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Performance of CHEERs Based Equilibrium Exchange Rate of Pakistan

Author

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  • Muhammad Awais Bhatti
  • Noman Arshed
  • Muhammad Haseeb

Abstract

In pursuit to sketch the Pakistan USA Exchange Rate patterns for the duration of 1991M3 to 2010M5 using the CHEERS model, the role of Goods Market and Financial Market is implied through the Purchasing Power Parity (PPP) and Uncovered Interest Parity (UIP) respectively. The results using Vector Error Correction Model (VECM) revealed that both Parities work in combination with near unity elasticities to explain the motion of Exchange Rate in Long Run, but it showed very slow degree of convergence (around 3 and half years) to this equilibrium path after any shock.

Suggested Citation

  • Muhammad Awais Bhatti & Noman Arshed & Muhammad Haseeb, 2013. "Performance of CHEERs Based Equilibrium Exchange Rate of Pakistan," Business and Management Horizons, Macrothink Institute, vol. 1(1), pages 17-43, June.
    • Handle: RePEc:mth:bmh888:v:1:y:2013:i:1:p:17-43
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    References listed on IDEAS

    as
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    4. Abdul Qayyum & Muhammad Arshad Khan & Khair-U-Zaman, 2004. "Exchange Rate Misalignment in Pakistan: Evidence from Purchasing Power Parity Theory," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 721-735.
    5. Clostermann, Jörg & Schnatz, Bernd, 2000. "The determinants of the euro-dollar exchange rate: synthetic fundamentals and a non-existing currency," Discussion Paper Series 1: Economic Studies 2000,02, Deutsche Bundesbank.
    6. Ronald MacDonald & Mark P. Taylor (ed.), 1991. "Exchange Rate Economics," Books, Edward Elgar Publishing, volume 0, number 569.
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