Exploring the Causal Relationships Between Inflation, Savings, and Economic Growth in Pakistan

This study investigates the causal relationships between inflation, economic growth, and savings in Pakistan using time series data spanning from 1971 to 2016. The Johansen cointegration test, using the trace test, identifies a single significant cointegrating relationship. The VAR model analysis determines the optimal lag length to be 2. The findings of the Granger causality show that there is bidirectional causality between the following pairs: gross fixed capital formation and GDP growth; gross domestic saving and GDP growth; inflation and GDP growth; and saving and capital formation. While inflation cause capital formation and saving while capital formation and saving do not cause inflation.