Appropriate Exchange Rate Regime for Economic Structure of Pakistan

Muhammad Naveed Tahir (), Faran Ali () and Dawood Mamoon
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Muhammad Naveed Tahir: Forman Christian College (A Chartered University), Economics Department, Lahore, Pakistan.
Faran Ali: University of Management and Technology, School of Business & Economics, Lahore, Pakistan.

Turkish Economic Review, 2016, vol. 3, issue 4, 629-641

Abstract: This study attempts to find the appropriate exchange rate regime for economic structure of Pakistan. To this end the study uses ARDL bond testing approach to estimate long run and for the estimation of short run analysis Error correction model (ECM) is applied. Time series data is used over the period from 1984 to 2012. Findings reveal that Trade openness, foreign exchange reserves, and inflation rate are important determinant while choosing appropriate exchange-rate regime for economy having features like Pakistan. On the basis of analysis, this study suggests that both extreme ends hard peg and free float are unfavorable for it. The results also survive during robustness check. However, caution is required while making a policy decision as clear-cut answer is absent. Nonetheless, choice of regime is a difficult task in empirical analysis because few factors cannot explain actual regime.

Keywords: Exchange Rate Regime; Classification; ARDL (search for similar items in EconPapers)
JEL-codes: F31 F33 F44 (search for similar items in EconPapers)
Date: 2016
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