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Intrinsic Inflation Persistence in a Developing Country

  • Hanif, Muhamad Nadim
  • Malik, Muhamad Jahanzeb
  • Iqbal, Javed

This study estimates degree of intrinsic inflation persistence in Pakistan using aggregate price index, group level price indices, and individual commodity prices. We find no evidence of a unit root in (MoM) inflation at any level, except for house rent. Using monthly data from 1959 to 2011 we find that the estimate of (overall) inflation persistence is 0.16, which is low but significant. During 2001-2011 (overall) inflation persistence is insignificant. Food inflation does not exhibit any persistence during the last decade. However, the degree of persistence is very high (0.80) and significant for core inflation (NFNE), which weakens slightly (to 0.69) when we account for commodities price shock of 2008. At micro level, the estimated degree of inflation persistence for various groups is found to be relatively higher, in almost 60 percent of the cases, compared to corresponding degree of persistence at aggregate level. This may be because in micro analysis we consider only those commodities for which the estimated degree of inflation persistence is significant.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 43152.

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Date of creation: 01 Jun 2012
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Handle: RePEc:pra:mprapa:43152
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  1. Carlos Robalo Marques, 2004. "Inflation Persistence: Facts or Artefacts?," Working Papers w200408, Banco de Portugal, Economics and Research Department.
  2. Pasaran, M.H. & Im, K.S. & Shin, Y., 1995. "Testing for Unit Roots in Heterogeneous Panels," Cambridge Working Papers in Economics 9526, Faculty of Economics, University of Cambridge.
  3. Levin, Andrew & Lin, Chien-Fu & James Chu, Chia-Shang, 2002. "Unit root tests in panel data: asymptotic and finite-sample properties," Journal of Econometrics, Elsevier, vol. 108(1), pages 1-24, May.
  4. Bilke, L., 2005. "Break in the Mean and Persistence of Inflation: a Sectoral Analysis of French CPI," Working papers 122, Banque de France.
  5. Souvik Gupta & Magnus Saxegaard, 2009. "Measures of Underlying Inflation in Sri Lanka," IMF Working Papers 09/167, International Monetary Fund.
  6. Bilke, Laurent, 2005. "Break in the mean and persistence of inflation: a sectoral analysis of French CPI," Working Paper Series 0463, European Central Bank.
  7. Batini, Nicoletta, 2002. "Euro area inflation persistence," Working Paper Series 0201, European Central Bank.
  8. Choudhary, M. Ali & Naeem, Saima & Faheem, Abdul & Hanif, Nadim & Pasha, Farooq, 2011. "Formal sector price discoveries: preliminary results from a developing country," MPRA Paper 32368, University Library of Munich, Germany.
  9. Jordi Gali & Mark Gertler, 2000. "Inflation Dynamics: A Structural Econometric Analysis," NBER Working Papers 7551, National Bureau of Economic Research, Inc.
  10. Khundrakpam, Jeevan K., 2008. "How Persistent is Indian Inflationary Process, Has it Changed?," MPRA Paper 50927, University Library of Munich, Germany.
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