How Significant Are Administered Prices In Inflationary Spiral of Pakistan?

Abstract

The role of administered prices and its impact on inflation in context of Pakistan economy is a subject that needs to be explored. Although determinants of inflation in Pakistan have been thoroughly investigated but there is dearth of literature when it comes to contribution of administered prices in facilitating inflation in the country. The study considers administered prices along with other determinants of inflation i.e., money supply, adaptive expectation and output gap from period 1990Q1 to 2010Q1. It finds that administered prices positively affect inflation but output gap, money supply and adaptive expectation are more significant contributors. To study the detailed role of administered prices their direct and indirect effects have also been computed. Indirect effect turns out to be more pronounced than direct effect.