Abstract
This paper applies the ARDL bounds testing approach to cointegration to explore a long- and short-run relationship among export per capita; indirect taxes per capita; external debt per capita; exchange rate; crude oil prices and inflation in Pakistan over the period of 1976-2011. The ADF and PP unit root tests are applied to examine the stationarity properties of each series. We find that the series are cointegrated. The impacts of exports, exchange rate and crude oil prices on inflation are found to be positive and highly significant; but that of indirect taxes is positive, significant at the 10% level only. The impact of external debt is negative but not statistically significant. Finally, based on CUSUM and CUSUM square graphs, we confirm that the estimates are structurally stable. The findings shed new insight for the policymakers in controlling inflation in Pakistan.
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