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The role of geopolitics in repeated foreign exchange crisis in Pakistan

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  • Hasnat, Hafsa
  • Shah, Syed Hasanat
  • Omer, Muhammad

Abstract

This study investigates the impact of recent regime change in Afghanistan on FX market crisis in Pakistan by using logistic model and monthly data from January 2016 to June 2023. The findings of the study show that the fall of Kabul to Taliban in 2021 has significantly contributed to 2022–2023 FX crisis in Pakistan. Greenback disappeared from regulatory domain in Pakistan and become available only in ‘Grey Market’ at a very high premium after the rise of informal and illegal trade across Pak-Afghan border under the new Afghan regime. The finding of this study is robust.

Suggested Citation

  • Hasnat, Hafsa & Shah, Syed Hasanat & Omer, Muhammad, 2025. "The role of geopolitics in repeated foreign exchange crisis in Pakistan," Finance Research Letters, Elsevier, vol. 86(PG).
    • Handle: RePEc:eee:finlet:v:86:y:2025:i:pg:s1544612325021774
    DOI: 10.1016/j.frl.2025.108924
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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