Estimating the Inflation-Output Gap Trade-Off with Triangle Model in Pakistan

Bushra Sharif and Abdul Qayyum

MPRA Paper from University Library of Munich, Germany

Abstract: In this study, we attempt to estimate Inflation-Output Gap Trade-off with Triangle model using Time Series data over the periods of 1971-2016 in case of Pakistan. For this purpose we used a three step methodology to estimate inflation-output trade-off with triangle model such as Unit root Analysis, cointegration Analysis and Error Correction Model. Dynamic of inflation has significant impact on output containing different two shock dummy variables in inflation. Empirical finding of this thesis shows that long run and significant relationship exist between inflation and supply shocks variables such as oil prices and nominal exchange rate but no long run relationship exist between inflation and output gap. Output gap has positive and significant impact on inflation in short run but supply shock variables have no impact on inflation dynamic in short run. The dynamic inflation is important to determine the relationship between inflation-outpu

Keywords: Inflation; Output Gap; Trade-off; Triangle Model; Unit Root, Cointegration; Pakistan (search for similar items in EconPapers)
JEL-codes: C22 E0 E2 (search for similar items in EconPapers)
Date: 2018
New Economics Papers: this item is included in nep-mac and nep-mon
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