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Factors Affecting the Nominal Exchange Rate of Pakistan: An Econometric Investigation (1982-2008)

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Author Info

  • Naeem Ur Rehman Khattak

    ()
    (Faculty of Social Sciences, University of Peshawar, Pakistan)

  • Muhammad Tariq

    ()
    (Department of Economics, University of Peshawar, Pakistan)

  • Jangraiz Khan

    ()
    (Institute of Management Studies, University of Peshawar, Pakistan)

Abstract

Which macroeconomic factors determine the nominal exchange rate of Pak-rupee against US dollar during the period 1982-2008? This issue has been investigated in this paper by using Ordinary Least Squares and Johansen’s Cointegration techniques. The results show that both monetary and real factors i.e. money supply, trade balance, foreign exchange reserves, inflation and interest rate have long run relationship with the exchange rate of Pak-rupee. However, the granger causality test results show that the relationship between most of the macroeconomic variables and nominal exchange rate bi-directional.

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Bibliographic Info

Article provided by Asian Economic and Social Society in its journal Asian Economic and Financial Review.

Volume (Year): 2 (2012)
Issue (Month): 2 (June)
Pages: 421-428

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Handle: RePEc:asi:aeafrj:2012:p:421-428

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Related research

Keywords: Nominal Exchange Rate; Co integration; Granger Causality test;

References

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  1. Hau, Harald, 2000. "Real Exchange Rate Volatility and Economic Openness: Theory and Evidence," CEPR Discussion Papers 2356, C.E.P.R. Discussion Papers.
  2. Alan C. Stockman, 1978. "A Theory of Exchange Rate Determination," UCLA Economics Working Papers 113, UCLA Department of Economics.
  3. Jose Sanchez-Fung, 2003. "Non-linear modelling of daily exchange rate returns, volatility, and 'news' in a small developing economy," Applied Economics Letters, Taylor & Francis Journals, vol. 10(4), pages 247-250.
  4. Richard Clarida & Jordi Gali, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," NBER Working Papers 4658, National Bureau of Economic Research, Inc.
  5. Eisa Aleisa & Sel Dibooĝlu, 2002. "Sources of real exchange rate movements in Saudi Arabia," Journal of Economics and Finance, Springer, vol. 26(1), pages 101-110, March.
  6. Gabriele Galati & Corrinne Ho, 2001. "Macroeconomic news and the euro/dollar exchange rate," BIS Working Papers 105, Bank for International Settlements.
  7. Martin Berka & Michael B. Devereux, 2010. "What determines European real exchange rates?," Globalization and Monetary Policy Institute Working Paper 46, Federal Reserve Bank of Dallas.
  8. Lastrapes, William D, 1992. "Sources of Fluctuations in Real and Nominal Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 530-39, August.
  9. Richard K. Lyons, 1996. "Foreign Exchange Volume: Sound and Fury Signifying Nothing?," NBER Chapters, in: The Microstructure of Foreign Exchange Markets, pages 183-208 National Bureau of Economic Research, Inc.
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Cited by:
  1. Shahbaz, Muhammad & Tiwari, Aviral Kumar & Tahir, Mohammad Iqbal, 2013. "Analyzing Time-Frequency Relationship between Oil Price and Exchange Rate in Pakistan through Wavelets," MPRA Paper 48086, University Library of Munich, Germany, revised 05 Jul 2013.

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