IDEAS home Printed from https://ideas.repec.org/a/hur/ijarbs/v5y2015i1p257-269.html
   My bibliography  Save this article

Exchange Rate Volatility and Macroeconomic War: A Comparative Study of India and Pakistan

Author

Listed:
  • Khuram Shafi
  • Liu Hua
  • Zahra Idrees
  • Amna Nazeer

Abstract

Exchange rate has proved its behavior in determining the country economic position in this age of globalization and trade liberalization. Therefore, this research investigates that the determinants of trade i.e. Import, export, industrial growth, consumption level and oil prices fluctuation brings changes in exchange rate and its influence eventually on balance of payments in comparison of Indian and Pakistani economies. Data of defined variables is collected on annual basis of India and Pakistan for thirty one years. By applying cointegration, it is estimated that there exist a long run relationship in both countries. India and Pakistan has significantly and correctly sign the short run dynamic and some of the factors have not. In Pakistan balance of payment does granger cause exchange rate. For India, exchange rate does not granger cause balance of payment. It is concluded that exchange rate is very important determinant of trading in an open economy. Dealing in foreign exchange market, currency change affects every economy including developed or developing. This occurs because of the market forces of supply and demand, which pushes countries exchange rate as depreciated and appreciated.

Suggested Citation

  • Khuram Shafi & Liu Hua & Zahra Idrees & Amna Nazeer, 2015. "Exchange Rate Volatility and Macroeconomic War: A Comparative Study of India and Pakistan," International Journal of Academic Research in Business and Social Sciences, Human Resource Management Academic Research Society, International Journal of Academic Research in Business and Social Sciences, vol. 5(1), pages 257-269, January.
  • Handle: RePEc:hur:ijarbs:v:5:y:2015:i:1:p:257-269
    as

    Download full text from publisher

    File URL: http://hrmars.com/hrmars_papers/Exchange_Rate_Volatility_and_Macroeconomic_War_A_Comparative_Study_of_India_and_Pakistan.pdf
    Download Restriction: no

    File URL: http://hrmars.com/hrmars_papers/Exchange_Rate_Volatility_and_Macroeconomic_War_A_Comparative_Study_of_India_and_Pakistan.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Paul Krugman, 1986. "Pricing to Market when the Exchange Rate Changes," NBER Working Papers 1926, National Bureau of Economic Research, Inc.
    2. Hartmann,Philipp, 2007. "Currency Competition and Foreign Exchange Markets," Cambridge Books, Cambridge University Press, number 9780521046930, December.
    3. Kim, Jaebeom, 2007. "Real exchange rates and real interest differentials for sectoral data: A dynamic SUR approach," Economics Letters, Elsevier, vol. 97(3), pages 247-252, December.
    4. Cedric Tille, 2003. "The impact of exchange rate movements on U.S. foreign debt," Current Issues in Economics and Finance, Federal Reserve Bank of New York, vol. 9(Jan).
    5. Harald Hau & Hélène Rey, 2006. "Exchange Rates, Equity Prices, and Capital Flows," Review of Financial Studies, Society for Financial Studies, vol. 19(1), pages 273-317.
    6. Santos-Paulino, Amelia U., 2002. "The Effects of Trade Liberalization on Imports in Selected Developing Countries," World Development, Elsevier, vol. 30(6), pages 959-974, June.
    7. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    8. Ostry, Jonathan D. & Rose, Andrew K., 1992. "An empirical evaluation of the macroeconomic effects of tarrifs," Journal of International Money and Finance, Elsevier, vol. 11(1), pages 63-79, February.
    9. Aliyu, Shehu Usman Rano, 2009. "Impact of Oil Price Shock and Exchange Rate Volatility on Economic Growth in Nigeria: An Empirical Investigation," MPRA Paper 16319, University Library of Munich, Germany, revised 10 Jun 2009.
    10. Josef Brada & Ali Kutan & Su Zhou, 1997. "The exchange rate and the balance of trade: The Turkish experience," Journal of Development Studies, Taylor & Francis Journals, vol. 33(5), pages 675-692.
    11. Hilde C. Bjørnland, 2009. "Oil Price Shocks And Stock Market Booms In An Oil Exporting Country," Scottish Journal of Political Economy, Scottish Economic Society, vol. 56(2), pages 232-254, May.
    12. Faik Koray & W. Douglas McMillin, 2006. "Fiscal Shocks, the Trade Balance, and the Exchange Rate," Departmental Working Papers 2006-02, Department of Economics, Louisiana State University.
    13. Qiao, Hong, 2007. "Exchange rates and trade balances under the dollar standard," Journal of Policy Modeling, Elsevier, vol. 29(5), pages 765-782.
    14. Amano, R. A. & van Norden, S., 1998. "Oil prices and the rise and fall of the US real exchange rate," Journal of International Money and Finance, Elsevier, vol. 17(2), pages 299-316, April.
    15. McKenzie, Michael D, 1999. " The Impact of Exchange Rate Volatility on International Trade Flows," Journal of Economic Surveys, Wiley Blackwell, vol. 13(1), pages 71-106, February.
    16. Rebeca Jimenez-Rodriguez & Marcelo Sanchez, 2005. "Oil price shocks and real GDP growth: empirical evidence for some OECD countries," Applied Economics, Taylor & Francis Journals, vol. 37(2), pages 201-228.
    17. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    18. Easterly, William, 2005. "What did structural adjustment adjust?: The association of policies and growth with repeated IMF and World Bank adjustment loans," Journal of Development Economics, Elsevier, vol. 76(1), pages 1-22, February.
    19. Ravn, Morten O. & Schmitt-Grohé, Stephanie & Uribe, Martín, 2012. "Consumption, government spending, and the real exchange rate," Journal of Monetary Economics, Elsevier, vol. 59(3), pages 215-234.
    20. Steven Globerman & Daniel M Shapiro, 1999. "The Impact of Government Policies on Foreign Direct Investment: The Canadian Experience," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 30(3), pages 513-532, September.
    Full references (including those not matched with items on IDEAS)

    More about this item

    Keywords

    Exchange rate volatility; balance of trade; balance of payment;

    JEL classification:

    • F33 - International Economics - - International Finance - - - International Monetary Arrangements and Institutions
    • F30 - International Economics - - International Finance - - - General
    • P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hur:ijarbs:v:5:y:2015:i:1:p:257-269. 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: (Hassan Danial Aslam). General contact details of provider: http://hrmars.com/index.php/pages/detail/IJARBSS .

    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 CitEc recognized a reference but did not link an item in RePEc 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.