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Factors Affecting the Nominal Exchange Rate of Pakistan: An Econometric Investigation (1982-2008)

  • Naeem Ur Rehman Khattak

    ()

    (Faculty of Social Sciences, University of Peshawar, Pakistan)

  • Muhammad Tariq

    ()

    (Department of Economics, University of Peshawar, Pakistan)

  • Jangraiz Khan

    ()

    (Institute of Management Studies, University of Peshawar, Pakistan)

Which macroeconomic factors determine the nominal exchange rate of Pak-rupee against US dollar during the period 1982-2008? This issue has been investigated in this paper by using Ordinary Least Squares and Johansen’s Cointegration techniques. The results show that both monetary and real factors i.e. money supply, trade balance, foreign exchange reserves, inflation and interest rate have long run relationship with the exchange rate of Pak-rupee. However, the granger causality test results show that the relationship between most of the macroeconomic variables and nominal exchange rate bi-directional.

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Article provided by Asian Economic and Social Society in its journal Asian Economic and Financial Review.

Volume (Year): 2 (2012)
Issue (Month): 2 (June)
Pages: 421-428

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Handle: RePEc:asi:aeafrj:2012:p:421-428
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  1. Martin Berka & Michael B. Devereux, 2010. "What determines European real exchange rates?," CAMA Working Papers 2010-17, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
  2. Hau, Harald, 2000. "Real Exchange Rate Volatility and Economic Openness: Theory and Evidence," CEPR Discussion Papers 2356, C.E.P.R. Discussion Papers.
  3. Alan C. Stockman, 1978. "A Theory of Exchange Rate Determination," UCLA Economics Working Papers 122, UCLA Department of Economics.
  4. Richard Clarida & Jordi Gali, 1994. "Sources of Real Exchange Rate Fluctuations: How Important are Nominal Shocks?," NBER Working Papers 4658, National Bureau of Economic Research, Inc.
  5. Jose Sanchez-Fung, 2003. "Non-linear modelling of daily exchange rate returns, volatility, and 'news' in a small developing economy," Applied Economics Letters, Taylor & Francis Journals, vol. 10(4), pages 247-250.
  6. Richard K. Lyons., 1995. "Foreign Exchange Volume: Sound and Fury Signifying Nothing?," Research Program in Finance Working Papers RPF-243, University of California at Berkeley.
  7. Eisa Aleisa & Sel Dibooĝlu, 2002. "Sources of real exchange rate movements in Saudi Arabia," Journal of Economics and Finance, Springer, vol. 26(1), pages 101-110, March.
  8. Gabriele Galati & Corrinne Ho, 2001. "Macroeconomic news and the euro/dollar exchange rate," BIS Working Papers 105, Bank for International Settlements.
  9. Lastrapes, William D, 1992. "Sources of Fluctuations in Real and Nominal Exchange Rates," The Review of Economics and Statistics, MIT Press, vol. 74(3), pages 530-39, August.
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