Mohammad Iqbal Tahir

Analyzing time–frequency relationship between oil price and exchange rate in Pakistan through wavelets

This study analyzed the time–frequency relationship between oil price and exchange rate for Pakistan by using measures of continuous wavelet such as wavelet power, cross-wavelet power, and cross-wavelet coherency (WTC). The results of cross-wavelet analysis indicated that covariance between oil price and exchange rate is unable to give clear-cut results, but both variables have been in phase and out phase (i.e. they are anti-cyclical and cyclical in nature) in some or other durations. However, results of squared wavelet coherence disclose that both variables are out of phase and real exchange rate was leading during the entire period studied, corresponding to the 10–15 months’ scale. These results are the unique contribution of the present study, which would have not been drawn if one would have utilized any other time series or frequency domain-based approach. This finding provides evidence of anti-cyclical relationship between oil price and real effective exchange rate; however, in most of the period studied, real exchange rate was leading and passing anti-cycle effects on oil price shocks which is the major contribution of the study.

Does CPI Granger-cause WPI? New extensions from frequency domain approach in Pakistan

The present study significantly contributes to the economic literature by investigating the direction of causality between WPI and CPI by applying frequency domain causality approach developed by Lemmens et al. (2008) based on spectral approach. We use monthly frequency data covering the period of 1961-2010 in case of Pakistan. Our results provide evidence of cointegration between the variables. Furthermore, we find unidirectional causal relationship running from CPI to WPI that varies across frequencies i.e., CPI Granger-causes WPI at lower, medium as well as higher level of frequencies reflecting long-run, medium and short-run cycles. This implies that CPI should be a leading indicator for important policy decisions pertaining to monetary or fiscal policies in Pakistan.