Globalization and Economic Stability: An Insight from the Rocket and Feather Hypothesis in Pakistan

Nabila Khurshid (), Chinyere Emmanuel Egbe (), Asma Fiaz and Amna Sheraz
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Nabila Khurshid: Department of Economics, Comsats University, Islamabad 44800, Pakistan
Chinyere Emmanuel Egbe: Department of Economics and Finance, Medgar Evers College, City University of New York, Brooklyn, NY 11225, USA
Asma Fiaz: School of Economics, Quaid-e-Azam University, Islamabad 44800, Pakistan
Amna Sheraz: Department of Economics, Comsats University, Islamabad 44800, Pakistan

Sustainability, 2023, vol. 15, issue 2, 1-19

Abstract: The purpose of this study was to analyze the irregular pattern of changing inflation as a result of the pass-through of the exchange rate and fluctuations in oil prices in the current globalization scenario. We used annual data sets for crude oil prices, real effective exchange rates, and inflation in Pakistan from 1972 to 2021 for the analysis. The control variables used in the current study were imports (IMP), gross domestic product per capita (GDP), exports (EXP), globalization (GLOB), and interest rates (CRATE). Our findings from a non-linear autoregressive distributed lag (NARDL) analysis showed that inflation had an asymmetric rocket and feather pattern regardless of how globalization was defined or measured. On the other hand, GDP, EXP, and GLOB negatively impacted inflation, and CRATE and IMP had positive effects on inflation. Our study suggested that alternative policies, such as fixing the exchange rate, might decrease uncertainty and stabilize the Pakistani economy in the future. Moreover, increasing the use of sustainable energy would reduce the dependence of the economy on oil prices, which would lower its impact on the economy.

Keywords: real effective exchange rate; oil prices; inflation; non-linear autoregressive distributed lag; rocket and feather hypothesis; globalization; Pakistan (search for similar items in EconPapers)
JEL-codes: O13 Q Q0 Q2 Q3 Q5 Q56 (search for similar items in EconPapers)
Date: 2023
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

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