Estimating Implicit Inflation Target For Pakistan: State Space Approach
Author: Saima Bashir

This study has estimated implicit inflation target for Pakistan by using Kalman Filter and time varying parameter model relaxing the assumption of constant inflation target. We have considered both the specifications in state space representation, constant natural rate of interest and time varying natural interest rate, using quarterly data over the period 1981Q1 to 2012Q4. The estimated value of implicit target is 6.79 percent with constant rate. When we included time varying natural interest rate in the model, the trend is same but it shifts the path of inflation target upward. The estimated value of implicit target is 8.43 percent with time varying natural rate. The estimated inflation target is consistent with the intentions of policy makers reflected through the behavior of interest rate and SBP has been partially successful. Supervisor:- Dr. Wasim Shahid Malik

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Keywords : Implicit Inflation, Space Approach
Supervisor: Wasim Shahid Malik

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