Exchange Rate Pass-Through to Consumer Prices in Pakistan: Using Vector Auto Regression (VAR) Approach

Abstract

This study attempts to examine the pass-through impact of exchange rates on consumer prices in the specific context of Pakistan. To completely assess this association, a thorough configuration of five variables was carefully picked. The dataset covers financial patterns spanning more than twenty years, from January 2000 to December 2021. With the utilization of multivariate analysis and a Vector Auto Regression (VAR) model, the analysis presents convincing fragments of the data. The data indicates that fluctuations in the exchange rate have a significant impact on the Consumer Price Index (CPI). The Impulse Response (IR) analysis incorporates this association, mirroring a positive relationship between the two variables. In like manner, Granger causality analysis reveals understanding into the sharp control of the CPI in wrapping up exchange rate shifts. Unendingly out, these revelations feature the squeezing position of the exchange rate in making feeling of expansion parts inside Pakistan's monetary scene.