Determinants of Inflation in Case of Pakistan: A TVAR Analysis & Methods of Quran & Hadith

Abstract

This study investigated the nonlinear dynamic relationship between inflation and its determinants by adopting threshold co integration and TVECM. It is found that there exists nonlinear long run relationship among variables. The variables used here are inflation, economic growth, money supply growth, government spending percentage of GDP and exchange rate. The time series data at annual frequency ranging from 1960-2015 is collected for all the variables. TVECM shows different speed of adjustment parameter values towards study state level. Nonlinear impulse response function shows different dynamics for high persistent regime as well as for low persistent regime. The nonlinear regression model is also interpreting different magnitude in different regimes.