Exchange Rate Misalignment in Pakistan: Evidence from Purchasing Power Parity Theory

Abdul Qayyum, Muhammad Khan and Khair-U- Zaman
Additional contact information
Khair-U- Zaman: Gomal University, D. I. Khan.

The Pakistan Development Review, 2004, vol. 43, issue 4, 721-735

Abstract: This paper examines the validity of the purchasing power parity to evaluate whether the Pakrupee vis-à-vis the US-dollar has been overvalued since the introduction of managed floating exchange rate. The Johansen multivariate cointegration technique is applied for the period 1982Q2-2002Q4. A single cointegrating vector is identified whose coefficients conform in broad terms to the restriction implied by the PPP theory, lending support to the interpretation of the model as describing a long-run relationship. This support is reinforced by the results derived from the adjustment coefficient, which is identifies clear short-run tendency for the exchange rate to revert to the equilibrium value defined by the estimated long-run model. Furthermore, exchange rate misalignment is also calculated using the estimated long-run relationship to evaluate whether the Pak-rupee vis-à-vis the US-dollar was undervalued or overvalued since the inception of managed floating exchange rate system. Calculated misalignment shows a substantial undervaluation of the Pak-rupee vis-à-vis the US dollar.

Keywords: Exchange Rate; Pakistan (search for similar items in EconPapers)
JEL-codes: F31 F43 (search for similar items in EconPapers)
Date: 2004
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Downloads: (external link)
http://www.pide.org.pk/pdf/PDR/2004/4/PartII/Abdul%20Qayyum.pdf (application/pdf)

Related works:
Working Paper: Exchange Rate Misalignment in Pakistan: Evidence from Purchasing Power Parity Theory (2004)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pid:journl:v:43:y:2004:i:4:p:721-735

Access Statistics for this article

More articles in The Pakistan Development Review from Pakistan Institute of Development Economics Contact information at EDIRC.
Bibliographic data for series maintained by Khurram Iqbal ().