publication . Article . 1999

Exchange Rate and Inflation Dynamics

Eatzaz Ahmad; Saima Ahmed Ali;
Open Access
  • Published: 01 Jan 1999 Journal: The Pakistan Development Review, volume 38, issue 3, pages 235-251
Abstract
This paper studies simultaneous determination of nominal exchange rate and domestic price level in Pakistan. The estimated model contains sufficient built-in dynamics to trace the pattern and speed of adjustment in the two variables in response to temporary or permanent shocks. The two domestic shocks considered in the paper are monetary and real shocks, while the three external shocks considered are import price, export price and foreign exchange reserves shocks. The study finds that the impact period effects of temporary shock on price level and exchange rate are divergent, while the long run effects are convergent. This means that, while purchasing power pari...
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