Linear and nonlinear effect of exchange rate on inflation in Pakistan
This study analyzes linear and nonlinear impact of exchange rate on inflation in Pakistan. Time series analysis is performed under ARDL and nonlinear ARDL framework to analyze that how in long and short run inflation get affected by exchange rate. Time series data (monthly) of Pakistan from 1980 (Ja...
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| Format: | Article |
| Language: | English |
| Published: |
General Association of Economists from Romania
2022-06-01
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| Series: | Theoretical and Applied Economics |
| Subjects: | |
| Online Access: |
http://store.ectap.ro/articole/1602.pdf
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| Summary: | This study analyzes linear and nonlinear impact of exchange rate on inflation in Pakistan.
Time series analysis is performed under ARDL and nonlinear ARDL framework to analyze that how
in long and short run inflation get affected by exchange rate. Time series data (monthly) of Pakistan
from 1980 (January) to 2019 (April) is utilized for analysis. ARDL model shows that real effective
exchange rate has negative and significant impact on inflation in the long run, however, nonlinear
ARDL (NARDL) model found that exchange rate deprecation increases inflation in long run, while
appreciation decreases inflation in long run. The NARDL model proves that exchange rate has
nonlinear effects on inflation in Pakistan. One-way causality exists from inflation to exchange rate
as well as to appreciation of exchange rate in Pakistan. Government has to formulate policies to
stabilize the exchange rate, while strong financial and capital markets are required to minimize risk
of exchange rate to protect the international competitiveness. |
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| ISSN: | 1841-8678 1844-0029 |