Inflation Uncertainty and Output Uncertainty Nexus: The Case of Pakistan
Author: Naveed Mahmood

This thesis analyses the relationship between inflation, inflation uncertainty and economic growth uncertainty for Pakistan using quarterly data from 1973 quarter first to 2014 last quarter. Uncertainties have been estimated using GARCH-M modeling framework. This study further uses the GARCH-M specification and Granger Causality test to empirically investigate the relationship between inflation, output growth and their associated uncertainties. The results from the study negate the presence of Cukierman- Meltzer effect that is inflation uncertainty puts no harm to inflation. While the study supports the Friedman-Ball hypothesis which states that higher inflation leads to higher inflation uncertainty. The Granger Causality tests further strengthens the results and suggest a Uni-directional relationship between the two. Results from the study reject the presence of Devraux’s hypothesis and Black’s hypothesis and confirms the Friedman hypothesis that inflation uncertainty adversely affects the economic growth in Pakistan. Our Granger Causality test results further confirms our results obtained from the GARCH-M specification. We find no support that higher inflation uncertainty affects inflation rate however the empirical finding supports the stance that higher output uncertainty increases inflation rate as suggested by both set of the results. At the end monitoring inflation and inflation uncertainty can actually boost the economy as suggested by the results if remained stable. Supervisor:- Dr. Nasir Iqbal

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Keywords : Inflation, Pakistan, Uncertanity Nexus
Supervisor: Nasir Iqbal

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