Revisiting the Dynamic Impact of Fiscal Policy on Inflation in Pakistan

Abstract

Purpose: The target of the present research study is to examine the Non-Ricardian regime and determination of inflation in an open economy taking the case of Pakistan. Design/Methodology/Approach: This research is carried out for the economy of Pakistan for the period of 1976–2019. To deal with the time series data we need to test the Stationarity of the data in advance to confirm the non-existence of the second I(2) of stationarity. For the purpose of stationarity testing this study used test Phillips Peron (PP) test. PP test results suggested the use of ARDL. Findings: The results of ARDL reported that the intervention of the government has a very important and dominant role the determination of price level (Inflation) in an open economy. Implications/Originality/Value: The study has concluded that the government should focus on fiscal measure as well with the extensive use of monetary policy in coordination with fiscal policy to keep inflation in control in Pakistan