Inflation in Pakistan: Money Or Wheat?, Issues 2006-2060
International Monetary Fund, Middle East and Central Asia Department, Mar 1, 2006 - Inflation (Finance) - 28 pages
This paper examines the relative importance of monetary factors and structuralist supply-side factors for inflation in Pakistan. A stylized inflation model is specified that includes standard monetary variables (money supply, credit to the private sector), the exchange rate, as well as the wheat support price as a supply-side factor that has received considerable attention in Pakistan. The model is estimated for the period January 1998 to June 2005 on a monthly basis. The results indicate that monetary factors have played a dominant role in recent inflation, affecting inflation with a lag of about one year. Changes in the wheat support price influence inflation in the short run, but not in the long run. Furthermore, the wheat support price matters only over the medium term if accommodated by monetary policy.
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6-month t-bill accommodated by monetary Aikaiki Information Criterion APPENDIX Table Bokil and Schimmelpfennig broad money growth capita growth cointegrating vector core inflation Criterion Schwarz Criterion Dec Mar Jun domestic wheat prices Endogenous variables equation exchange rate pass-through financial development food prices Gregorian calendar effects headline inflation hurt growth IMF staff calculations impacts inflation import prices impulse response individual lags inflation in Pakistan inflation target integrated of order International Financial Statistics Islamic calendar effects Khan and Qasim lag length levels of inflation log levels long-run relationship macroeconomic monetarist monetary conditions monetary factors monetary growth monetary policy money demand money supply National authorities NEER nonfood inflation Pakistan's growth PcGets private sector credit real GDP growth real per capita regressor Riazuddin and Khan role sample SBP's Schimmelpfennig 2005 sector credit growth September 2003 Sherani short run structuralist factors stylized model support price increases Support Price VECM transmission mechanism wheat support price