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Exchange rate Volatility and Interest rate Risk: In the case of Pakistan

Author

Listed:
  • Hussain, Adnan
  • Mubin, Muhammad
  • Lal, Irfan

Abstract

The study examines the effects of volatility of exchange rate volatility on interest rates and inflation. For this purpose the study used monthly data over the period January 1990 to December 2010. To explore the volatility of exchange rate study used the ARCH (Auto Regressive Conditional Heterosidasticity) and GARCH (Generalized Auto regressive conditional Heterosidasticity). The result shows that positive association between exchange rate risk and interest rate in the form risk premia. The result of the study fulfills the interest parity condition and purchasing power parity.

Suggested Citation

  • Hussain, Adnan & Mubin, Muhammad & Lal, Irfan, 2011. "Exchange rate Volatility and Interest rate Risk: In the case of Pakistan," MPRA Paper 106877, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:106877
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    References listed on IDEAS

    as
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    8. Mohammad, Sulaiman D. & Lal, Irfan, 2010. "The Euro Dollar Exchange Rate & Pakistan Economy," MPRA Paper 106865, University Library of Munich, Germany.
    Full references (including those not matched with items on IDEAS)

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    JEL classification:

    • C1 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods and Methodology: General
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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