Monetary Policy Shocks And Inflation Persistence: In Case Of Pakistan
Author: Sania Anwar

Inflation persistence has been major stress for economies during past few decades. Inflation is monetary phenomenon and the persistence of inflation has broadly attracted attention of economists all over the world. Inflation persistence shows the degree to which future values of inflation are associated to bygone shocks or, in other words, the speed of adjustment toward its long-run value. Indeed, inflation dynamics and the degree of persistence in inflation have been recognized as the most essential parameters for affecting monetary policy’s performance. This study estimates the degree of inflation persistence and other macro-economic variables (under multivariate Approach). Secondly, this study allows the long memory property of inflation persistence to examining the effect of monetary policy shocks on Pakistan’s economy. Knowing the degree of inflation, offers the vital information, to the central bank, about how to manage the interest rate in order to attain the targeted rate of inflation. The study employed Structural Fractional Integrated Vector Auto-regressive Model for the monthly data of 2004:07-2019:12. Parametric method used for the estimation of fractional integration parameter. The result of the study suggests that there is a high but mean reverting behavior of inflation persistence in Pakistan. Its means that monetary policy shock will affect the inflation for longer period of time and dissipate slower than it is under the assumption of stationarity. The results show the positive and significant impact of monetary policy shocks on inflation persistence. Supervisor:- Dr. Ahsan-ul-Haq Satti

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Supervisor: Ahsan ul Haq Satti

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