Modelling Exchange Rate Volatility by Macroeconomic Fundamentals in Pakistan

Yıl 2014, Cilt: 6 Sayı: 2, 58 - 76, 01.09.2014

Munazza Jabeen Saud Ahmad Khan

https://doi.org/10.33818/ier.278035

Cited By: 4

Öz

What drives volatility in foreign exchange market in Pakistan? This paper undertakes an analysis of modelling exchange rate volatility in Pakistan by potential macroeconomic fundamentals well-known in the economic literature. For this monthly data on Pak Rupee exchange rates in the terms of major currencies (US Dollar, British Pound, Canadian Dollar and Japanese Yen) and macroeconomics fundamentals is taken from April, 1982 to November, 2011. The results show that the PKR-USD exchange rate volatility is influenced by real output volatility, foreign exchange reserves volatility, inflation volatility and productivity volatility. The PKR-GBP exchange rate volatility is influenced by foreign exchange reserves volatility and terms of trade volatility. The PKR-CAD exchange rate volatility is influenced by terms of trade volatility. The findings of this paper reveal that exchange rate volatility in Pakistan results from real shocks than nominal shocks

Anahtar Kelimeler

Exchange Rate Volatility, GARCH

Kaynakça

• Ahmed, M. (2012). Estimation of Exchange Rate Volatility via GARCH Model Case Study Sudan (1978 – 2009). International Journal of Economics and Finance, 4 (11), 183- 192.
• Bangaké, C. (2008). Exchange Rate Volatility and Optimum Currency Area: Evidence from Africa. Economics Bulletin, 6 (12), 1-10.
• Bartolini, L. and G. M. Bodnar (1996). Are Exchange Rates Excessively Volatile? And What Does “Excessively Volatile” Mean, anyway? Federal Reserve Bank of New York Research Paper No.9601, January.
• Bauwens, L., D. Rime and G. Sucarrat (2006). Exchange Rate Volatility and the Mixture of Distribution Hypothesis. Empirical Economics, 30, 889-911.
• Bayoumi, T. and B. Eichengreen (1998). ‘Exchange Rate Volatility and Intervention: Implications of the Theory of Optimum Currency Areas. Journal of International Economics, 45, 191-209.
• Benita, G. and B. Lauterbach (2007). Policy Factors and Exchange-Rate Volatility: Panel Data versus a Specific Country Analysis. International Research Journal of Finance and Economics, 7, 7-23.
• Calderón, C. (2004). Trade Openness and Real Exchange Rate Volatility: Panel Data Evidence. Central Bank of Chile working paper, 294.
• Cheung, W. and S. Lai (2009). A multiple-horizon search for the role of trade and financial factor in bilateral real exchange rate volatility. Journal of Economics and Management, 5 (2), 187-218.
• Chipili, J. (2012). Modelling Exchange Rate Volatility in Zambia. The African Finance Journal, 14 (2), 85-107.
• De Grauwe, P., M. J. J. Janssens and H. Leliaert (1985). Real-Exchange Rate Variability from 1920 to 1926 and 1973 to 1982. Princenton Studies in International Finance, No.56.
• Devereux, M. and P. Lane (2003). Understanding Bilateral Exchange Rate Volatility. Journal of International Economics, 60, 109-132.
• Dornbusch, R. (1976). Expectations and Exchange Rate Dynamics. Journal of Political Economy, 6, 1161-1176.
• Edwards, S. (1987). Real Exchange Rate Variability: An Empirical Analysis of the Developing Countries Case. International Economic Journal, 1, 91-106.
• Fidrmuc, J. and R. Horvath (2007). Volatility of Exchange Rates in Selected New EU Members: Evidence from Daily Data. CESifo Working Paper No.2107.
• Flood, P. and A. Rose (1995). Fixing Exchange Rates: A Virtual Quest for Fundamentals. Journal of Monetary Economics, 36, 3-37.
• Friedman, M. (1953). The Case For Flexible Exchange Rates. Essays in Positive Economics. Chicago: University of Chicago Press, 157-203
• Grydaki, M. and S. Fountas (2009). Exchange Rate Volatility and Output Volatility: A Theoretical Approach. Review of International Economics, 17 (3), 552-569.
• Goyal, A. and S. Arora (2012). The Indian Exchange Rate and Central Bank action: An EGARCH Analysis. Journal of Asian Economics, 23 (1) ,60-72.
• Hau, H. (2002). Real Exchange Rate Volatility and Economic Openness: Theory and Evidence, Journal of Money, Credit and Banking, 34 (3), 611-630
• Hausmann, R., U. Panizza and R. Rigobon (2006). The Long-Run Volatility Puzzle of the Real Exchange Rate. Journal of International Money and Finance, 25, 93-124.
• Hua, M. and Y. Gau (2006). Determinants of Periodic Volatility of Intraday Exchange Rates in the Taipei FX Market. Pacific-Basin Finance Journal, 14, 193-208.
• Hviding, K., M. Nowak and L. Ricci (2004). Can Higher Reserves Help Reduce Exchange Rate Volatility? International Monetary Fund Working Paper No.189.
• Morana, C. (2009). On the Macroeconomic Causes of Exchange Rate Volatility. International Journal of Forecasting, 25, 328-50.
• Mussa, M. (1986). Nominal Exchange Rate Regimes and the Behavior of Real Exchange Rates: Evidence and Implications. Carnegie-Rochester Conference Series on Public Policy, 26.
• Obstfeld, M. and K. Rogoff (1995). Exchange Rate Dynamics Redux. Journal of Political Economy, 103, 624-660.
• Obstfeld, M. and K. Rogoff (2000). New Directions in Open Macroeconomics. Journal of International Economics, 50, 117-153.
• Shah, M. K. A., Z. Hyder and M. K. Pervaiz (2009). Central Bank Intervention and Exchange Rate Volatility in Pakistan: An Analysis Using GARCH-X Model. Journal of Applied Financial Economics, 19 (18), 1497-1508.
• Stančík, J. (2007). Determinants of Exchange Rate Volatility: The Case of the New EU Members. The Czech Journal of Economics and Finance, 57 (9 -10), 414-432.
• Stockman, A. (1983). Real Exchange Rates under Alternative Nominal Exchange-Rate Systems. Journal of International Money and Finance, 2, 147-166.