Inflation Differential Pass-Through to Exchange Rate: Some Evidence From Pakistan
Using regression and wavelet coherence techniques this paper tries to probe the validity of purchasing power parity (PPP) in Pakistan. For this purpose, monthly data is collected for nominal exchange rate and consumer prices of Pakistan and its 23 major trading partners for the flexible exchange rat...
| Main Authors: | , , , |
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| Format: | Article |
| Language: | English |
| Published: |
SAGE Publishing
2023-12-01
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| Series: | SAGE Open |
| Online Access: | https://doi.org/10.1177/21582440231221316 |
| _version_ | 1797376687267119104 |
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| author | Muhammad Zakaria Seemab Tanveer Bashir Ahmad Fida Muhammad Iftikhar ul Husnain |
| author_facet | Muhammad Zakaria Seemab Tanveer Bashir Ahmad Fida Muhammad Iftikhar ul Husnain |
| author_sort | Muhammad Zakaria |
| collection | DOAJ |
| description | Using regression and wavelet coherence techniques this paper tries to probe the validity of purchasing power parity (PPP) in Pakistan. For this purpose, monthly data is collected for nominal exchange rate and consumer prices of Pakistan and its 23 major trading partners for the flexible exchange rate period 1982M1 to 2020M12. The regression results show that in 12 countries inflation differential significantly positively affect exchange rate. Similarly, Granger causality results reveal that inflation differential causes exchange rates in 12 countries. Wavelet coherency results indicate that there is significant co-movements between inflation differentials and exchange rates in varying time and frequency domains in all countries. These results indicate the partial validity of PPP in Pakistan. These results suggest that by reducing its inflation Pakistan can stabilize its exchange rates. JEL Classifications: C14, E31, F31 |
| first_indexed | 2024-03-08T19:42:18Z |
| format | Article |
| id | doaj.art-383e3fa48d7345429c1c7fa53a581c58 |
| institution | Directory Open Access Journal |
| issn | 2158-2440 |
| language | English |
| last_indexed | 2024-03-08T19:42:18Z |
| publishDate | 2023-12-01 |
| publisher | SAGE Publishing |
| record_format | Article |
| series | SAGE Open |
| spelling | doaj.art-383e3fa48d7345429c1c7fa53a581c582023-12-24T16:03:31ZengSAGE PublishingSAGE Open2158-24402023-12-011310.1177/21582440231221316Inflation Differential Pass-Through to Exchange Rate: Some Evidence From PakistanMuhammad Zakaria0Seemab Tanveer1Bashir Ahmad Fida2Muhammad Iftikhar ul Husnain3COMSATS University Islamabad, PakistanCOMSATS University Islamabad, PakistanModern College of Business and Science, Al-Khuwair, Sultanate of OmanCOMSATS University Islamabad, PakistanUsing regression and wavelet coherence techniques this paper tries to probe the validity of purchasing power parity (PPP) in Pakistan. For this purpose, monthly data is collected for nominal exchange rate and consumer prices of Pakistan and its 23 major trading partners for the flexible exchange rate period 1982M1 to 2020M12. The regression results show that in 12 countries inflation differential significantly positively affect exchange rate. Similarly, Granger causality results reveal that inflation differential causes exchange rates in 12 countries. Wavelet coherency results indicate that there is significant co-movements between inflation differentials and exchange rates in varying time and frequency domains in all countries. These results indicate the partial validity of PPP in Pakistan. These results suggest that by reducing its inflation Pakistan can stabilize its exchange rates. JEL Classifications: C14, E31, F31https://doi.org/10.1177/21582440231221316 |
| spellingShingle | Muhammad Zakaria Seemab Tanveer Bashir Ahmad Fida Muhammad Iftikhar ul Husnain Inflation Differential Pass-Through to Exchange Rate: Some Evidence From Pakistan SAGE Open |
| title | Inflation Differential Pass-Through to Exchange Rate: Some Evidence From Pakistan |
| title_full | Inflation Differential Pass-Through to Exchange Rate: Some Evidence From Pakistan |
| title_fullStr | Inflation Differential Pass-Through to Exchange Rate: Some Evidence From Pakistan |
| title_full_unstemmed | Inflation Differential Pass-Through to Exchange Rate: Some Evidence From Pakistan |
| title_short | Inflation Differential Pass-Through to Exchange Rate: Some Evidence From Pakistan |
| title_sort | inflation differential pass through to exchange rate some evidence from pakistan |
| url | https://doi.org/10.1177/21582440231221316 |
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