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Estimating Standard Error of Inflation in Pakistan: A Stochastic Approach


  • Javed Iqbal

    (State Bank of Pakistan)

  • Muhammad Nadim Hanif

    (State Bank of Pakistan)


We estimate standard errors (S.Es.) of month on month and year on year inflation in Pakistan based on data for the period of July 2001 to June 2010 using stochastic approach as well as extended stochastic approach to index numbers. We develop a mechanism to estimate S.E. of period average headline inflation using these approaches. This mechanism is then applied to estimate S.Es. of 12-month average inflation in Pakistan for July 2003 to June 2010. The systematic changes in the relative prices of different groups in the CPI basket for Pakistan are also estimated. The highest (positive) relative price inflation occurred in ‘food, beverages and tobacco’ group and lowest (negative) for ‘recreation and entertainment’ group, during FY01 to FY10.

Suggested Citation

  • Javed Iqbal & Muhammad Nadim Hanif, 2012. "Estimating Standard Error of Inflation in Pakistan: A Stochastic Approach," SBP Working Paper Series 46, State Bank of Pakistan, Research Department.
  • Handle: RePEc:sbp:wpaper:46

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    More about this item


    Inflation; relative prices; Pakistan;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation


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