.

    More about this item

    Keywords

    Fiscal policy; monetary Policy; Inflation; Determinants;

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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