Inflation and Inflation Uncertainty Nexus: Empirical Evidence from Pakistan

Authors

  • Sajid Amin Javed Pakistan Institute of Development Economics
  • Saud Ahmed Khan National University of Science and Technology (NUST) Islamabad
  • Azad Haider Quaid-e-Azam University
  • Farzana Shaheen Federal Urdu University

Abstract

This study examines relationship between Inflation and Inflation uncertainty for Pakistan using monthly data over 1957:1-2007:12. ARMA-GARCH model is applied to estimate conditional volatility of inflation. Findings of the study support Friedman-Ball hypothesis for Pakistan as Granger-causality test reveals that inflation affects inflation uncertainty positively. We find no evidence for inflation uncertainty affecting inflation rates as suggested by Cukierman & Meltzer (1986) and only unidirectional relation is evident with causality running from inflation to inflation uncertainty. High volatility persistence for inflation is also confirmed. Results of the study may be useful for policymakers at central bank to devise more efficient monetary policy.

Keywords: Friedman-Ball Hypothesis; Inflation Uncertainty; GARCH; Granger Causality

JEL Classifications: E0; E23; E31

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Author Biographies

Sajid Amin Javed, Pakistan Institute of Development Economics

Economics, Assistant Professor

Saud Ahmed Khan, National University of Science and Technology (NUST) Islamabad

IESE (SCEE) National University of Sciences and Technology, Islamabad, PAKISTAN, Lecturer

Azad Haider, Quaid-e-Azam University

Economics, Assistant Professor

Farzana Shaheen, Federal Urdu University

Economics, Assistant Professor

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Published

2012-06-17

How to Cite

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), 348–356. Retrieved from https://www.econjournals.com/index.php/ijefi/article/view/149

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