Inflation In Pakistan Research Articles

Inflation in Pakistan Revisited

A notable development in recent years in Pakistan's economic scene has been the sharp pickup in the rate of inflation. In particular, Pakistan has experienced sustained intlation (changes in the CPI) hovering between 11.0 to 13.0 percent range during the last three years (1993-94 to 1995-96). The persistence of inflation at double-digit rates over the three successive years has attracted considerable attention of academics and policy-makers. Not surprisingly, one of the thorniest issues in Pakistan's policy arena today is how to put inflation under effective control.Recent studies on inflation in Pakistan I broadly agree on the key factors influencing the rate of inflation, namely, the growth in money supply, the supply side bottlenecks, the adjustment in government-administered prices, the imported inflation (exchange rate adjustment), escalations in indirect taxes, and inflationary expectations. However, these studies do not concur on the relative importance of each of these factors as determinants of inflation. While Nasim (1995) and Hossain (1990) find money supply as the principal factors underlying the rising inflation rate in Pakistan, others suggest that food prices followed by government administered fueVenergy prices and indirect taxation are the primary impetus for the upward inflationary spira1.2 In fact, Naqvi et al. (1994); Hasan et at. (1995) and Bilquees (1988) accord relatively less importance to money supply as a factor influencing the rate of inflation but in no way recommend a relatively easy monetary policy.

Macroeconomic Policies and Management of Debt, Deficit, and Inflation in Pakistan

The study attempts to analyse the sustainability of fiscal policy in Pakistan. Alternative foreign debt and domestic debt strategies were analysed for formulating meaningful policy guidelines. Such analysis was made consistent with other macro-economic variables like growth of GNP, inflation, and interest rates on debt. Alongwith the identifications of sustainable deficit, required deficit reduction in the actual fiscal deficit under appropriate assumptions was also estimated for three time periods: the 1980s, 1985–95 (recent past), and 1993–98 (the 8th plan period). The averages of the sustainable deficits for the above- cited periods under alterantive scenarios were estimated by utilising a sustainable deficit model for Pakistan. Our empirical findings indicate that Pakistan has been following such macro-economic policies pertaining to fiscal deficit as are not consistent with sustainable deficit. For instance, during the 1980s, deficit of about 4.2 percent of GNP was sustainable against the actual fiscal deficit of 6.5 percent. During the recent past, sustainable deficit was about 5.4 percent of GNP against the actual deficit of 7.4 percent. It was planned that during 1993–98, fiscal deficit will be restricted to 5.5 percent of GNP and GNP growth was expected 7 percent per annum. However, during the first three years of the 8th plan, GNP growth was only 3.6 percent per annum. Our estimates indicated that sustainable fiscal deficit was only 2.7 percent of GNP for this period, given the above actual growth of the economy. The above discussion provides important information regarding unsustainability of fiscal deficit in Pakistan. Throughout the period under analysis, fiscal deficit was not sustainable. As a result, negative impacts of fiscal deficit on the economy were bound to emerge. Our findings regarding sustainability of fiscal deficit have important bearing on macroeconomic policies. Inflation, unemployment, increasing burden of debt and debt-servicing are linked with fiscal deficit. Thus, there is a need to keep the fiscal deficit within a limit; consistent with other macro-economic variables like inflation and debt, etc. Doing so may help to stabilise the economy and to solve the related economic problems. In brief, fiscal deficit need to be reduced for sustainability of the fiscal system and for stable economic growth.

Money Supply, Deficit, and Inflation in Pakistan

Inflation is a burning issue in Pakistan. It is generally felt that for several years Pakistan has had a double-digit inflation. The public sector has used a mix of policies to control inflation, and it is also held responsible for its creation. The consumer price index (CPI) increased over 11 percent in 1981-82, and over 12 percent in 1990-91. Similarly, sensitive price index (SPI) increased over 15 percent in 1981-82, and over 12 percent in 1990-91. The GDP deflator was also double-digit for several years. Inflation not only affects sectoral allocation and distribution of income but also generates poverty. A prescription might not be appropriate until the roots of the disease are carefully investigated, which is the very reason for carrying out this study. Studies by Hossain (1990) several others concluded that inflation is a monetary phenomenon in Pakistan, while Bilquees (1988) showed that structural factors explained the inflationary process in Pakistan. It is widely disagreed whether money supply is exogenous or endogenous. Vogel (1974), criticising the monetarist approach, argued that further research is needed on the determination of money supply. Given this background, this study is intended to identify the variables leading to inflation; the nature of money supply, endogenous or exogenous, is also analysed. Section 2 of the study provides a brief review of the literature. A model is developed to study the relationship among fiscal deficit, money supply, and inflation. Section 3 contains a description of the empirical results. Section 4 provides the conclusion and policy implications.

Money and Inflation in Pakistan: Some Tests

Money and Inflation in Pakistan: Some Tests

Inflation in Pakistan: Empirical Evidence on the Monetarist and Structuralist Hypotheses

In the light of the debate between the monetarists and the structuralists regarding the explanation of inflation- in the LOCs this paper tests the monetarist and structuralist hypotheses to determine the possible factors affecting the inflationary process in Pakistan. After examining the two hypotheses the study concludes that in addition to monetary factors, the structural factors peculiar to the economy of Pakistan also have to be considered for a better understanding of this phenomenon.

Money Growth, Inflation, and Causality (Empirical Evidence for Pakistan, 1973-1985)

This paper uses the Granger direct test to evaluate the causal relationship between growth in money supply and inflation in Pakistan. The historical period investigated extends from 1973 to 1985. The results of the test show that money growth had a significant impact on inflation during the period considered. In addition, there is some evidence at hand showing that inflation, too, affected money growth over the 1973- 1985 period. The empirical issue of the impact of money supply on rate of inflation continues to be a much debated topic. For example, Tumovsky and Wohar (1984) do not find any identifiable relationship between money supply and prices over the 1929- 1978 period in the U.S., while Benderly and Zwick (1985) find money supply affecting prices in the U,S, over the 1955-1982 period. Jones and Uri (1986) also find evidence of money supply influencing price level in the U.S. during the 1953- 1984 period. Studies• for other countries, e,g. Driscoll, Ford, and Mullineux (1985) for the U.K., invariably report similar conflicting results about the relationship between money supply and prices. While there are numerous empirical studies that have examined the causal relationship .between money supply and prices in developed countries, there are also several recent studies that have addressed this particular issue for developing countries. In one such study, Aghevli and Khan (1978) use the Haugh-Pierce test to investigate the causal relationship between money growth and inflation in Brazil, Colombia. the Dominican Republic, and Thailand. t The results of the tests show a feedback or bidirectional causality between money and inflation in all the four developing countries over the 1964-1974 period.

Monetary Disequilibrium and Inflation: A Monetary Model of Inflation in Pakistan, 1963-82

This paper develops and estimates a monetary model of inflation in Pakistan over the 1963 -82 period. Both domestic and external factors are identified as the major determinants of inflation. Dynamic simulation results suggest that the model is able to track the fluctuations of endogenous variables and, most importantly, the inflation explosion during the 1970s is clearly predicted by the inflation equation.

Dual Sector Inflation in Pakistan

In this note we point out the importance of using the standard deviation, S, in economic analysis. not merely as an indicator of confidence level for prediction, but also as a basic analytical tool. It is shown that new insights into economic problems may be obtained by giving closer attention to this statistical index, in addition to the other more commonly used indices. If the standard deviation for an economic index is too high. it may be more appropriate to dispense with the one index for the entire sample and break the sample into two or more parts, each of which has a reasonable standard deviation.