Study reveals inflation has major impact on Pakistan's economy dynamics.
The study aimed to estimate the relationship between inflation and output gap in Pakistan using a Triangle model. The researchers used Unit root Analysis, cointegration Analysis, and Error Correction Model to analyze Time Series data from 1971-2016. They found that there is a long-term relationship between inflation and supply shocks like oil prices and exchange rates, but not with the output gap. In the short term, the output gap has a positive impact on inflation, while supply shocks do not affect inflation dynamics.