Interest Rates in Pakistan Accurately Anticipate Inflation, Implications for Policy.
The study tested the relationship between interest rates and inflation in Pakistan using a cointegration approach. They found that there is a long-term connection between nominal interest rates and expected inflation, supporting the Fisher Hypothesis. This means that interest rates accurately predict inflation. The study also showed that the banking sector in Pakistan is efficient during the period studied. However, the results suggest that interest rates may not be a reliable indicator for monetary policy decisions.