The Effects of Remittances on Inflation (CPI and WPI) and Exchange Rate: A Case of Pakistan

Saghir Ghauri, Rizwan Raheem Ahmed (), Jolita Vveinhardt (), Dalia Streimikiene () and Khalid Sarwar Qureshi ()
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Rizwan Raheem Ahmed: Faculty of Management Sciences, Indus University, Block-17, Gulshan, Karachi, Pakistan. Scientific affiliation: international economics.
Jolita Vveinhardt: Lithuanian Sports University, Institute of Sport Science and Innovations, Sporto str. 6, Kaunas, Lithuania. Scientific affiliation: international economic.
Dalia Streimikiene: Lithuanian Sports University, Institute of Sport Science and Innovations, Sporto str. 6, Kaunas, Lithuania. Scientific affiliation: international economics.
Khalid Sarwar Qureshi: Faculty of Management Sciences, Iqra University, Gulshan campus, Karachi, Pakistan. Scientific affiliation: international economics.

Journal for Economic Forecasting, 2019, issue 2, 146-165

Abstract: The objective of this research is to determine the effects of workers' remittances (WR) on long-term inflation in the case of Pakistan. We use the consumer price index (CPI) and the wholesale price index (WPI) as indicators of inflation and the market determined exchange rate (EXR) regime. The data of workers' remittances (WR), CPI, WPI and EXR from July 2001 to December 2016 have been used for this analysis. The outcomes of Johansen cointegration confirmed the long run association between WR and CPI and EXR, and WR and WPI and EXR. Moreover, the WR and CPI food and EXR, and WR and WPI food and EXR also demonstrated a long run association. The results of Toda-Yamamoto Wald test and Granger causality VEC/Exogeneity Wald test concluded that there is a presence of one- way causality from workers remittances to CPI and WPI. Similar results have been revealed for food groups of both inflation indicators (CPI and WPI). Therefore, it is concluded that the influx of workers' remittances causes inflation in the case of Pakistan when the exchange rate (EXR) is also included in the VAR model.

Keywords: workers remittances; consumer price index; wholesale price index; inflation; exchange rate; Johansen cointegration; Granger causality (search for similar items in EconPapers)
JEL-codes: C32 D13 E31 (search for similar items in EconPapers)
Date: 2019
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Citations: View citations in EconPapers (2)

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