INFLATION DETERMINANTS AND POLICY MEASURES: EMPIRICAL ANALYSIS FOR PAKISTAN

Humera Sherazi; Hafeez Rehman; Shafqat Mehmood Khan

Humera Sherazi Ph.D. Scholar, Department of Economics, School of Business & Economics, UMT, Lahore, Pakistan
Hafeez Rehman Professor, Department of Economics, School of Business and Economics, UMT, Lahore, Pakistan
Shafqat Mehmood Khan Assistant Professor, Department of Management Sciences, LGU, Lahore, Pakistan, Pakistan

Keywords: Inflation, Unemployment, Interest Rate, Money Supply

Abstract

Appropriate economic choices are very much dependent on stability of prices. It will bring certainty regarding purchasing power of the money. This research uses Johenson cointegration approach covering time duration from 1980 to 2018. The empirical estimates of this study shows that in long run all explanatory variables (unemployment, government consumption expenditures, unit price of imports, interest rate and money supply) have momentous influence in accelerating inflation in Pakistan. The findings show that decrease in unemployment and increase in unit value of imports will enhance inflation in long run. Due to the decrease in the government consumption expenditure there will be low investment, low production, and increased aggregate demand associated with high inflation. There exists positive relation between interest rate and inflation. The increase in money supply enhances inflation. Lagged value of error correction model is significant having appropriate sign. Furthermore, this study uses Granger Causality test to check the existence of uni or bi directional relationship among highlighted variables.

Author Biography

Hafeez Rehman, Professor, Department of Economics, School of Business and Economics, UMT, Lahore, Pakistan

Professor Department of Economics, School of Business and Economics University of Management and Technology, Lahore, Pakistan.