摘要：This article illustrates the dynamics of and tradeoff between inflation and
output in Pakistan by utilizing data on 18 major trading partners in a cointegration
analysis. In doing so, we use key features of the global vector autoregressive approach
to construct a model that captures foreign-specific variables related to Pakistan; these
are analyzed empirically along with domestic data for the period 1972–2014. Our
findings show that, after accounting for the impact of increasing interdependencies,
trade spillovers and changing global macroeconomic conditions, a long-run
equilibrium relationship exists between domestic inflation and output. The foreign
variables have a significant impact on the key domestic variables. In particular,
domestic inflation and trade openness, foreign inflation and world oil prices have
significant explanatory power for Pakistani output. Policymakers in Pakistan should
therefore account for global developments, specifically in trading partner economies.
