Co-integration and Granger Causality Test of Crude Oil Price, Exchange Rate, KIBOR and Consumer Price Index of Pakistan

Abstract

This study is an attempt to find out the Granger Causality and Co-integration among Crude Oil Prices, Exchange Rate of PKR/USD, KIBOR and Consumer Price Index of Pakistan. The researchers collected monthly data from secondary sources for a period of 108 months from January 2005 to December 2013. Granger Causality and Co-integration techniques are applied to analyze the data. Assumptions of these models are checked using appropriate statistical tests before application. Both co-integration tests, that is, Trace Test and Maximum Eigen Value Test show that three variables are co-integrated with each other. Granger Causality results show that causality is found between CPI and Crude Oil Prices of Pakistan and also between CPI Exchange Rate.