Analyzing the Uncertainty of Sensitive Price Index: Evaluating the Friedman-Ball and Cukierman-Meltzer hypothesis in Pakistan Economy
Author: Zeeshan Hanif

This research explores the relationship between inflation constructed from a Sensitive Price Indicator and inflation uncertainty by following the Friedman-Ball hypothesis (FBH) and the Cukierman Meltzer hypothesis (CMH). The FBH states that a high rate of inflation induces high inflation of uncertainty. CMH suggests that the causal link is between inflation uncertainties to inflation. The weekly data are used from July 2008 to May 2020. The inflation uncertainty is made using a weekly rolling window. The VAR and ARDL models are used to estimate the lag and contemporaneous influence of inflation and its uncertainty on each other. While Granger causality and VAR Granger causality are used to estimating causal relationships. The results of these models and analyses suggest that there is no causal association running from inflation to uncertainty regarding inflation. But there is current and lag effect run from inflation uncertainty to inflation. We conclude that the results are in favor of CMH which says causal relationship runs from inflation uncertainty to inflation, and on the basis of given data we reject FBH hypothesis. These outputs may provide insights to policymakers when they make policy regarding the basic necessity goods. Supervisor:- Uzma Zia Co-Supervisor:- Dr. Saud Ahmed Khan

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Keywords : Inflation, Inflation Uncertainty
Supervisor: Uzma Zia
Cosupervisor: Saud Ahmed Khan

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