Analyzing The Dynamic Interactions Between Workers' Remittances And Inflation By Using Vector Auto Regressive (VAR) And Co- Integration Approach

Abstract

Pakistan has benefited greatly from Pakistani remittances, which have been a significant source of foreign exchange. The consumer price index (CPI), the wholesale price index (WPI), and Pakistan's workers' remittances (WR) are all inflation indicators, but Pakistan's consumption-oriented economy makes it interesting to investigate the potential relationship—long-term or short-term—between the two. At the first step, the causality between WR and CPI and WR and WPI will be checked. This investigation will make use of the monthly CPI, WPI, and WR data from July 2008 to June 2017. The vector autocorrelation model is utilized for the short-term connection between the factors, while the Johansen strategy is utilized for the long-term relationship. According to the empirical findings, remittances from abroad have a significant positive effect on inflation. As a result, it is imperative that remittances from abroad be channeled into productive investments in order to boost economic growth and mitigate the inflationary effects of remittances in Pakistan.