This paper examines whether the monetary model or the flow model of exchange rate explains the long-run movements in Pak rupee exchange rates vis-à-vis the four major currencies – the US dollar, British pound, Swiss franc and Japanese yen – over the period 1983q1-2009q4. Results obtained by employing the Johansen and Juselius (1990) technique of cointegration are supportive of the monetary model in two Pak rupee exchange rates vis-à-vis the US dollar and the Swiss franc when both short- and long-run interest rates are used and of the flow model in three exchange rates vis-à-vis the British pound, Swiss franc and Japanese yen when the short-run interest rate is used. These results show that both stock equilibrium in capital markets and flow equilibrium in foreign exchange markets determine Pak rupee exchange rates
Ahmed, Mushtaq and Khan, Ashfaque (1990), “A Re-examination of the Stability of the Demand for Money in Pakistan”, Journal of Macroeconomics Vol. 12, No. , pp. 307-332.
Andersen, Torben, Bollerslev, Tim, Diebold, Francis and Vega, Clara. (2003),
“Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange”, American Economic Review, Vol. 93, pp. 38-62. Bhatti, Razzaque (1996), “A Correct Test of Purchasing Power Parity: The Case of Pak-rupee Exchange Rates”, Pakistan Development Review, Papers and Proceedings, Vol. 35, No. 4, pp. 671-682.
Bhatti, Razzaque (2000), “On Purchasing Power Parity between Pakistan and Other Asian Countries”, Pakistan Economic and Social Review”, Vol. 38, No. 1, 15.
Bhatti, Razzaque (2001), “Determining Pak Rupee Exchange Rates vis-à-vis Six
Currencies of Industrial Countries”, Pakistan Development Review, Papers and Proceedings, Vol. 40, pp. 885-897. Bilson, John (1978a), “The Monetary Approach to the Exchange Rate: Some
Empirical Evidence”, IMF Staff Papers, Vol. 25, No. 1, pp. 48-75. Bilson, John (1978b), “The Current Experience with Floating Exchange Rates: An
Appraisal of the Monetary Approach”, American Economic Review, Vol. 68, No. , pp. 392-397. Cassel, Gustav (1916), “The Present Situation of the Foreign Exchange”,
Economic Journal, Vol. 26, No. 101, pp. 62-65. Dickey, David and Fuller, Wayne (1979), “Distribution of the Estimators for
Autoregressive Time Series with a Unit Root”, Journal of American Statistical Association, Vol. 74, No. 366, pp. 427-431. Dornbusch, Rudiger (1976a), “Exchange Rate Expectations and Monetary Policy”,
Journal of International Economics, Vol. 6, pp. 232-244. Dornbusch, Rudiger. (1976b), “Expectations and Exchange Rate Dynamics”,
Journal of Political Economy, Vol. 84, No. 6, pp. 1161-76.
Evans, Martin and Lyons, Richard (2002) Order Flow and Exchange Rate
Dynamics, Journal of Political Economy, 110, No. 1, 170-180. Evans, Martin and Lyons, Richard (2003), “How is Macro News Transmitted to
Exchange Rates?” NBER Working Papers, No 9433.
Fleming, Marcus (1962) Domestic Financial Policies under Fixed and Floating
Exchange Rates, IMF Staff Papers, 9, No. 3, 369-80. Frankel, Jeffrey (1979), “On the Mark: A Theory of Floating Exchange Rates
Based on Real Interest Differentials”, American Economic Review, Vol. 69, No. 4, pp. 601-22. Frenkel, Jeffrey (1976), “A Monetary Approach to the Exchange Rate: Doctrinal
Aspects and Empirical Evidence”, Scandinavian Journal of Economics, Vol. 78, No. 2, pp. 200-24. Frenkel, Jeffrey (1981), “Flexible Exchange Rates, Prices, and the Role of News:
Lessons from the 1970s”, Journal of Political Economy, Vol. 89, No. 4, pp. 665
Frenkel, Jeffrey and Razin, Assaf. (1987), “The Mundell-Fleming Model: A
Quarter-Century Later”, IMF Staff Papers, Vol. 34, No. 4, pp. 567-620. Girton, Lance and Roper, Don (1977), “A Monetary Model of Exchange Market
Pressure Applied to the Postwar Canadian Experience”, American Economic Review, Vol. 67, No. 4, pp. 537-548. Hodrick, Robert (1978), “An Empirical Analysis of the Monetary Approach to the Determination of the Exchange Rate”, (in Frenkel, J.A. and Johnson, H.G. (eds)
The Economics of Exchange Rates), Reading (MA): Addison-Wesley, pp. 97-116. Hoffman, Dennis and Schlagenhauf, Don (1985), “The Impact of News and Alternative Theories of Exchange Rate Determination”, Journal of Money, Credit and Banking, Vol. 17, No. 3, pp. 328-46.
Hooper, Peter and Morton, John (1982), “Fluctuations in the Dollar: A Model of
Nominal and Real Exchange Rate Determination”, Journal of International Money and Finance, Vol. 1, No. 1, pp. 39-56. Hossain, Akhtar (1994), “The Search for a Stable Money Demand Function for
Pakistan: An Application of the Method of Cointegration”, Pakistan Development Review, Vol. 33, No. 4, pp. 969-983. Humphrey, Thomas and Lawler, Thomas (1977), “Factors Determining Exchange
Rates: A Simple Model and Empirical Tests”, Federal Reserve Bank of Richmond Economic Review, May/June, pp. 10-15. Johansen, Sǿren and Juselius, Katarina (1990), “Maximum Likelihood Estimation and Inference on Cointegration - With Applications to the Demand for Money”,
Oxford Bulletin of Economics and Statistics, Vol. 52, No. 2, pp. 169-210. Khan, Ashfaque (1980), “The Demand for Money in Pakistan: Some Further
Results”, Pakistan Development Review, Vol. 19, No. 1, 25-50. Krueger, Anne (1965), “The Impact of Alternative Government Policies under
Varying Exchange Rate Systems”, Quarterly Journal of Economics, Vol. 79, No. , pp. 195-208. Love, Ryan and Payne, Richard (2003), “Macroeconomic News, Order Flow and Exchange Rates?” Working Paper, London School of Economics.
Lyons, Richard, (1995), “Tests of Microstructural Hypotheses in the Foreign
Exchange Market”, Journal of Financial Economics, Vol. 39, No. 2-3, pp. 321- Moosa, Imad and Bhatti, Razzaque (2010), The Theory and Empirics of Exchange
Rates, World Scientific Publishing Company. Mundell, Robert (1961), “Flexible Exchange Rates and Employment Policy,
Canadian Journal of Economics”, Vol. 27, No. 4, pp. 509-517. Mundell, Robert (1963), “Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates”, Canadian Journal of Economics and Political Science, Vol. 29, No. 4, pp. 475-485.
Mussa, Michael (1976) “The Exchange Rate, the Balance of Payments, and Monetary and Fiscal Policy under a Regime of Controlled Floating”,
Scandinavian Journal of Economics, Vol. 78, No. 2, pp. 315-335. Phillips, Peter. and Parron, Pierre (1988), “Testing for a Unit Root in Time Series
Regression, Biometrika, Vol. 75, No. 2, pp. 335-346. Prachowny, M.F.J. (1977), “The Effectiveness of Fiscal and Monetary Policies under Fixed and Flexible Exchange Rates: Some Empirical Evidence for Canada,
–1970”, Review of World Economics, Vol. 113, pp. 462-486.
Year 2011,
Volume: 3 Issue: 1, 149 - 160, 01.06.2011
Ahmed, Mushtaq and Khan, Ashfaque (1990), “A Re-examination of the Stability of the Demand for Money in Pakistan”, Journal of Macroeconomics Vol. 12, No. , pp. 307-332.
Andersen, Torben, Bollerslev, Tim, Diebold, Francis and Vega, Clara. (2003),
“Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange”, American Economic Review, Vol. 93, pp. 38-62. Bhatti, Razzaque (1996), “A Correct Test of Purchasing Power Parity: The Case of Pak-rupee Exchange Rates”, Pakistan Development Review, Papers and Proceedings, Vol. 35, No. 4, pp. 671-682.
Bhatti, Razzaque (2000), “On Purchasing Power Parity between Pakistan and Other Asian Countries”, Pakistan Economic and Social Review”, Vol. 38, No. 1, 15.
Bhatti, Razzaque (2001), “Determining Pak Rupee Exchange Rates vis-à-vis Six
Currencies of Industrial Countries”, Pakistan Development Review, Papers and Proceedings, Vol. 40, pp. 885-897. Bilson, John (1978a), “The Monetary Approach to the Exchange Rate: Some
Empirical Evidence”, IMF Staff Papers, Vol. 25, No. 1, pp. 48-75. Bilson, John (1978b), “The Current Experience with Floating Exchange Rates: An
Appraisal of the Monetary Approach”, American Economic Review, Vol. 68, No. , pp. 392-397. Cassel, Gustav (1916), “The Present Situation of the Foreign Exchange”,
Economic Journal, Vol. 26, No. 101, pp. 62-65. Dickey, David and Fuller, Wayne (1979), “Distribution of the Estimators for
Autoregressive Time Series with a Unit Root”, Journal of American Statistical Association, Vol. 74, No. 366, pp. 427-431. Dornbusch, Rudiger (1976a), “Exchange Rate Expectations and Monetary Policy”,
Journal of International Economics, Vol. 6, pp. 232-244. Dornbusch, Rudiger. (1976b), “Expectations and Exchange Rate Dynamics”,
Journal of Political Economy, Vol. 84, No. 6, pp. 1161-76.
Evans, Martin and Lyons, Richard (2002) Order Flow and Exchange Rate
Dynamics, Journal of Political Economy, 110, No. 1, 170-180. Evans, Martin and Lyons, Richard (2003), “How is Macro News Transmitted to
Exchange Rates?” NBER Working Papers, No 9433.
Fleming, Marcus (1962) Domestic Financial Policies under Fixed and Floating
Exchange Rates, IMF Staff Papers, 9, No. 3, 369-80. Frankel, Jeffrey (1979), “On the Mark: A Theory of Floating Exchange Rates
Based on Real Interest Differentials”, American Economic Review, Vol. 69, No. 4, pp. 601-22. Frenkel, Jeffrey (1976), “A Monetary Approach to the Exchange Rate: Doctrinal
Aspects and Empirical Evidence”, Scandinavian Journal of Economics, Vol. 78, No. 2, pp. 200-24. Frenkel, Jeffrey (1981), “Flexible Exchange Rates, Prices, and the Role of News:
Lessons from the 1970s”, Journal of Political Economy, Vol. 89, No. 4, pp. 665
Frenkel, Jeffrey and Razin, Assaf. (1987), “The Mundell-Fleming Model: A
Quarter-Century Later”, IMF Staff Papers, Vol. 34, No. 4, pp. 567-620. Girton, Lance and Roper, Don (1977), “A Monetary Model of Exchange Market
Pressure Applied to the Postwar Canadian Experience”, American Economic Review, Vol. 67, No. 4, pp. 537-548. Hodrick, Robert (1978), “An Empirical Analysis of the Monetary Approach to the Determination of the Exchange Rate”, (in Frenkel, J.A. and Johnson, H.G. (eds)
The Economics of Exchange Rates), Reading (MA): Addison-Wesley, pp. 97-116. Hoffman, Dennis and Schlagenhauf, Don (1985), “The Impact of News and Alternative Theories of Exchange Rate Determination”, Journal of Money, Credit and Banking, Vol. 17, No. 3, pp. 328-46.
Hooper, Peter and Morton, John (1982), “Fluctuations in the Dollar: A Model of
Nominal and Real Exchange Rate Determination”, Journal of International Money and Finance, Vol. 1, No. 1, pp. 39-56. Hossain, Akhtar (1994), “The Search for a Stable Money Demand Function for
Pakistan: An Application of the Method of Cointegration”, Pakistan Development Review, Vol. 33, No. 4, pp. 969-983. Humphrey, Thomas and Lawler, Thomas (1977), “Factors Determining Exchange
Rates: A Simple Model and Empirical Tests”, Federal Reserve Bank of Richmond Economic Review, May/June, pp. 10-15. Johansen, Sǿren and Juselius, Katarina (1990), “Maximum Likelihood Estimation and Inference on Cointegration - With Applications to the Demand for Money”,
Oxford Bulletin of Economics and Statistics, Vol. 52, No. 2, pp. 169-210. Khan, Ashfaque (1980), “The Demand for Money in Pakistan: Some Further
Results”, Pakistan Development Review, Vol. 19, No. 1, 25-50. Krueger, Anne (1965), “The Impact of Alternative Government Policies under
Varying Exchange Rate Systems”, Quarterly Journal of Economics, Vol. 79, No. , pp. 195-208. Love, Ryan and Payne, Richard (2003), “Macroeconomic News, Order Flow and Exchange Rates?” Working Paper, London School of Economics.
Lyons, Richard, (1995), “Tests of Microstructural Hypotheses in the Foreign
Exchange Market”, Journal of Financial Economics, Vol. 39, No. 2-3, pp. 321- Moosa, Imad and Bhatti, Razzaque (2010), The Theory and Empirics of Exchange
Rates, World Scientific Publishing Company. Mundell, Robert (1961), “Flexible Exchange Rates and Employment Policy,
Canadian Journal of Economics”, Vol. 27, No. 4, pp. 509-517. Mundell, Robert (1963), “Capital Mobility and Stabilization Policy under Fixed and Flexible Exchange Rates”, Canadian Journal of Economics and Political Science, Vol. 29, No. 4, pp. 475-485.
Mussa, Michael (1976) “The Exchange Rate, the Balance of Payments, and Monetary and Fiscal Policy under a Regime of Controlled Floating”,
Scandinavian Journal of Economics, Vol. 78, No. 2, pp. 315-335. Phillips, Peter. and Parron, Pierre (1988), “Testing for a Unit Root in Time Series
Regression, Biometrika, Vol. 75, No. 2, pp. 335-346. Prachowny, M.F.J. (1977), “The Effectiveness of Fiscal and Monetary Policies under Fixed and Flexible Exchange Rates: Some Empirical Evidence for Canada,
–1970”, Review of World Economics, Vol. 113, pp. 462-486.
Bhatti, R. H. (2011). 3ON PAK RUPEE EXCHANGE RATES: WHETHER STOCK OR FLOW MATTERS?. International Journal of Economics and Finance Studies, 3(1), 149-160.
AMA
Bhatti RH. 3ON PAK RUPEE EXCHANGE RATES: WHETHER STOCK OR FLOW MATTERS?. IJEFS. June 2011;3(1):149-160.
Chicago
Bhatti, Razzaque H. “3ON PAK RUPEE EXCHANGE RATES: WHETHER STOCK OR FLOW MATTERS?”. International Journal of Economics and Finance Studies 3, no. 1 (June 2011): 149-60.
EndNote
Bhatti RH (June 1, 2011) 3ON PAK RUPEE EXCHANGE RATES: WHETHER STOCK OR FLOW MATTERS?. International Journal of Economics and Finance Studies 3 1 149–160.
IEEE
R. H. Bhatti, “3ON PAK RUPEE EXCHANGE RATES: WHETHER STOCK OR FLOW MATTERS?”, IJEFS, vol. 3, no. 1, pp. 149–160, 2011.
ISNAD
Bhatti, Razzaque H. “3ON PAK RUPEE EXCHANGE RATES: WHETHER STOCK OR FLOW MATTERS?”. International Journal of Economics and Finance Studies 3/1 (June 2011), 149-160.
JAMA
Bhatti RH. 3ON PAK RUPEE EXCHANGE RATES: WHETHER STOCK OR FLOW MATTERS?. IJEFS. 2011;3:149–160.
MLA
Bhatti, Razzaque H. “3ON PAK RUPEE EXCHANGE RATES: WHETHER STOCK OR FLOW MATTERS?”. International Journal of Economics and Finance Studies, vol. 3, no. 1, 2011, pp. 149-60.
Vancouver
Bhatti RH. 3ON PAK RUPEE EXCHANGE RATES: WHETHER STOCK OR FLOW MATTERS?. IJEFS. 2011;3(1):149-60.