An Exploratory Analysis of Inflation Episodes in Pakistan

Riaz Riazuddin ()
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Riaz Riazuddin: Economic Advisor, State Bank of Pakistan.

Lahore Journal of Economics, 2008, vol. 13, issue Special Edition, 63-93

Abstract: This paper explores the past 50 years of data on inflation, growth rates of money and real GDP. It is found that inflation is primarily a monetary phenomena; however, the quantity theory of money does not hold in Pakistan below money supply growth rates of 9 percent. A simple monetary rule is also derived by inspecting the maximumprobabilities of keeping inflation low (at most 6 percent); this rule is simply to keep money growth rates below 12 percent.This paper also finds that food inflation too is a monetary phenomenaand there is no trade-off between inflation and growth, which are independent in the sense of probability measures. The findings are confirmed by the application of Fisher’s Exact Test. The policy implication is that monetary policy should be pursued independently of growth policies of government.

Keywords: Pakistan; Inflation; Monetary Policy (search for similar items in EconPapers)
JEL-codes: E41 E52 (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:lje:journl:v:13:y:2008:i:sp:p:63-93

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