Time-Frequency Analysis of Determinants of Inflation Rate in Pakistan

Muhammad Hanif, Sajjad Zaheer () and Iqbal Javed ()
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Sajjad Zaheer: State Bank of Pakistan
Iqbal Javed: State Bank of Pakistan

No 111, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: By using wavelet decomposition method, this study provides time-frequency analysis of headline inflation and its determinants for the case of Pakistan by using monthly data covering July 1992 to June 2021. Frequency scale-wise correlation and causation analysis indicates that in the short run (at median frequency of 4 to 8 months) policy rate, exchange rate changes, changes in government borrowing and growth in import payments are associated with inflation rate in Pakistan. During medium run (at median frequency of 16 to 64 months), growth in broad money supply and global commodity prices also affect inflation. In the long run (at low frequency scale of above 64 months), growth in government borrowing, global commodity prices and broad money supply determine the inflation rate in Pakistan. The study shows that money supply matters more for inflation than the policy rate in the long run.

Keywords: Time Frequancy; Wavelet; Inflation Determinantes (search for similar items in EconPapers)
JEL-codes: E32 E51 (search for similar items in EconPapers)
Pages: 41 pages
Date: 2022-12
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