Money Supply, Exchange Rate, Industrial and Agricultural Product Prices : Evidence from Pakistan

The hypothesis of Saghaian et al. (2002) is tested in this study by employing the JJ Co-integration Method, Vector Error Correction Model (VECM) and Rolling Window Regression Analysis. Empirical results suggested long run relationship between money supply, agricultural prices, industrial prices and exchange rate in the case of Pakistan. The VECM demonstrates that agricultural prices adjusted faster than industrial prices in the long run due to the short run changes in money supply and exchange rate. The rolling regression results suggested that after 2004 the depreciation of local currency was the main reason to sharply increase the agricultural and industrial product prices