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Time-Frequency Analysis of Determinants of Inflation Rate in Pakistan

Author

Listed:
  • Muhammad Nadim Hanif

    (State Bank of Pakistan)

  • Sajjad Zaheer

    (State Bank of Pakistan)

  • Javed Iqbal

    (State Bank of Pakistan)

Abstract

By using wavelet decomposition method, this study provides time-frequency analysis of headline inflation and its determinants for the case of Pakistan by using monthly data covering July 1992 to June 2021. Frequency scale-wise correlation and causation analysis indicates that in the short run (at median frequency of 4 to 8 months) policy rate, exchange rate changes, changes in government borrowing and growth in import payments are associated with inflation rate in Pakistan. During medium run (at median frequency of 16 to 64 months), growth in broad money supply and global commodity prices also affect inflation. In the long run (at low frequency scale of above 64 months), growth in government borrowing, global commodity prices and broad money supply determine the inflation rate in Pakistan. The study shows that money supply matters more for inflation than the policy rate in the long run.

Suggested Citation

  • Muhammad Nadim Hanif & Sajjad Zaheer & Javed Iqbal, 2022. "Time-Frequency Analysis of Determinants of Inflation Rate in Pakistan," SBP Working Paper Series 111, State Bank of Pakistan, Research Department.
    • Handle: RePEc:sbp:wpaper:111
    as

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    File URL: https://www.sbp.org.pk/publications/wpapers/2022/wp111.pdf
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    References listed on IDEAS

    as
    1. Yogo, Motohiro, 2008. "Measuring business cycles: A wavelet analysis of economic time series," Economics Letters, Elsevier, vol. 100(2), pages 208-212, August.
    2. Javed Iqbal & M. Nadim Hanif, 2012. "Estimating Standard Error of Inflation Rate in Pakistan; A Stochastic Approach," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 51(3), pages 257-272.
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    4. Ramsey, James B. & Lampart, Camille, 1998. "Decomposition Of Economic Relationships By Timescale Using Wavelets," Macroeconomic Dynamics, Cambridge University Press, vol. 2(1), pages 49-71, March.
    5. repec:zbw:bofrdp:2010_006 is not listed on IDEAS
    6. Muhammad Nadim Hanif & Javaid Iqbal & Syed Hamza Ali & Muhammad Abdus Salam, 2020. "Denoised Inflation: A New Measure of Core Inflation," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 9(2), pages 131-154.
    7. Crowley, Patrick M., 2010. "Long cycles in growth: explorations using new frequency domain techniques with US data," Bank of Finland Research Discussion Papers 6/2010, Bank of Finland.
    8. Abdullah Tahir & Jameel Ahmed & Waqas Ahmed, 2018. "Robust Quarterization of GDP and Determination of Business Cycle Dates for IGC Partner Countries," SBP Working Paper Series 97, State Bank of Pakistan, Research Department.
    9. Furrukh Bashir & Farzana Yousaf & Huda Aslam, 2016. "Determinants of Inflation Rate in Pakistan: Demand and Supply Side Analysis," Journal of Finance and Economics Research, Geist Science, Iqra University, Faculty of Business Administration, vol. 1(1), pages 49-60, January.
    10. Javed Iqbal & Muhammad Nadim Hanif, 2017. "Performance Comparison of Modified HP Filter, Wavelet Analysis and Empirical Mode Decomposition for Smoothing Macroeconomic Time Series," SBP Working Paper Series 87, State Bank of Pakistan, Research Department.
    11. Muhammad Ejaz & Muhammad Nadim Hanif, 2018. "An Anatomy of Credit Booms in Pakistan: Evidence from Macro Aggregates and Firm Level Data," SBP Working Paper Series 101, State Bank of Pakistan, Research Department.
    12. Aviral Kumar Tiwari & Richard O. Olayeni & Sodik Adejonwo Olofin & Tsangyao Chang, 2019. "The Indian inflation–growth relationship revisited: robust evidence from time–frequency analysis," Applied Economics, Taylor & Francis Journals, vol. 51(51), pages 5559-5576, November.
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    More about this item

    Keywords

    Time Frequancy; Wavelet; Inflation Determinantes;
    All these keywords.

    JEL classification:

    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E51 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Money Supply; Credit; Money Multipliers

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