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Stability and Robustness of Inflation Model of Nepal: An Econometric Analysis

Author

Listed:
  • T. R. Bishnoi

    (The Maharaja Sayajirao University of Baroda)

  • T. P. Koirala

    (The Maharaja Sayajirao University of Baroda
    Nepal Rastra Bank)

Abstract

This paper investigates the robustness and stability of inflation model of Nepal. Unit root test is applied to confirm the validity of random walk of major macro variables relating to inflation and its determinants. A test of cointegration between inflation and its explanatory variables based on residual is applied to examine the long-run relationship. Information obtained from cointegrating equation, an Error Correction Model (ECM) is developed which shows both long-run and short-run relationship. It is found that ECM of inflation of Nepal is stable and robust on the ground of various econometric tests.

Suggested Citation

  • T. R. Bishnoi & T. P. Koirala, 2006. "Stability and Robustness of Inflation Model of Nepal: An Econometric Analysis," Journal of Quantitative Economics, Springer;The Indian Econometric Society (TIES), vol. 4(2), pages 114-129, July.
    • Handle: RePEc:spr:jqecon:v:4:y:2006:i:2:d:10.1007_bf03546452
    DOI: 10.1007/BF03546452
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    References listed on IDEAS

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    1. Milton Friedman, 1971. "A Theoretical Framework for Monetary Analysis," NBER Books, National Bureau of Economic Research, Inc, number frie71-1.
    2. Engle, Robert F, 1982. "Autoregressive Conditional Heteroscedasticity with Estimates of the Variance of United Kingdom Inflation," Econometrica, Econometric Society, vol. 50(4), pages 987-1007, July.
    3. V. V. Chari, 1999. "Nobel laureate Robert E. Lucas, Jr.; architect of modern macroeconomics," Quarterly Review, Federal Reserve Bank of Minneapolis, vol. 23(Spr), pages 2-12.
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    Cited by:

    1. T.P. Koirala Ph.D., 2013. "Time-varying Parameters of Inflation Model in Nepal: State Space Modeling," NRB Working Paper 16/2013, Nepal Rastra Bank, Research Department.
    2. T.P. Koirala Ph.D., 2012. "Inflation Persistence in Nepal: A TAR Representation," NRB Working Paper 11/2012, Nepal Rastra Bank, Research Department.
    3. repec:nrb:wpaper:nrbwp162013 is not listed on IDEAS
    4. T.P.Koirala, Ph.D., 2013. "Time-Varying Parameters of Inflation Model in Nepal: State Space Modeling," NRB Economic Review, Nepal Rastra Bank, Economic Research Department, vol. 25(2), pages 66-77, October.
    5. T.P.Koirala Ph.D., 2013. "Time-Varying Parameters of Inflation Model in Nepal: State Space Modeling," NRB Economic Review, Nepal Rastra Bank, Research Department, vol. 25(2), pages 66-77, October.

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