This study examines the relationship between inflation and interest rates in Pakistan from 1973-2010 using time series econometric techniques. The study finds evidence of a long-run equilibrium relationship between nominal interest rates and inflation in Pakistan based on cointegration tests. Specifically, Johansen and Engle-Granger cointegration tests indicate inflation and nominal interest rates move together in the long-run, supporting the Fisher hypothesis. This adds to previous research finding a positive relationship between inflation and interest rates. The findings provide theoretical support for studying the impact of inflation on monetary policy effectiveness in Pakistan.
This study examines the relationship between inflation and interest rates in Pakistan from 1973-2010 using time series econometric techniques. The study finds evidence of a long-run equilibr…