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The Exchange Rate and Consumer Prices in Pakistan: Is Rupee Devaluation In Inflationary?

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  • Ehsan U. Choudhri

    (Carleton University, Canada.)

  • Mohsin S. Khan

    (International Monetary Fund, Washington, D.c.)

Abstract

This paper challenges the popular view that devaluation of the rupee is inflationary. Recent developments in the theoretical literature are reviewed to explain why consumer prices would be unresponsive to exchange rate changes in the short run. Then empirical tests are conducted for Pakistan during the period 1982 to 2001 to examine whether inflation is systematically related to changes in the exchange rate. The empirical analysis finds no association between rupee devaluations and inflation in Pakistan. It appears, therefore, that concerns about the inflationary consequences of rupee devaluation are unsupported by the facts

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Bibliographic Info

Article provided by Pakistan Institute of Development Economics in its journal The Pakistan Development Review.

Volume (Year): 41 (2002)
Issue (Month): 2 ()
Pages: 107-120

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Handle: RePEc:pid:journl:v:41:y:2002:i:2:p:107-120

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  1. Ghulam Yasin Soomro, 2000. "A Re-examination of Fertility Transition in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 39(3), pages 247-261.
  2. Naushin Mahmood & Durr-E-Nayab, 1998. "Gender Dimensions of Demographic Change in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 37(4), pages 705-725.
  3. SABlHA HASSAN SYED, 1978. "Female Status and Fertility in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 17(4), pages 408-430.
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Cited by:
  1. Selim Elekdag & Nabil Ben Ltaifa & Todd Schneider & Saade Chami, 2007. "Can a Rule-Based Monetary Policy Framework Work in a Developing Country? the Case of Yemen," IMF Working Papers 07/6, International Monetary Fund.
  2. M. Ali Kemal & Rana Murad Haider, 2004. "Exchange Rate Behaviour after Recent Float: The Experience of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 829-852.
  3. Khan, Safdar Ullah & Saqib, Omar Farooq, 2008. "Political Instability and Inflation in Pakistan," MPRA Paper 13056, University Library of Munich, Germany, revised 02 Jan 2009.
  4. International Monetary Fund, 2005. "Three Attempts At Inflation Forecasting in Pakistan," IMF Working Papers 05/105, International Monetary Fund.
  5. 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.
  6. Saira Tufail & Sadia Batool, 2013. "An Analysis of the Relationship between Inflation and Gold Prices: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(2), pages 1-35, July-Dec.
  7. 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.
  8. Haider, Adnan & Khan, Safdar Ullah, 2007. "Does Volatility in Government Borrowing Leads to Higher Inflation? Evidence from Pakistan," MPRA Paper 17008, University Library of Munich, Germany.

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