Impact of inflation on the monetary policy: case study of Pakistan

ali, ramsha (2016): Impact of inflation on the monetary policy: case study of Pakistan.

Abstract

The study examined the impact of inflation on the monetary policy by using the time series data of 1980-2014. The data source are economic survey of Pakistan and Federal bureau of statistics. Consumer Price Index is the dependent variable (proxy of inflation) while independent variables used in the study are discount rate and broad money supply M₂. The methodology used in the study is ARDL, which shows long run relation among the dependent and independent variables. The results of ARDL suggests that for Discount rate there should be a negative relation with Consumer price index and this validates the long-run but negative relation of Discount rate with Consumer price index while the broad money supply shows the positive relation with the Consumer price index. Hence, study validates the short-run relation among the Consumer price index, Broad money supply and discount rate.

• Item Type: MPRA Paper
• Language: English
• Keywords: Inflation, money supply, interest rate, price stability, tightening monetary policy
• Subjects: G - Financial Economics > G2 - Financial Institutions and Services > G20 - General; H - Public Economics > H3 - Fiscal Policies and Behavior of Economic Agents > H30 - General

References

Andersson, F. N. (2011). Monetary policy, asset price inflation and consumer price inflation. Economics Bulletin, 31(1), 759-770. Ayyoub, M., Chaudhry, I. S., & Farooq, F. (2011). Does inflation affect economic growth? The case of Pakistan. Pakistan Journal of social sciences, 31(1), 51-64. Baillie, R. T., Chung, C. F., & Tieslau, M. A. (1996). Analysing inflation by the fractionally integrated ARFIMA-GARCH model. Journal of applied econometrics, 11(1), 23-40. Belke, A., & Polleit, T. (2004). A Model for Forecasting Swedish Inflation. Inst. für Volkswirtschaftslehre, Univ.. Berument, H., Konac, N., & Senay, O. (2007). Openness and the Effectiveness of Monetary Policy: A Cross-country Analysis. International Economic Journal, 21(4), 577-591. Bordo, M. D., Dueker, M., & Wheelock, D. C. (2008). Inflation, monetary policy and stock market conditions: quantitative evidence from a hybrid latent-variable VAR. FRB of St. Louis Working Paper No. Chaudhry, I. S., Qamber, Y., & Farooq, F. (2012). Monetary Policy, Inflation and Economic Growth in Pakistan: Exploring the Co-integration and Causality Relationships. Pak. J. Commer. Soc. Sci, 6(2), 332-347. Chaudhary, M. A., Ahmad, N., & Siddiqui, R. (1995). Money Supply, Deficit, and Inflation in Pakistan [with Comments]. The Pakistan Development Review, 34(4), 945-956. Gillani, S. Y. M., Rehman, H. U., & Gill, A. R. (2009). Unemployment, poverty, inflation and crime nexus: cointegration and causality analysis of Pakistan. Pakistan Economic and Social Review, 79-98. Javed, S. A., Khan, S. A., Haider, A., & Shaheen, F. (2012). Inflation and inflation uncertainty nexus: empirical evidence from Pakistan. International Journal of Economics and Financial Issues, 2(3), 348. Muritala, T. (2011). Investment, Inflation and Economic Growth: Empirical Evidence from Nigeria. Research Journal of Finance and Accounting, 2(5), 68-76. Özdemir, K. A., & Saygılı, M. (2009). Monetary pressures and inflation dynamics in Turkey: evidence from p-star model. Emerging Markets Finance and Trade, 45(6), 69-86. Rais, S. I. Effectiveness of Monetary and Fiscal Policies in the determination of inflation.