IDEAS home Printed from https://ideas.repec.org/a/spr/snbeco/v4y2024i12d10.1007_s43546-024-00703-9.html
   My bibliography  Save this article

Inflationary dynamics under fiscal and monetary asymmetries: a nonlinear investigation in Pakistan

Author

Listed:
  • Ali Zeb

    (Zhengzhou University)

  • Niu Shuhai

    (Zhengzhou University)

  • Obaid Ullah

    (Lanzhou University)

Abstract

Amidst the evolving economic landscape of Pakistan, understanding the drivers of inflation is more crucial than ever. This study rigorously examines the asymmetric impacts of exchange rate volatility, fiscal imbalance, and money supply on inflation, aiming to unravel the complex interplay of these key economic variables. Employing a robust Nonlinear Autoregressive Distributed Lag (NARDL) model, the analysis utilizes an annual dataset from 1991 to 2022 to explore both the short-term and long-term effects on inflation. The model’s strength lies in its capacity to capture the nuanced nonlinear relationships and the asymmetric effects of economic shocks. The findings reveal that positive shocks in money supply significantly influence long-term inflation, whereas negative shocks impact short-term inflation dynamics. Similarly, increases in fiscal deficits marginally intensify short-term inflation, but reductions significantly alleviate long-term inflation pressures. Both positive and negative exchange rate shocks are found to adversely affect short-term inflation, with negative impacts persisting in the long term. Additionally, the study confirms bidirectional causality between inflation and economic growth, and identifies a feedback relationship between public spending and inflation, with government expenditures exerting a unidirectional influence on inflation dynamics. These insights underscore the need for refined monetary policies to adeptly manage money supply, emphasizing strategic debt management to balance fiscal activities and promote sustainable growth. Stabilizing exchange rates is also highlighted as essential for protecting the economy from external perturbations. This comprehensive analysis not only advances our understanding of inflationary dynamics in Pakistan but also offers valuable implications for economic policy in similarly structured economies.

Suggested Citation

  • Ali Zeb & Niu Shuhai & Obaid Ullah, 2024. "Inflationary dynamics under fiscal and monetary asymmetries: a nonlinear investigation in Pakistan," SN Business & Economics, Springer, vol. 4(12), pages 1-30, December.
    • Handle: RePEc:spr:snbeco:v:4:y:2024:i:12:d:10.1007_s43546-024-00703-9
    DOI: 10.1007/s43546-024-00703-9
    as

    Download full text from publisher

    File URL: http://link.springer.com/10.1007/s43546-024-00703-9
    File Function: Abstract
    Download Restriction: Access to the full text of the articles in this series is restricted.
    File URL: https://libkey.io/10.1007/s43546-024-00703-9?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Shikha Sharma & Manju Dahiya, 2023. "Analysis of the Effect of Currency Exchange Rate, Broad Money (M3) and Oil Prices on Inflation in India," International Journal of Economics and Financial Issues, Econjournals, vol. 13(3), pages 158-168, May.
    2. A.U. Aimola & N.M. Odhiambo, 2021. "Public Debt and Inflation: Empirical Evidence from Ghana," Working Papers AESRI-2021-06, African Economic and Social Research Institute (AESRI), revised Jan 2021.
    3. Ahmed, Rashad & Aizenman, Joshua & Jinjarak, Yothin, 2021. "Inflation and Exchange Rate Targeting Challenges Under Fiscal Dominance," Journal of Macroeconomics, Elsevier, vol. 67(C).
    4. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    5. Zivot, Eric & Andrews, Donald W K, 2002. "Further Evidence on the Great Crash, the Oil-Price Shock, and the Unit-Root Hypothesis," Journal of Business & Economic Statistics, American Statistical Association, vol. 20(1), pages 25-44, January.
    6. Helge Berger & Sune Karlsson & Pär Österholm, 2023. "A note of caution on the relation between money growth and inflation," Scottish Journal of Political Economy, Scottish Economic Society, vol. 70(5), pages 479-496, November.
    7. Saungweme Talknice & Odhiambo Nicholas M., 2021. "Public debt and inflation dynamics: Empirical evidence from Zimbabwe," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 7(2), pages 14-30, December.
    8. M. Hashem Pesaran & Yongcheol Shin & Richard J. Smith, 2001. "Bounds testing approaches to the analysis of level relationships," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 16(3), pages 289-326.
    9. İbrahim Özmen & Mihai Mutascu, 2023. "Public Debt and Growth: New Insights," Post-Print hal-04273850, HAL.
    10. Nguyen, Van Bon, 2015. "Effects of fi scal defi cit and money M2 supply on inflation: Evidence from selected economies of Asia," Journal of Economics, Finance and Administrative Science, Universidad ESAN, vol. 20(38), pages 49-53.
    11. Perron, Pierre, 1990. "Testing for a Unit Root in a Time Series with a Changing Mean," Journal of Business & Economic Statistics, American Statistical Association, vol. 8(2), pages 153-162, April.
    12. Olusola Joel Oyeleke, 2021. "On the Non-Linear Relationship between Fiscal Deficit and Inflation: The Nigeria Experience," International Advances in Economic Research, Springer;International Atlantic Economic Society, vol. 27(2), pages 105-117, May.
    13. Joel Hinaunye Eita & Victoria Manuel & Erwin Naimhwaka & Florette Nakusera, 2021. "The Impact of Fiscal Deficit on Inflation in Namibia," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 10(1), pages 141-164.
    14. Emmanuel Duodu & Samuel Tawiah Baidoo & Hadrat Yusif & Prince Boakye Frimpong, 2022. "Money supply, budget deficit and inflation dynamics in Ghana: An empirical investigation," Cogent Business & Management, Taylor & Francis Journals, vol. 9(1), pages 2043810-204, December.
    15. Clement Olalekan Olaniyi, 2020. "Application of Bootstrap Simulation and Asymmetric Causal Approach to Fiscal Deficit-Inflation Nexus," Global Journal of Emerging Market Economies, Emerging Markets Forum, vol. 12(2), pages 123-140, May.
    16. Ali, Amjad & Khokhar, Bilal & Sulehri, Fiaz Ahmad, 2023. "Financial Dimensions of Inflationary Pressure in Developing Countries: An In-depth Analysis of Policy Mix," MPRA Paper 119364, University Library of Munich, Germany.
    17. Orkideh Gharehgozli & Sunhyung Lee, 2022. "Money Supply and Inflation after COVID-19," Economies, MDPI, vol. 10(5), pages 1-14, April.
    18. Misbah Nosheen & Beenish Chohan & Javed Iqbal & Mark Wohar, 2023. "Asymmetric response of domestic production to exchange rate changes: Evidence from southeast Asian countries," Asian-Pacific Economic Literature, The Crawford School, The Australian National University, vol. 37(2), pages 54-75, November.
    19. Satrugan Sinah, 2018. "Empirical Study of Relationship between Money Supply and Inflation Based on Data from New Standardised Reporting Format," International Journal of Economics and Finance, Canadian Center of Science and Education, vol. 10(1), pages 213-219, January.
    20. Musa, Nuhu, 2021. "Impact of Exchange Rate Volatility on Inflation in Nigeria," Journal of Contemporary Research in Business, Economics and Finance, Learning Gate, vol. 3(1), pages 26-38.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. David Aboagye Danquah & Ibrahim Mohammed, 2025. "Enhancing intra-regional trade in sub-saharan Africa: an exploration of threshold effects and the intermediation role of FDI and tourism," SN Business & Economics, Springer, vol. 5(1), pages 1-23, January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Heidari, Hassan & Katircioglu, Salih Turan & Davoudi, Narmin, 2012. "Are current account deficits sustainable? New evidence from Iran using bounds test approach to level relationships," Economics - The Open-Access, Open-Assessment E-Journal (2007-2020), Kiel Institute for the World Economy (IfW Kiel), vol. 6, pages 1-18.
    2. Talknice Saungweme & Nicholas M. Odhiambo, "undated". "Does Public Debt Granger-Cause Inflation In Tanzania? A Multivariate Analysis," Working Papers AESRI06, African Economic and Social Research Institute (AESRI).
    3. T. Saungweme & N.M. Odhiambo, 2021. "Does Public Debt Granger-Cause Inflation In Tanzania? A Multivariate Analysis," Working Papers AESRI-2021-25, African Economic and Social Research Institute (AESRI), revised Dec 2022.
    4. Akhand Akhtar Hossain, 2008. "Rural Labour Market Developments, Agricultural Productivity, and Real Wages in Bangladesh, 1950–2006," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 47(1), pages 89-114.
    5. Saungweme, Talknice & Odhiambo, Nicholas M., 2022. "Does Public Debt Granger-Cause Inflation in Tanzania? A Multivariate Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 75(1), pages 75-100.
    6. Brittle, Shane, 2009. "Ricardian Equivalence and the Efficacy of Fiscal Policy in Australia," Economics Working Papers wp09-10, School of Economics, University of Wollongong, NSW, Australia.
    7. Bashiri Behmiri, Niaz & Pires Manso, José R., 2012. "Does Portuguese economy support crude oil conservation hypothesis?," Energy Policy, Elsevier, vol. 45(C), pages 628-634.
    8. Kanjilal, Kakali & Ghosh, Sajal, 2013. "Environmental Kuznet’s curve for India: Evidence from tests for cointegration with unknown structuralbreaks," Energy Policy, Elsevier, vol. 56(C), pages 509-515.
    9. Sahoo, Manoranjan & Babu, M. Suresh & Dash, Umakant, 2016. "Long run sustainability of current account balance of China and India: New evidence from combined cointegration test," MPRA Paper 79013, University Library of Munich, Germany, revised 2016.
    10. Ahmed, Khalid, 2015. "The sheer scale of China’s urban renewal and CO2 emissions: Multiple structural breaks, long-run relationship and short-run dynamics," MPRA Paper 71035, University Library of Munich, Germany.
    11. Jafari Samimi, Ahmad & Ghaderi, Saman & Sanginabadi, Bahram, 2012. "The Effects of Openness and Globalization on Inflation: An ARDL Bounds Test Approach," MPRA Paper 52407, University Library of Munich, Germany.
    12. Özlem Karadağ Albayrak & Samet Topal & Serhat Çamkaya, 2022. "The Impact of Economic Growth, Renewable Energy, Non-renewable Energy and Trade Openness on the Ecological Footprint and Forecasting in Turkiye: an Case of the ARDL and NMGM Forecasting Model," Alphanumeric Journal, Bahadir Fatih Yildirim, vol. 10(2), pages 139-154, December.
    13. Marques, António Cardoso & Fuinhas, José Alberto & Neves, Sónia Almeida, 2018. "Ordinary and Special Regimes of electricity generation in Spain: How they interact with economic activity," Renewable and Sustainable Energy Reviews, Elsevier, vol. 81(P1), pages 1226-1240.
    14. Kouton, Jeffrey, 2018. "Education expenditure and economic growth: Some empirical evidence from Côte d’Ivoire," MPRA Paper 88350, University Library of Munich, Germany.
    15. Senay ACIKGOZ & Anil AKCAGLAYAN, 2014. "Turkiye’de Cari Islemler Aciginin Surdurulebilirligi," Ege Academic Review, Ege University Faculty of Economics and Administrative Sciences, vol. 14(1), pages 83-97.
    16. Mary O. Agboola & Festus V. Bekun, 2019. "Does Agricultural Value Added Induce Environmental Degradation? Empirical Evidence from an Agrarian Country," CEREDEC Working Papers 19/040, Centre de Recherche pour le Développement Economique (CEREDEC).
    17. Aamir Javed & José Alberto Fuinhas & Agnese Rapposelli, 2023. "Asymmetric Nexus between Green Technology Innovations, Economic Policy Uncertainty, and Environmental Sustainability: Evidence from Italy," Energies, MDPI, vol. 16(8), pages 1-20, April.
    18. Muhammad Shahbaz & Amatul Razzaq Chaudhary & Syed Jawad Hussain Shahzad, 2020. "Is energy consumption sensitive to foreign capital inflows and currency devaluation in Pakistan?," Applied Economics, Taylor & Francis Journals, vol. 50(52), pages 5641-5658, June.
    19. Karaaslan, Abdulkerim & Çamkaya, Serhat, 2022. "The relationship between CO2 emissions, economic growth, health expenditure, and renewable and non-renewable energy consumption: Empirical evidence from Turkey," Renewable Energy, Elsevier, vol. 190(C), pages 457-466.
    20. Tang, Chor Foon, 2011. "Tourism, real output and real effective exchange rate in Malaysia: a view from rolling sub-samples," MPRA Paper 29379, University Library of Munich, Germany.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:spr:snbeco:v:4:y:2024:i:12:d:10.1007_s43546-024-00703-9. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Sonal Shukla or Springer Nature Abstracting and Indexing (email available below). General contact details of provider: http://www.springer.com .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.