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Abseact:Main objective was to check the cointegration between inflation and import prices, interest rate, gross domestic product and money supply. Engle Granger cointegration (two step method) was applied to check the long run as well as short run relationship. ADF test was used to check the stationarity of variables. All the variables are stationary at first difference, so cointegration test was applied. Cointegration exists among inflation and import prices, interest rate, gross domestic product and money supply. There is long run relationship between inflation and independent variables including interest rate and gross domestic product. Import prices and money supply have no long run impact on inflation. There is short run relationship between inflation and interest rate and gross domestic product. No short run relationship is found between inflation and import prices and money supply.
Muhammad Ajmair (Wed,) studied this question.