Advanced Search
MyIDEAS: Login

Exchange Rate Behaviour after Recent Float: The Experience of Pakistan

Contents:

Author Info

  • M. Ali Kemal

    (Pakistan Institute of Development Economics, Islamabad.)

  • Rana Murad Haider

    (Pakistan Institute of Development Economics, Islamabad.)

Abstract

The paper analyses different models to check the behaviour of exchange rate after the recent floating period in July 2000. It is found that the gap between the nominal and real exchange rate has widened after 9/11. Changes in the nominal exchange rate and real exchange rate are highly correlated and relative prices are not significantly correlated with the nominal exchange rate. Moreover, the exchange rate did not capture frequent changes in relative prices, which implies that PPP does not hold for the recent floating period. Real exchange rate always overshoots in response to exogenous shocks and then adjusts back to restore the equilibrium, although the adjustment process varies by country. The real exchange rate is not completely a random walk model and the movements are also explained by other fundamentals. It is safer to keep reserves in dollar and yen than in any other currency.

Download Info

If 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.
File URL: http://www.pide.org.pk/pdf/PDR/2004/4/PartII/M%20Ali%20Kemal.pdf
Download Restriction: no

Bibliographic Info

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

Volume (Year): 43 (2004)
Issue (Month): 4 ()
Pages: 829-852

as in new window
Handle: RePEc:pid:journl:v:43:y:2004:i:4:p:829-852

Contact details of provider:
Postal: P.O.Box 1091, Islamabad-44000
Phone: (92)(51)9248051
Fax: (92)(51)9248065
Email:
Web page: http://www.pide.org.pk
More information through EDIRC

Related research

Keywords: Exchange Rate; Pakistan;

Find related papers by JEL classification:

References

References listed on IDEAS
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.:
as in new window
  1. Maurice Obstfeld & Kenneth Rogoff, 1984. "Exchange Rate Dynamics With Sluggish Prices Under Alternative Price-Adjustment Rules," NBER Working Papers 1173, National Bureau of Economic Research, Inc.
  2. Ehsan U. Choudhri & Mohsin S. Khan, 2002. "The Exchange Rate and Consumer Prices in Pakistan: Is Rupee Devaluation In Inflationary?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(2), pages 107-120.
  3. Meese, Richard A & Rogoff, Kenneth, 1988. " Was It Real? The Exchange Rate-Interest Differential Relation over the Modern Floating-Rate Period," Journal of Finance, American Finance Association, vol. 43(4), pages 933-48, September.
  4. Obstfeld, Maurice & Taylor, Alan M., 1997. "Nonlinear Aspects of Goods-Market Arbitrage and Adjustment: Heckscher's Commodity Points Revisited," Journal of the Japanese and International Economies, Elsevier, vol. 11(4), pages 441-479, December.
  5. O'Connell, Paul G. J., 1998. "The overvaluation of purchasing power parity," Journal of International Economics, Elsevier, vol. 44(1), pages 1-19, February.
  6. Mark P. Taylor, 1995. "The Economics of Exchange Rates," Journal of Economic Literature, American Economic Association, vol. 33(1), pages 13-47, March.
  7. Mark, Nelson C. & Choi, Doo-Yull, 1997. "Real exchange-rate prediction over long horizons," Journal of International Economics, Elsevier, vol. 43(1-2), pages 29-60, August.
  8. MacDonald, Ronald & Taylor, Mark P., 1994. "The monetary model of the exchange rate: long-run relationships, short-run dynamics and how to beat a random walk," Journal of International Money and Finance, Elsevier, vol. 13(3), pages 276-290, June.
  9. Shaista Alam & Muhammad Sabihuddin Butt & Azhar Iqbal, 2001. "The Long-run Relationship between Real Exchange Rate and Real Interest Rate in Asian Countries: An Application of Panel Cointegration," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 40(4), pages 577-602.
  10. Dornbusch, Rudiger, 1976. "Expectations and Exchange Rate Dynamics," Journal of Political Economy, University of Chicago Press, vol. 84(6), pages 1161-76, December.
  11. MacDonald, Ronald, 1999. "Exchange Rate Behaviour: Are Fundamentals Important?," Economic Journal, Royal Economic Society, vol. 109(459), pages F673-91, November.
  12. Hassan Shirvani & Barry Wilbratte, 1997. "The Relationship Between The Real Exchange Rate and The Trade Balance: An Empirical Reassessment," International Economic Journal, Taylor & Francis Journals, vol. 11(1), pages 39-50.
  13. Frenkel, Jacob A, 1976. " A Monetary Approach to the Exchange Rate: Doctrinal Aspects and Empirical Evidence," Scandinavian Journal of Economics, Wiley Blackwell, vol. 78(2), pages 200-224.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:pid:journl:v:43:y:2004:i:4:p:829-852. See general information about how to correct material in RePEc.

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.