Three Attempts at Inflation Forecasting in Pakistan

Publication Date:

May 1, 2005

Electronic Access:

Free Download. Use the free Adobe Acrobat Reader to view this PDF file

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary:

This paper presents three empirical approaches to forecasting inflation in Pakistan. The preferred approach is a leading indicators model in which broad money growth and private sector credit growth help forecast inflation. A univariate approach also yields reasonable forecasts, but seems less suited to capturing turning points. A vector autoregressive (VAR) model illustrates how monetary developments can be described by a Phillips-curve type relationship. We deal with potential parameter instability on account of fundamental changes in Pakistan's economic system by restricting our sample to more recent observations. Gregorian and Islamic calendar seasonality are addressed by using 12-month moving averages.

Series:

Working Paper No. 2005/105

Subject:

Cyclical indicators Economic forecasting Inflation Monetary base Vector autoregression

English

Publication Date:

May 1, 2005

ISBN/ISSN:

9781451861242/1018-5941

Stock No:

WPIEA2005105

Pages:

37

Please address any questions about this title to publications@imf.org