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Pass through effects of oil price on food and non-food prices in Pakistan: A nonlinear ARDL approach

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  • Sarwar, Muhammad Nadeem
  • Hussain, Hamid
  • Maqbool, Muhammad Bilal

Abstract

Petroleum products constitute major share of Pakistan's imports. A change in crude oil prices affects energy prices and thus manufacturing and transportation cost. All these factors result in influencing the prices of goods and services which ultimately affect the welfare level of masses. Keeping in view, the market structure at international and local level, present study examines the pass-through effect of crude oil prices on food and non-food prices in Pakistan using nonlinear and asymmetric autoregressive distributive lag (NARDL) model and causality tests for 1990Q3 to 2019Q4 period. Results show that oil prices effect both food and non-food inflation, but effect is more pronounced in non-food inflation. It is also found that the impact is asymmetric, that is, effect is positive and significant only when oil price increase. Results of this study confirm the role of market power in commodity prices in Pakistan and call for effective regulatory policies.

Suggested Citation

  • Sarwar, Muhammad Nadeem & Hussain, Hamid & Maqbool, Muhammad Bilal, 2020. "Pass through effects of oil price on food and non-food prices in Pakistan: A nonlinear ARDL approach," Resources Policy, Elsevier, vol. 69(C).
    • Handle: RePEc:eee:jrpoli:v:69:y:2020:i:c:s0301420720309077
    DOI: 10.1016/j.resourpol.2020.101876
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    More about this item

    Keywords

    Oil price fluctuations; Pass-through; Asymmetric effects; Food inflation; Non-food inflation; NARDL;
    All these keywords.

    JEL classification:

    • C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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