Relationship between Inflation and other Macro Economic Variables in Pakistan
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Published:
2024-04-11
Keywords:
Budget Deficit, Inflation, Money Supply, Autoregressive Distributed Lag,
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Abstract
Conventionally, it is claimed that persistently higher deficit in government budget may cause the inflation to rise in the long run but this relationship is not conclusive empirically. Therefore, the present study is aimed to determine the relationship between inflation and other studied variables of macroeconomic i.e. fiscal deficit and supply of money in the short run as well as in the long run in Pakistan. the bound testing approach to co-integration and VAR model, established within an autoregressive distributed lag (ARDL) is used to annual data of time series covering the period of time from 1960 to 2010 for examining the studied variables both in short run as well as in long run. The conclusion of the study shows that the relationship between the studied variables is insignificant in the long-run but the outcomes of VAR model illustrate that a short run positive relationship between the studied variables cannot be ignored. The study further indicates that 1% change in budget deficit and money supply caused to change the inflation by 0.29 and 0.31 times respectively in the short run. The results provide strong evidence that the government may target reducing the inflation by generating domestic economic resources to boost the economic growth instead of reducing budget deficit.
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How to Cite
Relationship between Inflation and other Macro Economic Variables in Pakistan. (2024). Journal of Management Info, 2(4), 6-15. https://doi.org/10.31580/jmi.v8i1.44
References
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Dehaan and Zelhorost. 1990. The impact of Government Deficit on Money growth in Developing countries. Journal of International Money and Finance, 9(4): pp. 455-469.
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Mehdi, S. and M. Reza. 2011. Relationship between Govt. budget deficit and inflation in Iran’s economy. Information management and business review, 2(5): pp. 223-228.
Metin, K. 1998. The relationship between inflation and budget deficit in Turkey Journal of Business & Economics Statistics, 16 (4): pp. 412-422.
Mukhtar, T. & M. Zakaria. 2010. Budget deficit, Money supply and Inflation: The case of Pakistan. Pakistan institute of development economics.
Neyapti. 1998. Budget deficit and Inflation: An analysis in the light of Roles of Central Bank Independence and financial Market Development. Working papers, No.997, Department of Economics, Ankara: Bilkent University.
Oladipo, S. O. and T. O. Akinbobola. 2011. Budget deficit and inflation in Nigeria: A causal relationship. Journal of emerging trends in Economics and management sciences (JETEMS), 2(1): pp. 1-8, (ISSN: 2141-7024).
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Qayyum, A. 2006. Money, Inflation, and Growth in Pakistan. Pakistan Institute of Development Economics, MPRA Paper No. 255, Online at http://mpra.ub.uni-muenchen.de/2005/.
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Samimi, A. J. and S. Jamshedbaygi. 2011. Budget deficit and inflation: A sensitivity analysis to inflation and money supply in Iran. Middle East journal of scientific research, 8(1): pp. 257-260.
Sarfaraz, A. and M. Anwar. 2009. Fiscal imbalances and inflation: A case study of Pakistan. Pakistan journal of social sciences (PJSS), 29 (1): pp. 39-50.
Shabbir, T. and A. Ahmed. 1994. Are government budget deficit inflationary? Evidence from Pakistan. The Pakistan development review, 33:4(2): pp. 955-967.
Solomen, M. and W. A. de Wet. 2004). The effect of budget deficit on inflation: The case study of Tanzania. SAJEMS NS 7 (1).
Srivyal. and S. Ventaka. 2004. Budget deficit and other macro economic variables in India. Applied Econometrics and International Development, AEEADE. Vol.4-1.
Tiwari, A. K. and A. P. Tiwari. 2011. Fiscal deficit and inflation: An empirical analysis for India. The Romanian economic Journal, Year XIV, 42 (1).
Yusoff, R. M., & Khan, F. (2013). Stress and Burnout in the Higher Education Sector in Pakistan: A Systematic Review of Literature. Research Journal of Recent Sciences, 2(11), 90-98.
Bhatti, M. N. (2014). A Study of Branding Issues in PC World UK. Journal of Management Info, 2(1).
Bilquees and Faiz. 1988. Inflation in Pakistan: Empirical Evidence on the Monetarist and Structuralist Hypothesis. The Pakistan Development Review, 27(2): pp.109-129.
Chaudhry, M. A. and N. Ahmed. 1995. Money supply, deficit and inflation in Pakistan. The Pakistan Development Review, 34: 4(3): pp.945-956.
Chimobi, O. P. and O. L. Igwe. 2010. Budget deficit, money supply & inflation in Nigeria. European journal of Economics, Finance and Administrative sciences, ISSN. 1450-2275.
Dehaan and Zelhorost. 1990. The impact of Government Deficit on Money growth in Developing countries. Journal of International Money and Finance, 9(4): pp. 455-469.
Eisner, R. 1989. Budget Deficits: Rhetoric and Reality. Journal of Economic Perspectives, Vol. 3: pp. 73-93.
Fuller, W. A. 1976. Introduction to Statistical Time Series, John Wiley and Sons, New York, 373.
Habib ullah, M. S., C. K. Cheah and A. H. Baharom. 2011. Budget deficit and inflation in thirteen Asian developing countries. International journal of business and social sciences, 2 (9): issue 19, http:// www.eurojournals.com.
Idrees, A. and M. Saleem Khan. 2006). An empirical analysis of fiscal imbalances and inflation in Pakistan. SBP Research bulletin, 2 (2).
Kemal, M. A. 2006. Is inflation in Pakistan a monetary phenomenon. The Pakistan development Review, 45 (2): pp. 213–220.
Khan, F., Yusoff, R. M., & Khan, A. (2014). Job Demands, Burnout and Resources in Teaching a Conceptual Review. World Applied Sciences Journal, 30(1), 20-28.
Khan, M. S. & A. Schimmelpfennig. 2006. Inflation in Pakistan. The Pakistan development review, 45 (2): pp.185-202.
Makochekanwa, A. 2008. The effect of budget deficit on inflation in Zimbabwe. Online at http://mpra.ub.uni-muenchen.de/24227/. MPRA paper No. 24227.
Mehdi, S. and M. Reza. 2011. Relationship between Govt. budget deficit and inflation in Iran’s economy. Information management and business review, 2(5): pp. 223-228.
Metin, K. 1998. The relationship between inflation and budget deficit in Turkey Journal of Business & Economics Statistics, 16 (4): pp. 412-422.
Mukhtar, T. & M. Zakaria. 2010. Budget deficit, Money supply and Inflation: The case of Pakistan. Pakistan institute of development economics.
Neyapti. 1998. Budget deficit and Inflation: An analysis in the light of Roles of Central Bank Independence and financial Market Development. Working papers, No.997, Department of Economics, Ankara: Bilkent University.
Oladipo, S. O. and T. O. Akinbobola. 2011. Budget deficit and inflation in Nigeria: A causal relationship. Journal of emerging trends in Economics and management sciences (JETEMS), 2(1): pp. 1-8, (ISSN: 2141-7024).
Onwioduoicit, E. A. 2007. Fiscal deficit and inflation dynamics in Nigeria: An empirical investigation of causal relationships. CBN Economic and Financial review, 37 (2): pp. 1-16.
Qayyum, A. 2006. Money, Inflation, and Growth in Pakistan. Pakistan Institute of Development Economics, MPRA Paper No. 255, Online at http://mpra.ub.uni-muenchen.de/2005/.
Qureshi, M., Khan, N., Rasli, A., & Zaman, K. (2015). The battle of health with environmental evils of Asian countries: promises to keep. Environmental Science and Pollution Research, 1-8.
Saleem et.al. 2013. Determinants of Inflation in Pakistan. Interdisciplinary journal of Contemporary Research in business, Vol.4, No.9, ijcrb.webs.com.
Samimi, A. J. and S. Jamshedbaygi. 2011. Budget deficit and inflation: A sensitivity analysis to inflation and money supply in Iran. Middle East journal of scientific research, 8(1): pp. 257-260.
Sarfaraz, A. and M. Anwar. 2009. Fiscal imbalances and inflation: A case study of Pakistan. Pakistan journal of social sciences (PJSS), 29 (1): pp. 39-50.
Shabbir, T. and A. Ahmed. 1994. Are government budget deficit inflationary? Evidence from Pakistan. The Pakistan development review, 33:4(2): pp. 955-967.
Solomen, M. and W. A. de Wet. 2004). The effect of budget deficit on inflation: The case study of Tanzania. SAJEMS NS 7 (1).
Srivyal. and S. Ventaka. 2004. Budget deficit and other macro economic variables in India. Applied Econometrics and International Development, AEEADE. Vol.4-1.
Tiwari, A. K. and A. P. Tiwari. 2011. Fiscal deficit and inflation: An empirical analysis for India. The Romanian economic Journal, Year XIV, 42 (1).
Yusoff, R. M., & Khan, F. (2013). Stress and Burnout in the Higher Education Sector in Pakistan: A Systematic Review of Literature. Research Journal of Recent Sciences, 2(11), 90-98.