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Are Real Devaluations Contractionary? an Empirical Analysis for Pakistan

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  • Naeem Ur Rehman Khattak
  • Muhammad Tariq

Abstract

The failure of Bretton Woods system in 1970s diverted the attention of the researchers and policy makers from the orthodox wisdoms of elasticities, absorptions and Keynesian towards the new structuralist theories of contractionary depreciations. The present study has been carried out to test this contractionary hypothesis of real depreciations for Pakistan in the framework of a three version IS curve approach by using annual data over the period, 1973-2008. The main finding of the study is that real depreciation increases the output gap in Pakistan. The results also show that movement towards a more flexible exchange rate regimes also raises the output gap.

Suggested Citation

  • Naeem Ur Rehman Khattak & Muhammad Tariq, 2012. "Are Real Devaluations Contractionary? an Empirical Analysis for Pakistan," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(1), pages 119-134.
    • Handle: RePEc:asi:aeafrj:v:2:y:2012:i:1:p:119-134:id:741
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    Cited by:

    1. Santiago Grullón, 2012. "A Co-integration Analysis of the Dominican Republic‘s Aggregate Import Demand Function under a Floating Exchange Rate Regime," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 2(2), pages 282-289, June.

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