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Sources of Real Exchange Rate Misalignment Evidence from Pakistan

Author

Listed:
  • Shah Hussain

    () (State Bank of Pakistan)

Abstract

The objective of this study is to estimate the effects of fundamentals and their sustainable levels for measuring the equilibrium real exchange rate and its misalignment for Pakistan. Applying the theory of fundamentals of real exchange rate, it first establishes these variables as the long run determinants of Pakistan’s real exchange rate and then it estimates their sustainable levels for the equilibrium real exchange rate. On the basis of the sustainable levels, the study then proposes their individual role in aligning real exchange rate towards its equilibrium level. Length: 18 pages

Suggested Citation

  • Shah Hussain, 2008. "Sources of Real Exchange Rate Misalignment Evidence from Pakistan," SBP Working Paper Series 26, State Bank of Pakistan, Research Department.
  • Handle: RePEc:sbp:wpaper:26
    as

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    File URL: http://www.sbp.org.pk/repec/sbp/wpaper/wp26.pdf
    File Function: First version, 2008
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    References listed on IDEAS

    as
    1. Khan, Safdar Ullah Khan, 2005. "Macro Determinants of Total Factor Productivity in Pakistan," MPRA Paper 8693, University Library of Munich, Germany, revised 10 Sep 2005.
    2. Khan, Mohsin S, 1986. "Developing Country Exchange Rate Policy Responses to Exogenous Shocks," American Economic Review, American Economic Association, vol. 76(2), pages 84-87, May.
    3. Mohsin S. Khan & Peter J. Montiel, 1987. "Real Exchange Rate Dynamics in a Small, Primary-Exporting Country," IMF Staff Papers, Palgrave Macmillan, vol. 34(4), pages 681-710, December.
    4. Edwards, Sebastian, 1988. "Real and monetary determinants of real exchange rate behavior: Theory and evidence from developing countries," Journal of Development Economics, Elsevier, vol. 29(3), pages 311-341, November.
    5. Paleologos, John M. & Georgantelis, Spyros E., 1997. "Exchange Rate Movements and the Trade Balance Deficit: A Multivariate Cointegration Analysis," Economia Internazionale / International Economics, Camera di Commercio Industria Artigianato Agricoltura di Genova, vol. 50(3), pages 459-470.
    6. Mohsin S. Khan & Axel Schimmelpfennig, 2006. "Inflation in Pakistan: Money or Wheat?," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 2, pages 213-234..
    7. Usman Afridi, 1995. "Determining Real Exchange Rates," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 34(3), pages 263-276.
    8. Johansen, Soren & Juselius, Katarina, 1990. "Maximum Likelihood Estimation and Inference on Cointegration--With Applications to the Demand for Money," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 52(2), pages 169-210, May.
    9. Zulfiqar Hyder & Adil Mahboob, 2006. "Equilibrium Real Effective Exchange Rate and Exchange Rate Misalignment in Pakistan," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 2, pages 237-263..
    10. Ronald MacDonald & Peter B. Clark, 1998. "Exchange Rates and Economic Fundamentals; A Methodological Comparison of BEERs and FEERs," IMF Working Papers 98/67, International Monetary Fund.
    11. Newbold, Paul, 1990. "Precise and efficient computation of the Beveridge-Nelson decomposition of economic time series," Journal of Monetary Economics, Elsevier, vol. 26(3), pages 453-457, December.
    12. Elbadawi, Ibrahim A & Soto, Raimundo, 1997. "Real Exchange Rates and Macroeconomic Adjustment in Sub-Saharan Africa and Other Developing Countries," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 6(3), pages 74-120, Supplemen.
    13. Lizondo, Jose Saul, 1989. "Overvalued and undervalued exchange rates in an equilibrium optimizing model," Policy Research Working Paper Series 223, The World Bank.
    14. Sebastian Edwards, 1985. "The Behavior of Interest Rates and Real Exchange Rates During a Liberalization Episode: The Case of Chile 1973-83," NBER Working Papers 1702, National Bureau of Economic Research, Inc.
    15. Khan, Mohsin S. & Knight, Malcolm D., 1982. "Some theoretical and empirical issues relating to economic stabilization in developing countries," World Development, Elsevier, vol. 10(9), pages 709-730, September.
    16. Safdar Ullah Khan, 2006. "Macro Determeinants of Total Factor Productivity in Pakistan," SBP Working Paper Series 10, State Bank of Pakistan, Research Department.
    17. 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.
    18. Elbadawi, Ibrahim A. & Soto, Raimundo, 1994. "Capital flows and long-term equilibrium real exchange rates in Chile," Policy Research Working Paper Series 1306, The World Bank.
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    More about this item

    Keywords

    Fundamentals; real exchange rate; misalignment;

    JEL classification:

    • C53 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Forecasting and Prediction Models; Simulation Methods
    • E58 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Central Banks and Their Policies
    • F31 - International Economics - - International Finance - - - Foreign Exchange

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