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

  • Khan, Rana Ejaz Ali
  • Gill, Abid Rashid

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.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 16293.

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Date of creation: Jan 2007
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Publication status: Published in IUB Journal of Social Sciences and Humanities 2.5(2007): pp. 125-143
Handle: RePEc:pra:mprapa:16293
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  1. Husain, Fazal & Mahmood, Tariq, 1998. "Causality Between Money and Prices: Evidence from Pakistan," MPRA Paper 5021, University Library of Munich, Germany.
  2. By Mohsin S. Khan & Abdelhak S. Senhadji, 2001. "Threshold Effects in the Relationship Between Inflation and Growth," IMF Staff Papers, Palgrave Macmillan, vol. 48(1), pages 1.
  3. repec:pid:journl:v:25:y:1986:i:2:p:141-162 is not listed on IDEAS
  4. repec:pid:journl:v:45:y:2006:i:2:p:179-183 is not listed on IDEAS
  5. repec:pid:journl:v:34:y:1995:i:4:p:927-943 is not listed on IDEAS
  6. Mohsin S. Khan & Axel Schimmelpfennig, 2006. "Inflation in Pakistan: Money or Wheat?," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 2, pages 213-234..
  7. 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.
  8. Robert Dittmar & William T. Gavin & Finn E. Kydland, 2004. "Inflation persistence and flexible prices," Working Papers 2001-010, Federal Reserve Bank of St. Louis.
  9. repec:pid:journl:v:35:y:1996:i:4:p:747-759 is not listed on IDEAS
  10. Qayyum, Abdul, 2006. "Money, Inflation, and Growth in Pakistan," MPRA Paper 2055, University Library of Munich, Germany, revised 2006.
  11. 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, 06.
  12. Jeff Fuhrer & George Moore, 1995. "Inflation Persistence," The Quarterly Journal of Economics, Oxford University Press, vol. 110(1), pages 127-159.
  13. repec:pid:journl:v:37:y:1998:i:4:p:1155-1161 is not listed on IDEAS
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