Model Specification and inflation forecast uncertainty in case of Pakistan
Author: Muhammad Azhar Bhatti

Although there exist many models for the monetary sector in Pakistan, we applied three classes of inflation models Standard Phillips curves (PCM), New Keynesian Phillips curves (NPCM) and Incomplete Competition models (ICM). We used annual time series data from 1980 to 2016. PCM includes the output gap and unemployment rate, NPCM has the forward looking expectations and used labor income share instead of output gap, and ICM identifies the importance of incomplete information of labor and product markets, and used some ECM to forecast inflation. The relevant ECM has overcome the omitted variable bias. ICM is better in visualization forecasting and has the lower root mean square error and mean absolute percentage error as compared to other inflation models. In conclusion, wage prices dynamics model (ICM) offers the best prospect of successful inflation forecast in case of Pakistan. Supervisor:- Dr. Ahsan ul Haq Satti

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Keywords : Inflation Forecasting, Inflation Targeting, Inflation Uncertainty, MONETARY POLICY, Wages and price model specification
Supervisor: Ahsan ul Haq Satti

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