Real Exchange Rate Changes and Trade Balance in Pakistan: A Revisit

Muhammad Shahbaz, Abdul Jalil and Faridul Islam ()

MPRA Paper from University Library of Munich, Germany

Abstract: This study uses quarterly data from 1980.1 to 2006.4 to explore the relationship between changes in real exchange rate and the trade balance indicators of Pakistan. Applying Auto Regressive Distributed Lag (ARDL) approach to cointegration we examine the existence of a possible long run relationship. We find the following: (a) a long run relationship between the series exists; and b) the coefficient of elasticity is negative and statistically significant which does not support for the J-relation. Given this, the policymakers should take conservative approach in using currency devaluation to cure the fundamental disequilibrium in the balance of payments. It is likely that such policy may not produce the desired outcome—i.e., the trade balance may not improve.

Keywords: Real Exchange Rate Changes; Trade Balance (search for similar items in EconPapers)
JEL-codes: C32 P45 (search for similar items in EconPapers)
Date: 2010-12-20
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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