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Exchange Rate Instability and Trade. The Case of Pakistan

  • M. Ali Kemal

    (PIDE)

The variations in exchange rate play a vital role in the determination of trade balance. Volatile exchange rate shatters the investor’s and trader’s confidence, and slows down the process of trade, which results in slower growth. In this paper, other market instabilities—such as GDP growth instability in imports equation and agriculture and manufacturing instability in exports equation—have been used with exchange rate instability, and GARCH variance is used to measure it. It is found that the impact of exchange rate instability on exports is positive but insignificant, while the impact on imports is negative and significant.

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File URL: http://www.pide.org.pk/Research/Report186.pdf
File Function: First Version, 2005
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Paper provided by Pakistan Institute of Development Economics in its series PIDE-Working Papers with number 2005:186.

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Length: 22 pages
Date of creation: 2005
Date of revision:
Handle: RePEc:pid:wpaper:2005:186
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  1. Joseph E. Gagnon, 1989. "Exchange rate variability and the level of international trade," International Finance Discussion Papers 369, Board of Governors of the Federal Reserve System (U.S.).
  2. Hooper, Peter & Kohlhagen, Steven W., 1978. "The effect of exchange rate uncertainty on the prices and volume of international trade," Journal of International Economics, Elsevier, vol. 8(4), pages 483-511, November.
  3. Richard Baldwin & Paul R. Krugman, 1986. "Persistent Trade Effects of Large Exchage Rate Shocks," NBER Working Papers 2017, National Bureau of Economic Research, Inc.
  4. S. M. NASEEM & Sarfraz K. QURESHI & Rehana SIDDIQUI, 1999. "Conditions of Teaching and Research in Economics some Preliminary Findings," PIDE-Working Papers 1999:176, Pakistan Institute of Development Economics.
  5. Michael Melvin & Xixi Yin, . "Public Information Arrival, Exchange Rate Volatility, and Quote Frequency," Working Papers 96/1, Arizona State University, Department of Economics.
  6. Bacchetta, Philippe & van Wincoop, Eric, 1998. "Does Exchange Rate Stability Increase Trade and Capital Flows?," CEPR Discussion Papers 1962, C.E.P.R. Discussion Papers.
  7. Pozo, Susan, 1992. "Conditional Exchange-Rate Volatility and the Volume of International Trade: Evidence from the Early 1900s," The Review of Economics and Statistics, MIT Press, vol. 74(2), pages 325-29, May.
  8. Peree, Eric & Steinherr, Alfred, 1989. "Exchange rate uncertainty and foreign trade," European Economic Review, Elsevier, vol. 33(6), pages 1241-1264, July.
  9. Cushman, David O., 1983. "The effects of real exchange rate risk on international trade," Journal of International Economics, Elsevier, vol. 15(1-2), pages 45-63, August.
  10. Henry, Olan T & Summers, Peter M, 1999. "The Volatility of Real Exchange Rates: The Australian Case," Australian Economic Papers, Wiley Blackwell, vol. 38(2), pages 79-90, June.
  11. Kumar, Ramesh & Dhawan, Ravinder, 1991. "Exchange rate volatility and Pakistan's exports to the developed world, 1974-85," World Development, Elsevier, vol. 19(9), pages 1225-1240, September.
  12. Paul De Grauwe, 1988. "Exchange Rate Variability and the Slowdown in Growth of International Trade," IMF Staff Papers, Palgrave Macmillan, vol. 35(1), pages 63-84, March.
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