Dynamics of Causality between Inflation Volatility and Exchange Rate Volatility in Pakistan: A Time Series Analysis

Sana Sultan, Misbah Rauf, Kashif Saeed, Asad Abbas and Dr Muhammad Ramzan Sheikh
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Sana Sultan: Visiting Lecturer, School of Economics, Bahauddin Zakariya University Multan, Pakistan
Misbah Rauf: Research Scholar, School of Economics, Bahauddin Zakariya University Multan
Kashif Saeed: Assistant Professor, Department of Accounting and Finance, The Islamia University of Bahawalpur, Pakistan
Asad Abbas: Lecturer in Economics, Department of Economics, COMSATS University Islamabad Vehari Campus, Pakistan
Dr Muhammad Ramzan Sheikh: Professor of Economics, School of Economics, Bahauddin Zakariya University Multan, Pakistan

Bulletin of Business and Economics (BBE), 2024, vol. 13, issue 2, 526-531

Abstract: This study investigates the dynamic relationship between inflation volatility and exchange rate volatility in Pakistan over the period from 1960 to 2023. Utilizing time series data, the study employes the Vector Error Correction Model (VECM) to analyze both short-run and long-run causality between these variables. The study has found bidirectional causality between exchange rate volatility and inflation volatility, indicating that fluctuations in one variable significantly influence fluctuations in the other, both in the short and long term. Based on the results of the study, it is suggested that to stabilize prices, policymakers should implement measures to stabilize the exchange rate and to stabilize the exchange rate, planners should adopt policies that stabilize the prices.

Keywords: Vector Error Correction Model; Volatility; Short-run; Long-run; Johansen Juselius Cointegration (search for similar items in EconPapers)
Date: 2024
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Persistent link: https://EconPapers.repec.org/RePEc:rfh:bbejor:v:13:y:2024:i:2:p:526-531

DOI: 10.61506/01.00361

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