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Threshold Inflation in Pakistan

Author

Listed:
  • Muhammad Farooq Arby

    (State Bank of Pakistan)

  • Amjad Ali

    (State Bank of Pakistan)

Abstract

Inflation is usually considered to have a non-linear relationship with economic growth: a positive relationship when it is low and stable, and negative when it is high and volatile. It is therefore an important research question: what is that threshold level of inflation beyond which it affects growth negatively? This paper addresses this question in case of Pakistan. We have used two models: one a quadratic model and the other a regression kink model, with unknown threshold. We find the threshold inflation at 6.05 percent and 5.67 percent respectively (on the basis of annual data from 1976 to 2017).

Suggested Citation

  • Muhammad Farooq Arby & Amjad Ali, 2017. "Threshold Inflation in Pakistan," SBP Working Paper Series 94, State Bank of Pakistan, Research Department.
    • Handle: RePEc:sbp:wpaper:94
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    References listed on IDEAS

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    2. Waheed, Irtiza Imran, 2020. "Phillips Curve in Pakistan: A Graphical and Empirical Analysis," MPRA Paper 119097, University Library of Munich, Germany.

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    More about this item

    Keywords

    Inflation; threshold effects; Economic growth;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E22 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Investment; Capital; Intangible Capital; Capacity
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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