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Relationship Between Exchange Rate and Inflation in Pakistan The Relationship Between Exchange Rate and Inflation in Pakistan by Shagufta Kashif Abstract There has been a long-standing interest in studying the factors that are responsible for uneven vacillation in the stable growth of the world economies.
Lots and lots of theoretical literature and empirical evidences have addresses this issue in the past. Hike in prices of goods and services and foreign exchange are two important aspects which are deemed responsible for such potholed fluctuations in the economic growth The volatility of the nature of prices is a major source of concern in all countries since s.
Similarly, in Pakistan, the domestic price level rose from the mids. The exchange rate started depreciating continuously from the early s. Continuous devaluation of currency and inflation in the s seems to suggest a correlation between the two variables. The studies by Rana and Dowling suggest that foreign inflation is the most influencing factor in explaining the change in local price level in nine less-developed countries of Asia during the period This study suggests that these countries cannot exercise much control over domestic inflation, however, the policies of their major trading partners through exchange rate had a significant impact on their domestic prices.
Cooper and Krugman and Taylor have also studies this relationship. This research paper will provide the empirical evidence regarding the relationships between foreign exchange reserves and inflation, focusing on the period between We will use the Ordinary Least Square model to determine the long run relationship.
Our empirical analysis does not support the results of Ahmad and Ali that a devaluation has a significant impact on inflation. We believe that their results differ from ours because they estimate a model that is based on some fairly restrictive assumptions. For example, they believe there is a complete exchange pass-through to import prices.
This assumption is important for their results, but is not supported by recent theoretical models or empirical evidence. Introduction Does devaluation lead to an increase in prices? This is a critical question that policy-makers in Pakistan have faced continuously over the past three decades or so, and particularly sincefollowing the adoption of a flexible exchange rate policy.
After the devaluation in and a small revaluation inthe exchange rate remained fixed at about ten rupees per dollar till the end of In Januarythe exchange rate was allowed to fluctuate, eventually, rising to a rate around eighty rupees per dollar over the next two decades.
This escalation involved a number of major devaluations in rupee value.
Such devaluations received huge attention and often raised the concern that they would further contribute to already-rising inflation. The concern about inflation is based on the popular view, which has sometimes been voiced by experts in policymaking circles, that consumer prices are notably affected by imported goods prices, which increase speedily in response to a devaluation.
Inflation is, by and large, associated with monetary expansion. The case of Pakistan is not different from other countries.Preface.
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In Quebec City on September 18, the Prime Minister outlined four key components of the government's jobs and growth agenda. The spike in interest rates in highlights the importance of: (A) being mentally prepared for a more challenging environment in , and (B) the importance of staying within the confines of your approach to the markets.
The Relationship Between Exchange Rate and Inflation in Pakistan by Shagufta Kashif Abstract.
There has been a long-standing interest in studying the factors that are responsible for uneven vacillation in the stable growth of the world economies. Personal Loan: Compare Personal Loan Interest Rate from 30+ Banks Check Eligibility Calculate your Monthly EMI in 10 Secs Paperless Approval in 30 Mins Loan upto ₹ 30 Lakhs Apply Online Now Get Amazon Gift Card ₹ FREE.
May 02, · Goldman Sachs Group Inc. Chief Executive Officer Lloyd C. Blankfein warned that the interest-rate environment has parallels to , when a sudden and sharp increase in rates caught many investors off-guard. Kathie – you are correct. The Treasury has the right to change the guaranteed minimum rate at the end of each maturity period.
The May bond in your example had an initial maturity period of 8 years – which is an interest rate of %.