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Inflation targeting and exchange rate pass through in Pakistan: Markov Switching Approach

Safia Minhaj and Mohammad Nishat ()
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Safia Minhaj: University of Karachi, Pakistan
Mohammad Nishat: Institute of Business Administration, Karachi

Business Review, 2018, vol. 13, issue 2, 20-33

Abstract: This study uses Markov switching model to empirically track the existence of exchange rate pass through and inflation trends in Pakistan from 1982 to 2016. The results reveal a direct relationship between pass through and inflation. Furthermore, interest rate and trade variables have a significant impact on inflation. According to the smoothed probabilities, switches between regimes were sudden and sporadic till 1990, after which long spells were observed during high and low inflation regimes.

Keywords: Pass; through; effect; ·; Inflation; targeting; ·; Markov; switching; model. (search for similar items in EconPapers)
Date: 2018
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