Hussain, Karrar (2009): Causal Ordering Between Inflation and Productivity of Labor and Capital: An Empirical Approach for Pakistan.
Download (566kB) | Preview
This study attempts to analyze the causal relationship between inflation and productivity of labor and capital, in Pakistan’s economy by covering the period from 1960-M1 to 2007-M12. For this purpose Vector Autoregression (VAR) approach is used, which is based on error correction model (ECM). Using this approach we have showed the causal ordering between inflation and exchange rate management policy controlling for, monetary variables like broad money (M-2) and discount rate, which are endogenous in case of Pakistan. We considered the relationship of inflation with two measures of productivity (average and marginal productivity) of labor and capital controlling for capital labor ratio. The objective of this paper is to identify the relative importance of each of these inflation channels by generating Impulse Response Functions (IRFs) to confirm the response of a shock on a variable upon itself and other variables over the four years of time span. Our study concludes that there is a unidirectional causality from inflation to labor productivity through capital labor ratio. And also, there is bidirectional causality between inflation and capital productivity through capital labor ratio. And lastly each channel takes almost fifteen months (on average) for input productivities to affect or affected by inflation.
|Item Type:||MPRA Paper|
|Original Title:||Causal Ordering Between Inflation and Productivity of Labor and Capital: An Empirical Approach for Pakistan|
|Keywords:||Productivity, Inflation, Vector Autoregression|
|Subjects:||C - Mathematical and Quantitative Methods > C3 - Multiple or Simultaneous Equation Models ; Multiple Variables > C32 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes ; State Space Models
B - History of Economic Thought, Methodology, and Heterodox Approaches > B2 - History of Economic Thought since 1925 > B22 - Macroeconomics
C - Mathematical and Quantitative Methods > C0 - General > C01 - Econometrics
|Date Deposited:||14. Aug 2009 15:55|
|Last Modified:||12. Feb 2013 01:22|
Agha A. Idrees, Noor Ahmed, Yasir Ali Mubarik & Hastam Shah (2005). Transmission Mechanism of Monetary Policy in Pakistan. Retrieved May 26, 2008 from www.sbp.org.pk/research/bulletin/2005/Article-1.pdf
Agha A. Idrees, Noor Ahmed, Yasir Ali Mubarik & Hastam Shah (2005). Transmission Mechanism of Monetary Policy in Pakistan. Retrieved May 26, 2008 from http://www.sbp.org.pk/publications/wpapers/2008/wp09.pdf
Bloem, A.M., R. Dippelsman, and N.O. Mæhle, 2001, Quarterly National Accounts Manual: Concepts, Data Sources, and Compilation, (Washington: International Monetary Fund).
Christopher F Baum, 2001. "DENTON: Stata module to interpolate a quarterly flow series from annual totals via proportional Denton method," Statistical Software Components S422501, Boston College Department of Economics, revised 15 Jul 2008
Denton, F.T. (1971). Adjustment of Monthly or Quarterly Series to Annual Totals: An Approach Based on Quadratic Minimization. Journal of the American Statistical Association, 66, 99-102.
George A. Akerlof and Janet Yellen (1986), 'Efficiency Wage Models of the Labor Market', Cambridge: Cambridge University Press
Hannan, E.J. (1980). An Estimation of the order of an ARMA process. Retrieved April 4, 2008 from http://projecteuclid.org/DPubS?service=UI&version=1.0&verb=Display&handle=euclid.aos/1176345144
Hussain Fazal & Kalbe Abbas. Money, Income, Prices and Causality in Pakistan: A Trivariate Analysis.Retrieved March 20, 2008 from http://www.pide.org.pk/Research/Report178.pdf
Hussain, Fazal & Mehmood Tariq (1998). Causality between Money and Prices: Evidence from Pakistan. Retrieved April 4, 2008 from http://mpra.ub.uni-muenchen.de/2720/
J. Peter Jarrett and Jack G. Selody (1982). The Productivity-Inflation Nexus in Canada, 1963-1979. Retrieved December 20, 2008 from http://www.jstor.org/stable/1925933
Kandil Magda & Ida Aghdas Mirzaie (2000). The Effects of Exchange Rate Fluctuations on Output and Prices: Evidence from Developing Countries. Retrieved May 26, 2008 from http://papers.ssrn.com/sol3/papers.cfm?abstract_id=880837
Muhammad Mahmud (2006). Labor Productivity and Economic Growth What cause What: An Empirical Analysis. Retrieved on December 20th , 2008, from “Journal of Management and Social Sciences”. Volume 2, No. 1, (Spring 2006) 69-81
Partha Dasgupta and Debraj Ray (1987). Inequality as a Determinant of Malnutrition and Unemployment: Policy. Retrieved June 24, 2009, from http://www.jstor.org/stable/2233329
Perron Pierre & John Y. Campbell (1993). A note on Johansen’s Cointegration Procedures when trends are present. Retrieved April 4, 2008 from http://www.springerlink.com/content/q83lv206vg237270/
Rati Ram (1984). Causal Ordering Across Inflation and Productivity Growth in The Post-War United States. Retrieved January 20th , 2009 from http://www.jstor.org/stable/1925004
Verbeek, M. (1997). A Guide to Modern Econometrics. New York: John Wiley & Sons.
Walsh, Carl E. (2003). Estimating the effect of money on output. Monetary Theory and Policy (pp. 1-41), 2nd Ed. MIT Press
Available Versions of this Item
- Causal Ordering Between Inflation and Productivity of Labor and Capital: An Empirical Approach for Pakistan. (deposited 14. Aug 2009 15:55) [Currently Displayed]