Inﬂation targeting and exchange rate pass through in Pakistan: Markov Switching ApproachSaﬁa Minhaj and Mohammad Nishat
First published: 1 March 2019
This study uses Markov switching model to empirically track the existence of exchange rate pass through and inﬂation trends in Pakistan from 1982 to 2016. The results reveal a direct relationship between pass through and inﬂation. Furthermore, interest rate and trade variables have a signiﬁcant impact on inﬂation. According to the smoothed probabilities, switches between regimes were sudden and sporadic till 1990, after which long spells were observed during high and low inﬂation regimes.
Keywords: Pass through eﬀect · Inﬂation targeting · Markov switching model.