The Impact of Changes in Exchange Rate on Prices: A Case Study of Pakistan
AbstractRapid changes in prices are of concern in almost all countries since the 1970s. However, the issue is of serious concern in developing countries where imported inflation is seen to be driving domestic inflation resulting in limited effectiveness of domestic policies to control inflation. Like most developing countries, in Pakistan also, the domestic price level started rising from the mid-1970s. The exchange rate started depreciating continuously from the early 1980s.1 Continuous devaluation of currency and inflation in the 1980s seems to suggest a correlation between the two variables. The empirical studies, like Rana and Dowling (1983) suggest that foreign inflation was the most significant factor in explaining changes in the domestic price level in nine Asian less developed countries during 1973–79. This suggests that, while, these countries could do little to control inflation, the policies of other countries, particularly their major trading partners, had a significant impact on their domestic prices. A simultaneous relationship between the inflation rate and the exchange rate changes is viewed by certain researchers to exist. [Cooper (1971) and Krugman and Taylor (1978).] In most of the developing countries flexibility of exchange rate is favoured on the ground that it depoliticises the problem of devaluation and creates less disruption in the economy. In the empirical literature, the exchange rate regimes are also linked to domestic prices, trade patterns and current account balance.
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 Pakistan Institute of Development Economics in its journal The Pakistan Development Review.
Volume (Year): 38 (1999)
Issue (Month): 4 ()
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Krugman, Paul & Taylor, Lance, 1978.
"Contractionary effects of devaluation,"
Journal of International Economics,
Elsevier, vol. 8(3), pages 445-456, August.
- Granger, C. W. J., 1988. "Some recent development in a concept of causality," Journal of Econometrics, Elsevier, vol. 39(1-2), pages 199-211.
- Naz, Farah & Mohsin, Asma & Zaman, Khalid, 2012. "Exchange rate pass-through in to inflation: New insights in to the cointegration relationship from Pakistan," Economic Modelling, Elsevier, vol. 29(6), pages 2205-2221.
- Haider, Adnan & Khan, Safdar Ullah, 2007.
"Does Volatility in Government Borrowing Leads to Higher Inflation? Evidence from Pakistan,"
17008, University Library of Munich, Germany.
- S. Adnan & H.A.S. BUKHARI & Safdar Ullah KHAN, 2008. "Does Volatility In Government Borrowing Leads To Higher Inflation? Evidence From Pakistan," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(3(5)_Fall), pages 187-202.
- Jesus Felipe & J. S. L. McCombie & Kaukab Naqvi, 2010.
"Is Pakistan's Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and Growth,"
Oxford Development Studies,
Taylor & Francis Journals, vol. 38(4), pages 477-496.
- Felipe, Jesus & McCombie, J. S. L. & Naqvi, Kaukab, 2009. "Is Pakistan’s Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and Growth," ADB Economics Working Paper Series 160, Asian Development Bank.
- Ahmed, Shaghil & Ara, Iffat & Hyder, Kalim, 2005. "How External Shocks and Exchange Rate Depreciations Affect Pakistan? Implications for Choice of an Exchange Rate Regime," MPRA Paper 16247, University Library of Munich, Germany, revised Jan 2006.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Khurram Iqbal).
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.