Exchange Rate Determination in Pakistan: A Simultaneous Equation Model

Rehana Siddiqui (), Usman Afridi and Zafar Mahmood ()
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Usman Afridi: Pakistan Institute of Development Economics, Islamabad.

The Pakistan Development Review, 1996, vol. 35, issue 4, 683-692

Abstract: In recent years the gap between real exchange rate (RER) and nominal exchange rate (NER) has widened in Pakistan. A proper understanding of the determinants of real exchange rate can be extremely useful for the management of current account deficit. The results of this study show that the Simultaneous Equation Model gives better results than the Single Equation Model. The estimated coefficients reveal that changes in both monetary and real sector variables affect the equilibrium path of RER. The distinction between traded and non-traded goods can also help in proper real exchange rate management.

Date: 1996
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