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Impact of Supply of Money on Food and General Price Indices: A Case of Pakistan

Author

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  • Khan, Rana Ejaz Ali
  • Gill, Abid Rashid

Abstract

The paper probed the impact of supply of money on food and general price indices by estimating a series of equations taking CPI food, CPI general, WPI food, WPI general, GDP deflator and SPI as measures of inflation and M1, M2 and M3 supply of money as explanatory variables. For analysis, OLS technique is used covering time series data for the years 1975-76 to 2006-07 that was made stationary by Durbin-Watson criterion. AR (1) is used to check autocorrelation. The results for CPI food, CPI general, WPI general, GDP deflator and SPI show that they are negatively related with M1 supply of money. CPI food, CPI general, WPI general, GDP deflator, and SPI are also negatively related with M2 supply of money. The results show that CPI food, CPI general, WPI general, GDP deflator and SPI are positively related with M3 supply of money. It may be concluded that supply of money M1 and M2 affects the food and general indices in the same way. However, M1 supply of money affects the CPI general strongly than CPI food.

Suggested Citation

  • Khan, Rana Ejaz Ali & Gill, Abid Rashid, 2007. "Impact of Supply of Money on Food and General Price Indices: A Case of Pakistan," MPRA Paper 16293, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:16293
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    File URL: https://mpra.ub.uni-muenchen.de/16293/1/MPRA_paper_16293.pdf
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    References listed on IDEAS

    as
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    3. Khan, Mahmood ul Hasan & Hussain, Fida, 2005. "Monetary aggregates in Pakistan: theoretical and empirical underpinnings," MPRA Paper 31430, University Library of Munich, Germany, revised 2005.
    4. Muhammad Nadim Hanif & Muhammad Jahanzeb Malik, 2015. "Evaluating the Performance of Inflation Forecasting Models of Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 11, pages 43-78.
    5. Fazal Husain & Tariq Mahmood, 1998. "Causality between Money and Prices: Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 37(4), pages 1155-1161.
    6. Paul De Grauwe & Magdalena Polan, 2005. "Is Inflation Always and Everywhere a Monetary Phenomenon?," Scandinavian Journal of Economics, Wiley Blackwell, vol. 107(2), pages 239-259, June.
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    Cited by:

    1. repec:pid:journl:v:55:y:2016:i:3:p:211-225 is not listed on IDEAS
    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. Henna Ahsan & Zainab Iftikhar & M. Ali Kemal, 2011. "The Determinants of Food Prices: A Case Study of Pakistan," PIDE-Working Papers 2011:76, Pakistan Institute of Development Economics.

    More about this item

    Keywords

    Inflation; Money supply; Consumer Price Index; Food prices; Sensitive Price Indicator.;

    JEL classification:

    • H62 - Public Economics - - National Budget, Deficit, and Debt - - - Deficit; Surplus
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers
    • E61 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - Policy Objectives; Policy Designs and Consistency; Policy Coordination

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