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Determining Real Exchange Rates

Author

Listed:
  • Usman Afridi

    (Pakistan Institute of Development Economics, Islamabad.)

Abstract

The paper re-examines the determinants of the real exchange rate equation, and suggests alternative determinants where appropriate, as well as improvements in proxies from those conventionally used. The paper emphasises the weaknesses of the multicountry approach to empirical study of the real exchange rate. While real exchange rates are determined for Pakistan, the terms-of-trade variable is found to be insignificant. Excess demand for domestic credit, capital flow, and the "opinions" variable are all found to be inversely related to the RER. Thus government expenditure on non-tradable is positively related; and better specification of the technological change variable shows support for the balance effect.

Suggested Citation

  • Usman Afridi, 1995. "Determining Real Exchange Rates," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 34(3), pages 263-276.
    • Handle: RePEc:pid:journl:v:34:y:1995:i:3:p:263-276
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    File URL: http://www.pide.org.pk/pdf/PDR/1995/Volume3/263-276.pdf
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    Cited by:

    1. Mohsin S. Khan & Axel Schimmelpfennig, 2006. "Inflation in Pakistan: Money or Wheat?," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 2, pages 213-234..
    2. Farid Makhlouf & Mazhar Mughal, 2013. "Remittances, Dutch Disease, And Competitiveness: A Bayesian Analysis," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(2), pages 67-97, June.
    3. Hamna Ahmed, 2009. "Capital Flows and Real Exchange Rate Overvaluation - A Chronic Ailment: Evidence from Pakistan," Lahore Journal of Economics, Department of Economics, The Lahore School of Economics, vol. 14(Special E), pages 51-86, September.
    4. Waheed, Muhammad, 2009. "Impact of real and nominal factors on long run equilibrium in Real Effective Exchange Rate (REER) in Pakistan," MPRA Paper 33169, University Library of Munich, Germany, revised Sep 2010.
    5. Farid Makhlouf & Mazhar Yasin Mughal, 2013. "Remittances, Dutch Disease, and Competitiveness: a Bayesian Analysis," Post-Print hal-01884858, HAL.
    6. Masters, William A. & Ianchovichina, Elena, 1998. "Measuring exchange rate misalignment: Inflation differentials and domestic relative prices," World Development, Elsevier, vol. 26(3), pages 465-477, March.
    7. Shah Hussain, 2008. "Sources of Real Exchange Rate Misalignment Evidence from Pakistan," SBP Working Paper Series 26, State Bank of Pakistan, Research Department.
    8. Muhammad Arshad Khan & Saima Nawaz, 2018. "Does Pak-Rupee Exchange Rate Respond to Monetary Fundamentals? A Structural Analysis," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 57(2), pages 175-202.
    9. Razzaque H. Bhatti, 1997. "Do Expectations Play Any Role in Determining Pak Rupee Exchange Rates?," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 36(3), pages 263-273.
    10. Dungey, Mardi, 2004. "Identifying terms of trade effects in real exchange rate movements: evidence from Asia," Journal of Asian Economics, Elsevier, vol. 15(2), pages 217-235, April.
    11. Waqar Khalid & Javed Iqbal & Nosheen Nasir & Misbah Nosheen, 2024. "Do real exchange rate misalignments have threshold effects on economic growth? Asymmetric evidence from Pakistan," Economic Change and Restructuring, Springer, vol. 57(6), pages 1-40, December.
    12. M. Ali Kemal & Rana Murad Haider, 2004. "Exchange Rate Behaviour after Recent Float: The Experience of Pakistan," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 43(4), pages 829-852.
    13. Zainab Jehan & Iffat Irshad, 2020. "Exchange Rate Misalignment and Economic Growth inPakistan: The Role of Financial Development," The Pakistan Development Review, Pakistan Institute of Development Economics, vol. 59(1), pages 81-99.
    14. Jesus Felipe, 2009. "Does Pakistan Need To Adopt Inflation Targeting? Some Questions," SBP Research Bulletin, State Bank of Pakistan, Research Department, vol. 5, pages 113-162.

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