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Business Review

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

Creative Commons License

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

Published Online

December 14, 2020

Included in

Finance Commons

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