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Pakistan's Exchange Rate Policy: An Econometric Investigation

Author

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  • Mohammad Ahmed

    (National Development Finance Corporation, Karachi.)

Abstract

This paper examines empirical determinants of the Pakistani rupee exchange rate since the advent of the managed float in 1982. The behaviour of the nominal exchange rate results from policy intervention carried out by the monetary authorities. Various testable hypotheses are developed in order to discern the factor(s) which can be the determinants of the nominal rupee exchange rate. In the short run, authorities follow a contingent policy rule with respect to movements of the U. S. dollar against the SDR. Based on vector autoregression techniques, the error correction model is employed to check the consistency of the short-run adjustment process, given the authorities' long-run target rupee value. The 'revealed' policy is to partly offset the inflation differential between Pakistan and its major trading partners. Under plausible conditions, the burden of adjustment and recessionary conditions are likely to occur in the Pakistani export sector.

Suggested Citation

  • Mohammad Ahmed, 1992. "Pakistan's Exchange Rate Policy: An Econometric Investigation," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 31(1), pages 49-74.
    • Handle: RePEc:pid:journl:v:31:y:1992:i:1:p:49-74
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    File URL: http://www.pide.org.pk/pdf/PDR/1992/Volume1/49-74.pdf
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    References listed on IDEAS

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    Cited by:

    1. Salim Chishti & M. Aynul Hasan, 1993. "What Determines the Behaviour of Real Exchange Rate in Pakistan?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 32(4), pages 1015-1029.
    2. KHAN, Muhammad Arshad, 2008. "Long-Run And Short-Run Dynamics Of Foreign Exchange Reserves Flows And Domestic Credit In Pakistan," International Journal of Applied Econometrics and Quantitative Studies, Euro-American Association of Economic Development, vol. 5(1), pages 61-78.
    3. Shaghil Ahmed & Iffat Ara & Kalim Hyder, 2006. "How External Shocks and Exchange Rate Depreciations Affect Pakistan? Implications for Choice of an Exchange Rate Regime," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 2, pages 61-68.

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