Productivity Shocks and Nominal Exchange Rate Variability: a Case Study of Pakistan

Muhammad Zakaria () and Eatzaz Ahmad
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Muhammad Zakaria: Quaid-i-Azam University, Postal: Department of Economics, Quaid-i-Azam University,, Islamabad, 45320, Pakistan
Eatzaz Ahmad: Quaid-i-Azam University, Postal: Department of Economics, Quaid-i-Azam University, Islamabad, 45320, Pakistan

Journal of Economic Integration, 2009, vol. 24, 175-189

Abstract:

This paper empirically examines the impact of productivity shocks on nominal exchange rate movements of Pak-rupee against currencies of its major trading partners using quarterly time-series data for the flexible exchange rate period (1983Q1 to 2006Q4). By taking into account the endogeneity problem the Generalized Method of Moments (GMM) provides results that are consistent with the theoretical predictions. The results suggest that variability in bilateral nominal exchange rates is explained in part by relative productivity differentials in the tradable and nontradable sectors both at home and abroad.

Keywords: nominal exchange rates; productivity; relative prices (search for similar items in EconPapers)
JEL-codes: C22 C51 F31 (search for similar items in EconPapers)
Date: 2009
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Persistent link: https://EconPapers.repec.org/RePEc:ris:integr:0470

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