Pakistan Research Repository

Resolving Controvesies About Determinant Of Inflation

Muhammad , Rehman (2011) Resolving Controvesies About Determinant Of Inflation. PhD thesis, International Islamic University, Islamabad .

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Abstract

While there exist many models for the monetary sector in Pakistan, to the best of our knowledge, no one has applied Hendry’s methodology to the construction of a model for inflation in Pakistan.Our contribution in this thesis is to apply this methodology, which has the potential for resolving many controversial issues.Some of the key features of this methodology is that the model should be consistent with theory.Our final model is consistent with a is a mark-up model of the price level.In addition, it has the statistical properties of being empirically constant, parsimonious; data consistent.It also has long run stable dynamic based on an error correction representation.It also encompasses existing models in the literature including those based on purchasing power parity and the Hybrid new Keynesian Phillips curve.In addition to the nested model evaluation procedures recommended by Hendry, we also exposit and utilize non-nested hypothesis testing procedure for model evaluation.In particular, we employ different non nested hypotheses testing procedures e.g. Cox-type tests, encompassing tests and Wald type tests etc, as well as appropriate model selection criteria to choose the relatively better approximation of true data generating process.In accordance with the key methodological idea of encompassing, we evaluate the relative empirical characteristics of statistical models for CPI inflation based upon the theory of price markup model with the non nested theory based models e.g. Model based on Quantity theory of money, P-star model and a structural model.We find that, our markup model dominates its rival models.This research addresses a variety of econometric issues relating to cointegration, exogeneity, model selection, general to specific methodology, long run, short run properties, and impulse response of ECM model, mean and median lag calculations and forecasting etc which helps policy maker in designing and conducting policy in more accurately.

Item Type:Thesis (PhD)
Uncontrolled Keywords:Statistical, Determinant, Empirically, Resolving, Parity, Calculations, Inflation, Methodology, Quantity, Controvesies, Econometric
Subjects:Social Sciences(g) > Economics (g5)
ID Code:7775
Deposited By:Mr. Javed Memon
Deposited On:26 Feb 2013 11:55
Last Modified:26 Feb 2013 11:55

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