Inflation targeting and exchange rate pass through in Pakistan: Markov switching approach

Authors

Safia Minhaj, University of Karachi
Muhammad Nishat, Institute of Business Administration, Karachi, PakistanFollow

Abstract

This study uses Markov switching model to empirically track the existence of exchange rate pass through and inflation trends in Pakistan from 1982 to 2016. The results reveal a direct relationship between pass through and inflation. Furthermore, interest rate and trade variables have a significant impact on inflation. According to the smoothed probabilities, switches between regimes were sudden and sporadic till 1990, after which long spells were observed during high and low inflation regimes.

Keywords

Pass through effect, Inflation targeting, Markov switching model

DOI

https://doi.org/10.54784/1990-6587.1028

Creative Commons License

This work is licensed under a Creative Commons Attribution 4.0 International License.

Recommended Citation

Minhaj, S., & Nishat, M. (2019). Inflation targeting and exchange rate pass through in Pakistan: Markov switching approach. Business Review, 13(2), 20-33. Retrieved from https://doi.org/10.54784/1990-6587.1028