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Factors Affecting the Nominal Exchange Rate of Pakistan: An Econometric Investigation (1982-2008)

Author(s): Naeem Ur Rehman Khattak | Muhammad Tariq | Jangraiz Khan

Journal: Asian Economic and Financial Review
ISSN 2305-2147

Volume: 2;
Issue: 2;
Start page: 421;
Date: 2012;
Original page

Keywords: Nominal Exchange Rate | Co integration | Granger Causality test

Which macroeconomic factors determine the nominal exchange rate of Pak-rupee against US dollar during the period 1982-2008? This issue has been investigated in this paper by using Ordinary Least Squares and Johansen’s Cointegration techniques. The results show that both monetary and real factors i.e. money supply, trade balance, foreign exchange reserves, inflation and interest rate have long run relationship with the exchange rate of Pak-rupee. However, the granger causality test results show that the relationship between most of the macroeconomic variables and nominal exchange rate bi-directional.
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