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Exchange Rate Volatility and Trade Deficit in Pakistan: A Time Series Analysis

Author

Listed:
  • Mariam Abbas Soharwardi

    (Islamia University of Bahawalpur, Bahawalpur, Punjab, Pakistan,)

  • Mumtaz Ahmad

    (Islamia University of Bahawalpur, Bahawalpur, Punjab, Pakistan,)

  • Muhammad Nouman Shafique

    (Dongbei University of Finance and Economics, Dalian, China.)

Abstract

This paper inspected the exchange rate volatility in Pakistan within the time of 1981m07 to 2013m04 at that point discover its impacts on trade deficit. ARCH and GARCH models are developing for catching the unpredictability impact of exchange rate volatility in Pakistan. Exchange standard unpredictability was figured in numerous past investigations by taking the standard deviation of the moving normal of the logarithm of exchange rate. In any case, in this paper exchange rate unpredictability is estimated by ARMA (0, 1) and ARCH/GARCH (2, 1) models and asymmetrical information is utilized as dummy variable. Exchange rate volatility is utilized as independent variable and trade deficit as dependent variable. Cash supply, private investment and gross domestic product are utilized as control variable. ADF (Augmented Dickey-Fuller) test used to check the stationary of the information the aftereffects of ADF demonstrates that a few factors are stationary at first contrast have request of joining I (1) and a few factors are stationary at level have request of reconciliation I(0). We utilize ARDL (Autoregressive distributed lag model) to break down the impact of exchange rate unpredictability on trade deficit. The outcomes appeared there is negative and huge long run connection between exchange rate unpredictability and trade deficit yet in short run it is noteworthy and positive.

Suggested Citation

  • Mariam Abbas Soharwardi & Mumtaz Ahmad & Muhammad Nouman Shafique, 2020. "Exchange Rate Volatility and Trade Deficit in Pakistan: A Time Series Analysis," International Journal of Economics and Financial Issues, Econjournals, vol. 10(4), pages 215-219.
    • Handle: RePEc:eco:journ1:2020-04-26
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    References listed on IDEAS

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    1. Abdul Jalil Khan & Parvez Azim & Shabib Haider Syed, 2014. "The Impact of Exchange Rate Volatility on Trade: A Panel Study on Pakistan’s Trading Partners," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 19(1), pages 31-66, Jan-June.
    2. Abdul Jalil1 & Mete Feridun, 2010. "Explaining exchange rate movements: an application of the market microstructure approach on the Pakistani foreign exchange market," Journal of Developing Areas, Tennessee State University, College of Business, vol. 44(1), pages 255-265, September.
    3. Mohsen Bahmani-Oskooee & Artatrana Ratha, 2004. "The J-curve dynamics of U.S. bilateral trade," Journal of Economics and Finance, Springer;Academy of Economics and Finance, vol. 28(1), pages 32-38, March.
    4. Schmidt-Hebbel, Klaus & Tapia, Matias, 2002. "Inflation targeting in Chile," The North American Journal of Economics and Finance, Elsevier, vol. 13(2), pages 125-146, August.
    5. Rose, Andrew K., 1990. "Exchange rates and the trade balance : Some evidence from developing countries," Economics Letters, Elsevier, vol. 34(3), pages 271-275, November.
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    More about this item

    Keywords

    Volatility; ARCH effect; Trade Deficit; ARDL;
    All these keywords.

    JEL classification:

    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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