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Threshold Inflation in Pakistan

Muhammad Arby () and Amjad Ali ()

No 94, SBP Working Paper Series from State Bank of Pakistan, Research Department

Abstract: Inflation is usually considered to have a non-linear relationship with economic growth: a positive relationship when it is low and stable, and negative when it is high and volatile. It is therefore an important research question: what is that threshold level of inflation beyond which it affects growth negatively? This paper addresses this question in case of Pakistan. We have used two models: one a quadratic model and the other a regression kink model, with unknown threshold. We find the threshold inflation at 6.05 percent and 5.67 percent respectively (on the basis of annual data from 1976 to 2017).

Keywords: Inflation; threshold effects; Economic growth (search for similar items in EconPapers)
JEL-codes: E22 E31 O40 O47 (search for similar items in EconPapers)
Pages: 17 pages
Date: 2017-11
New Economics Papers: this item is included in nep-cwa and nep-mac
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