On Nominal and Real Devaluations Relation: An Econometric Evidence for Pakistan
AbstractThe economy can be affected, either positively or negatively, by the process of devaluation of local currency. An improvement in trade balance is considered as one of the most significant and beneficial impacts of devaluation. However, higher inflation would lead to expensive imports that offset the growth of economy resulting from an increase in exports. This reduces the effectiveness of devaluation to reduce the trade deficit. The benefits of devaluation are restricted where inflation severely hits the economy. Moreover, nominal devaluation of exchange rate improves the trade balance when it leads to real devaluation of exchange rate. The present study is also an attempt to explore the long run and short run relationship between nominal and real effective exchange rates. The study is one of the a unique attempt in the case of Pakistan as devaluation has always been a politically sensitive issue. The order of integration has been found through Ng-Perron (2001), whereas ARDL and DOLS are employed for long run correlations. The findings clearly indicate that nominal devaluation not only leads to real devaluation in long run but also in short run. This scenario provides directions for policy-makers to take into consideration both positive and negative implications of devaluation in Pakistan.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoArticle provided by Euro-American Association of Economic Development in its journal International Journal of Applied Econometrics and Quantitative Studies .
Volume (Year): 9 (2009)
Issue (Month): 1 ()
Contact details of provider:
Web page: http://www.usc.es/economet/eaa.htm
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- C20 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - General
- C22 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models &bull Diffusion Processes
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Muhammad, Shahbaz & Faridul, Islam & Muhammad Sabihuddin, Butt, 2011. "Devaluation and income inequality: Evidence from Pakistan," MPRA Paper 35522, University Library of Munich, Germany, revised 21 Dec 2011.
- Muhammad, Shahbaz & Faridul, Islam & Naveed, Aamir, 2011.
"Is devaluation contractionary? empirical evidence for Pakistan,"
32520, University Library of Munich, Germany, revised 01 Aug 2011.
- Muhammad Shahbaz & Faridul Islam & Naveed Aamir, 2012. "Is devaluation contractionary? Empirical evidence for Pakistan," Economic Change and Restructuring, Springer, vol. 45(4), pages 299-316, November.
- Kyophilavong, Phouphet & Shahbaz, Muhammad & Salah Uddin, Gazi, 2014.
"A Note on Nominal and Real Devaluation in Laos,"
57307, University Library of Munich, Germany, revised 13 Jul 2014.
- 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.
- Aviral Tiwari & Muhammad Shahbaz, 2014. "Revisiting Purchasing Power Parity for India using threshold cointegration and nonlinear unit root test," Economic Change and Restructuring, Springer, vol. 47(2), pages 117-133, May.
- Faridul, Islam & Mohammad, Iqbal Tahir & Muhammad, Shahbaz, 2012. "Income terms of trade and trade balance: the long run evidence from Bangladesh," MPRA Paper 38384, University Library of Munich, Germany, revised 24 Apr 2012.
- Tiwari, Aviral & Shahbaz, Muhammad, 2011. "India's trade with USA and her trade balance: An empirical analysis," MPRA Paper 29023, University Library of Munich, Germany.
- Muhammad Nasir & Wasim Malik, 2011. "Structural Decomposition of Exchange Rate Shocks in Pakistan: An Empirical Investigation using SVAR Methodology," Transition Studies Review, Springer, vol. 18(1), pages 124-138, September.
- Shahbaz, Muhammad & Jalil, Abdul & Islam, Faridul, 2010. "Real Exchange Rate Changes and Trade Balance in Pakistan: A Revisit," MPRA Paper 27631, University Library of Munich, Germany.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (M. Carmen Guisan).
If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.
If references are entirely missing, you can add them using this form.
If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.
If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.
Please note that corrections may take a couple of weeks to filter through the various RePEc services.