IDEAS home Printed from https://ideas.repec.org/p/pra/mprapa/16486.html
   My bibliography  Save this paper

Causal Ordering Between Inflation and Productivity of Labor and Capital: An Empirical Approach for Pakistan

Author

Listed:
  • Hussain, Karrar

Abstract

This study attempts to analyze the causal relationship between inflation and productivity of labor and capital, in Pakistan’s economy by covering the period from 1960-M1 to 2007-M12. For this purpose Vector Autoregression (VAR) approach is used, which is based on error correction model (ECM). Using this approach we have showed the causal ordering between inflation and exchange rate management policy controlling for, monetary variables like broad money (M-2) and discount rate, which are endogenous in case of Pakistan. We considered the relationship of inflation with two measures of productivity (average and marginal productivity) of labor and capital controlling for capital labor ratio. The objective of this paper is to identify the relative importance of each of these inflation channels by generating Impulse Response Functions (IRFs) to confirm the response of a shock on a variable upon itself and other variables over the four years of time span. Our study concludes that there is a unidirectional causality from inflation to labor productivity through capital labor ratio. And also, there is bidirectional causality between inflation and capital productivity through capital labor ratio. And lastly each channel takes almost fifteen months (on average) for input productivities to affect or affected by inflation.

Suggested Citation

  • Hussain, Karrar, 2009. "Causal Ordering Between Inflation and Productivity of Labor and Capital: An Empirical Approach for Pakistan," MPRA Paper 16486, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:16486
    as

    Download full text from publisher

    File URL: https://mpra.ub.uni-muenchen.de/16486/1/MPRA_paper_16486.pdf
    File Function: original version
    Download Restriction: no
    File URL: https://mpra.ub.uni-muenchen.de/16797/1/MPRA_paper_16797.pdf
    File Function: revised version
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Jarrett, J Peter & Selody, Jack G, 1982. "The Productivity-Inflation Nexus in Canada, 1963-1979," The Review of Economics and Statistics, MIT Press, vol. 64(3), pages 361-367, August.
    2. Ram, Rati, 1984. "Causal Ordering across Inflation and Productivity Growth in the Post-war United States," The Review of Economics and Statistics, MIT Press, vol. 66(3), pages 472-477, August.
    3. Christopher F Baum & Sylvia Hristakeva, 2001. "DENTON: Stata module to interpolate a flow or stock series from low-frequency totals via proportional Denton method," Statistical Software Components S422501, Boston College Department of Economics, revised 26 Sep 2021.
    4. Dasgupta, Partha & Ray, Debraj, 1987. "Inequality as a Determinant of Malnutrition and Unemployment: Policy," Economic Journal, Royal Economic Society, vol. 97(385), pages 177-188, March.
    5. Kandil, Magda & Mirazaie, Ida, 2004. "The Effects of Exchange Rate Fluctuations on Output and Prices: Evidence from Developing Countries," Journal of Developing Areas, Tennessee State University, College of Business, vol. 38(2), pages 189-219, January-M.
    6. Fazal Husain & Kalbe Abbas, 2000. "Money, Income, Prices, and Causality in Pakistan. A Trivariate Analysis," PIDE-Working Papers 2000:178, Pakistan Institute of Development Economics.
    7. Fazal Husain & Tariq Mahmood, 1998. "Causality between Money and Prices: Evidence from Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 37(4), pages 1155-1161.
    8. Asif Idrees Agha & Noor Ahmed & Yasir Ali Mubarik & Hastam Shah, 2005. "Transmission Mechanism of Monetary Policy in Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 1, pages 1-23.
    9. Noor Ahmed & Hastam Shah & Asif Idrees Agha & Yasir Ali Mubarik, 2005. "Transmission Mechanism of Monetary Policy in Pakistan," SBP Working Paper Series 09, State Bank of Pakistan, Research Department.
    10. Ms. Magda E. Kandil, 2000. "The Asymmetric Effects of Exchange Rate Fluctuations: Theory and Evidence From Developing Countries," IMF Working Papers 2000/184, International Monetary Fund.
    11. Magda Kandil, 2008. "The asymmetric effects of exchange rate fluctuations on output and prices: Evidence from developing countries," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 17(2), pages 257-296.
    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. Tariq Mahmood, 2015. "Mediating Effect of Advertising Expenditure on Labour Productivity - A Case of Manufacturing Industries in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 54(1), pages 1-15.

    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. Karrar Hussain, 2009. "Causal Ordering Between Inflation and Productivity of Labor and Capital: An Empirical Approach for Pakistan," CID Working Papers 39, Center for International Development at Harvard University.
    2. repec:aly:journl:201940 is not listed on IDEAS
    3. Khan, Rana Ejaz Ali & Gill, Abid Rashid, 2007. "Impact of Supply of Money on Food and General Price Indices: A Case of Pakistan," MPRA Paper 16293, University Library of Munich, Germany.
    4. Wasim Shahid Malik, 2007. "Monetary Policy Objectives in Pakistan: An Empirical Investigation," PIDE-Working Papers 2007:35, Pakistan Institute of Development Economics.
    5. Daniel C. Hickman & William W. Olney, 2011. "Globalization and Investment in Human Capital," ILR Review, Cornell University, ILR School, vol. 64(4), pages 654-672, July.
    6. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    7. Aadil Nakhoda, 2014. "The Influence of Industry Financial Composition on the Exports from Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 10, pages 21-49.
    8. Montiel, Peter J & Spilimbergo, Antonio & Mishra, Prachi, 2010. "Monetary transmission in low income countries," CEPR Discussion Papers 7951, C.E.P.R. Discussion Papers.
    9. Karrar Hussain, 2009. "Monetary Policy Channels of Pakistan and Their Impact on Real GDP and Inflation," CID Working Papers 41, Center for International Development at Harvard University.
    10. Muhammad, Omer & de Haan, Jakob & Scholtens, Bert, 2014. "Impact of Interbank Liquidity on Monetary Transmission Mechanism: A Case Study of Pakistan," MPRA Paper 56161, University Library of Munich, Germany.
    11. Hassan, Rubina & Shahzad, Mirza Muhammad, 2011. "A macroeconometric framework for monetary policy evaluation: A case study of Pakistan," Economic Modelling, Elsevier, vol. 28(1-2), pages 118-137, January.
    12. Zia Abbas & Syed Faizan Iftikhar & Shaista Alam, 2019. "Does bank capital affect the monetary policy transmission mechanism? A case study of Emerging Market Economies (EMEs)," International Journal of Financial Engineering (IJFE), World Scientific Publishing Co. Pte. Ltd., vol. 6(02), pages 1-20, June.
    13. Muhammad Zahid & Faiza Khalid & Muhammad Ramzan & Muhammad Zia Ul Haq & Wonseok Lee & Jinsoo Hwang & Jimin Shim, 2021. "The Significance of Monetary Policy Transmission Mechanism in the Sustainable Development of the SAARC Economic Community," Sustainability, MDPI, vol. 13(23), pages 1-19, November.
    14. Hondroyiannis, George & Papapetrou, Evangelia, 1998. "Temporal causality and the inflation-productivity relationship: Evidence from eight low inflation OECD countries," International Review of Economics & Finance, Elsevier, vol. 7(1), pages 117-135.
    15. Moinuddin, 2007. "Choice of Monetary Policy Regime: Should SBP Adopt Inflation Targeting," SBP Working Paper Series 19, State Bank of Pakistan, Research Department.
    16. Kamal, Asmma, 2016. "Output Composition of Monetary Policy Transmission in Pakistan," MPRA Paper 78655, University Library of Munich, Germany, revised 20 Apr 2017.
    17. Ghazanchyan, Manuk, 2014. "Unraveling the Monetary Policy Transmission Mechanism in Sri Lanka," MPRA Paper 59444, University Library of Munich, Germany.
    18. Muhammad Nadim Hanif & Muhammad Jahanzeb Malik, 2015. "Evaluating the Performance of Inflation Forecasting Models of Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 11, pages 43-78.
    19. Khan, Mahmood ul Hassan & Hanif, Muhammad Nadim, 2012. "Role of Demand and Supply Shocks in Driving Inflation: A Case Study of Pakistan," MPRA Paper 48884, University Library of Munich, Germany.
    20. Mishra, Prachi & Montiel, Peter, 2013. "How effective is monetary transmission in low-income countries? A survey of the empirical evidence," Economic Systems, Elsevier, vol. 37(2), pages 187-216.
    21. Fayyaz Hussain & Mehak Ejaz, 2022. "Effectiveness of the Exchange Rate Channel in Monetary Policy Transmission in Pakistan (Article)," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 61(1), pages 45-67.

    More about this item

    Keywords

    Productivity; Inflation; Vector Autoregression;
    All these keywords.

    JEL classification:

    • C32 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
    • B22 - Schools of Economic Thought and Methodology - - History of Economic Thought since 1925 - - - Macroeconomics
    • C01 - Mathematical and Quantitative Methods - - General - - - Econometrics

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    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:pra:mprapa:16486. 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: Joachim Winter (email available below). General contact details of provider: https://edirc.repec.org/data/vfmunde.html .

    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.