Passthrough of Global Inflation to Domestic Inflation: An Empirical Evidence for Pakistan.

This study has estimated passthrough of global food and energy inflation to CPI inflation in Pakistan for the period 1993M2 to 2012M2. The study has applied Augmented Dickey Fuller (ADF) test to check stationarity of data before applying Ordinary Least Square (OLS) technique. The estimation results showed that global inflation in food, industrial inputs and energy price indices positively and significantly affect inflation in Pakistan in the long run. The empirical estimates of long run passthrough of foreign food and energy inflation to domestic inflation are consistent with recent studies for developing countries. On the basis of estimation results, the study recommends prudent use of monetary policy in coordination with fiscal policy to control pssthrough of foreign inflation to domestic inflation in Pakistan. [ABSTRACT FROM AUTHOR]