P-Star Model: A Leading Indicator of Inflation in Pakistan

Abstract

Inflation perform a vital role in formulation of economic Growth rate. The goal of this paper is to outlook the P-Star Model: A leading indicator of Inflation in Pakistan. In this study we show the impact of inflation on Pakistan’s economy. As it is a biggest indicator. In this study the selected variables of this study are Inflation (INF), Gross Domestic Product (GDP), Exchange rate (ER), Money Supply (MS), Consumer Price Index (CPI) and Credit (CRDT). Time duration of this research consists on time series annual data from period 1973 to 2014. To check stationary we employed Augmented Dickey Fuller (ADF) and Philips Parron (PP) test. All the variables are stationery at 1st Difference or I(1) then, the suitable technique for the result is Granger Causality test or simply Johnson’s Co-integration Test to check causation among variables. It was clearly predicted that rising price is good for economic stability rather than the falling. This study endures a policy allegation for economic experts in Pakistan to implement a abundant policy to check and to control over it.