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Dynamics of Causality between Inflation Volatility and Exchange Rate Volatility in Pakistan: A Time Series Analysis

Author

Listed:
  • Sana Sultan

    (Visiting Lecturer, School of Economics, Bahauddin Zakariya University Multan, Pakistan)

  • Misbah Rauf

    (Research Scholar, School of Economics, Bahauddin Zakariya University Multan)

  • Kashif Saeed

    (Assistant Professor, Department of Accounting and Finance, The Islamia University of Bahawalpur, Pakistan)

  • Asad Abbas

    (Lecturer in Economics, Department of Economics, COMSATS University Islamabad Vehari Campus, Pakistan)

  • Dr Muhammad Ramzan Sheikh

    (Professor of Economics, School of Economics, Bahauddin Zakariya University Multan, Pakistan)

Abstract

This study investigates the dynamic relationship between inflation volatility and exchange rate volatility in Pakistan over the period from 1960 to 2023. Utilizing time series data, the study employes the Vector Error Correction Model (VECM) to analyze both short-run and long-run causality between these variables. The study has found bidirectional causality between exchange rate volatility and inflation volatility, indicating that fluctuations in one variable significantly influence fluctuations in the other, both in the short and long term. Based on the results of the study, it is suggested that to stabilize prices, policymakers should implement measures to stabilize the exchange rate and to stabilize the exchange rate, planners should adopt policies that stabilize the prices.

Suggested Citation

  • Sana Sultan & Misbah Rauf & Kashif Saeed & Asad Abbas & Dr Muhammad Ramzan Sheikh, 2024. "Dynamics of Causality between Inflation Volatility and Exchange Rate Volatility in Pakistan: A Time Series Analysis," Bulletin of Business and Economics (BBE), Research Foundation for Humanity (RFH), vol. 13(2), pages 526-531.
    • Handle: RePEc:rfh:bbejor:v:13:y:2024:i:2:p:526-531
    DOI: https://doi.org/10.61506/01.00361
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    References listed on IDEAS

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    1. Čaklovica Lejla & Efendic Adnan S., 2020. "Determinants of Inflation in Europe – A Dynamic Panel Analysis," Financial Internet Quarterly (formerly e-Finanse), Sciendo, vol. 16(3), pages 51-79, September.
    2. Ali, Amjad, 2022. "Foreign Debt, Financial Stability, Exchange Rate Volatility and Economic Growth in South Asian Countries," MPRA Paper 116328, University Library of Munich, Germany, revised 2022.
    3. Agus Salim, 2019. "Macroeconomic Determinants of Interest Rate Volatility in Indonesia: A Structural VAR Analysis," International Journal of Applied Economics, Finance and Accounting, Online Academic Press, vol. 5(2), pages 101-108.
    4. Ali, Amjad & Khokhar, Bilal & Sulehri, Fiaz Ahmad, 2023. "Financial Dimensions of Inflationary Pressure in Developing Countries: An In-depth Analysis of Policy Mix," MPRA Paper 119364, University Library of Munich, Germany.
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