Measuring Volatility of Inflation in Pakistan

Nadia Saleem ()
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Nadia Saleem: GC University, Lahore.
Authors registered in the RePEc Author Service: Nadia Tahir ()

Lahore Journal of Economics, 2008, vol. 13, issue 2, 99-128

Abstract: The available evidence in Pakistansuggests that inflation is a monetary phenomena. This paper examines the relationship between the determinants of inflation and its volatility by using monthly data for 1990:M1-2007:M5. The determinants of inflation are estimated by a VAR analysis, which shows that inflation, the interest rate and money supply move together. A VAR model assumes constant error variance. We relaxed this assumption by employing an ARCH/GARCH model and conclude that inflation is volatile in nature. For measuring the qualitative nature of the inflationary process we used an EGARCH model. It confirms that the time effect model is significant. It also suggests that in the first four months of the calendar year, the inflationary shock is negative and it can, therefore, hamper growth.

Keywords: Inflation; Volatility; Pakistan; Money Supply; Interest Rate. (search for similar items in EconPapers)
JEL-codes: C01 E31 E51 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:lje:journl:v:13:y:2008:i:2:p:99-128

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