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The Exchange Rate and Consumer Prices in Pakistan: Is Rupee Devaluation In Inflationary?

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  • Ehsan U. Choudhri

    (Carleton University, Canada.)

  • Mohsin S. Khan

    (International Monetary Fund, Washington, D.c.)

Abstract

This paper challenges the popular view that devaluation of the rupee is inflationary. Recent developments in the theoretical literature are reviewed to explain why consumer prices would be unresponsive to exchange rate changes in the short run. Then empirical tests are conducted for Pakistan during the period 1982 to 2001 to examine whether inflation is systematically related to changes in the exchange rate. The empirical analysis finds no association between rupee devaluations and inflation in Pakistan. It appears, therefore, that concerns about the inflationary consequences of rupee devaluation are unsupported by the facts

Suggested Citation

  • Ehsan U. Choudhri & Mohsin S. Khan, 2002. "The Exchange Rate and Consumer Prices in Pakistan: Is Rupee Devaluation In Inflationary?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 41(2), pages 107-120.
  • Handle: RePEc:pid:journl:v:41:y:2002:i:2:p:107-120
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    References listed on IDEAS

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    1. SABlHA HASSAN SYED, 1978. "Female Status and Fertility in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 17(4), pages 408-430.
    2. Naushin Mahmood & Durr-E-Nayab, 1998. "Gender Dimensions of Demographic Change in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 37(4), pages 705-725.
    3. Ghulam Yasin Soomro, 2000. "A Re-examination of Fertility Transition in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 39(3), pages 247-261.
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    Citations

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    Cited by:

    1. Madhavi Bokil & Axel Schimmelpfennig, 2006. "Three Attempts at Inflation Forecasting in Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 45(3), pages 341-368.
    2. Jesus Felipe & J. S. L. McCombie & Kaukab Naqvi, 2010. "Is Pakistan's Growth Rate Balance-of-Payments Constrained? Policies and Implications for Development and Growth," Oxford Development Studies, Taylor & Francis Journals, vol. 38(4), pages 477-496.
    3. Sumera Arshad & Amajd Ali, 2016. "Trade-off between Inflation, Interest and Unemployment Rate of Pakistan: Revisited," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 5(4), pages 193-209, December.
    4. Sikander Rahim, 2014. "What Does the Exchange Rate Do? A Status Symbol?," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 19(Special E), pages 35-60, September.
    5. Khan, Safdar Ullah & Saqib, Omar Farooq, 2011. "Political instability and inflation in Pakistan," Journal of Asian Economics, Elsevier, vol. 22(6), pages 540-549.
    6. Saade CHAMI & Selim ELEKDAG & Todd SCHNEIDER & Nabil BEN LTAIFA, 2008. "Can A Rule-Based Monetary Policy Framework Work In A Developing Country? The Case Of Yemen," The Developing Economies, Institute of Developing Economies, vol. 46(1), pages 75-99.
    7. S. Adnan & H.A.S. BUKHARI & Safdar Ullah KHAN, 2008. "Does Volatility In Government Borrowing Leads To Higher Inflation? Evidence From Pakistan," Journal of Applied Economic Sciences, Spiru Haret University, Faculty of Financial Management and Accounting Craiova, vol. 3(3(5)_Fall), pages 187-202.
    8. Sadia Tahir, 2006. "Core Inflation Measures for Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 2, pages 319-342.
    9. Hayat, Zafar & Balli, Faruk & Rehman, Muhammad, 2017. "The relevance and relative robustness of sources of inflation bias in Pakistan," Economic Modelling, Elsevier, vol. 63(C), pages 283-303.
    10. Saira Tufail & Sadia Batool, 2013. "An Analysis of the Relationship between Inflation and Gold Prices: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 18(2), pages 1-35, July-Dec.
    11. Matthew McCartney, 2015. "The Missing Economic Magic: The Failure of Trade Liberalization and Exchange Rate Devaluation in Pakistan, 1980–2012," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 20(Special E), pages 59-86, September.
    12. Akhand Akhtar Hossain, 2009. "Central Banking and Monetary Policy in the Asia-Pacific," Books, Edward Elgar Publishing, number 12777.
    13. 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.
    14. Suresh Ramakrishnan & Shamaila Butt & Melati Ahmad Anuar, 2017. "The Impact of Macroeconomic, Oil Prices and Socio-economic Factors on Exchange Rate in Pakistan: An Auto Regressive Distributed Lag Approach," International Journal of Economics and Financial Issues, Econjournals, vol. 7(1), pages 489-499.
    15. M. Ali Kemal & Rana Murad Haider, 2004. "Exchange Rate Behaviour after Recent Float: The Experience of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 829-852.
    16. Hina, Hafsa & Qayyum, Abdul, 2015. "Exchange Rate Determination and Out of Sample Forecasting: Cointegration Analysis," MPRA Paper 61997, University Library of Munich, Germany.

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