Threshold Inflation in Pakistan

Inflation is usually considered to have a non-linear relationship with economic growth: a positive relationship when it is low and stable, and negative when it is high and volatile. It is therefore an important research question: what is that threshold level of inflation beyond which it affects growth negatively? This paper addresses this question in case of Pakistan. We have used two models: one a quadratic model and the other a regression kink model, with unknown threshold. We find the threshold inflation at 6.05 percent and 5.67 percent respectively (on the basis of annual data from 1976 to 2017).