Some structural evidence indicating a substantial degree of inertia in commodity prices in Pakistan within the context of a complete rational expectations macroeconomic model is provided. The evidence also supports the existence of a short‐run Phillips curve for Pakistan for the period 1972(1) to 1981(4). What is more interesting is the existence of a long‐run “trade‐off” between excess demand for labour and inflation despite the fact that inflationary expectations are assumed to be rational.
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