THE ROLE OF GOLD PRICES, EXCHANGE RATE AND INTEREST RATE ON THE CONTINUITY OF INFLATION IN PAKISTAN

Abdur Rahman Aleemi, Muhammad Tariq, Shuaib Ahmed

Abstract


In this paper we investigated the role of gold prices, interest
rate and exchange rate against inflation in Pakistan both in the long
and the short run, utilizing time series data over the period of 1975-
2013 under the Johansen co-integration and vector error correction
specifications. The results suggest that gold prices and interest rate
are significantly positively related with inflation in the long run in
the case of Pakistan, indicating that a rise in gold prices and interest
will result in increase in inflation in Pakistan. Whereas exchange
rate is found to be insignificant to impact inflation over the length of
this study. However exchange rate is found to have significantly and
negatively associated with inflation in the short run. That means that
appreciation in rupee (PKR) will result in decrease in inflation and
vice versa.


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DOI: http://dx.doi.org/10.22555/pbr.v18i1.660

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