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Exchange rate misalignment in Pakistan and its general equilibrium distributional implications:

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  • Debowicz, Dario
  • Saeed, Wajiha

Abstract

Recent findings in the growth literature suggest that developing countries need to keep a devalued exchange rate to stimulate their economic growth. Building on these findings, we econometrically evaluate to what ex-tent the real exchange rate of Pakistan has been aligned with its economic fundamentals, and find that the Pa-kistan rupee has been significantly and systematically overvalued during the last years. We then simulate the general equilibrium effects of an eventual re-alignment of the real exchange rate with economic fundamen-tals, and find not only an expected increase in the relative size of the tradable sector - where productivity in-creases tend to be faster – but also an associated improvement in the income of the poorest groups.

Suggested Citation

  • Debowicz, Dario & Saeed, Wajiha, 2014. "Exchange rate misalignment in Pakistan and its general equilibrium distributional implications:," PSSP working papers 16, International Food Policy Research Institute (IFPRI).
    • Handle: RePEc:fpr:psspwp:16
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    References listed on IDEAS

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    Keywords

    economic growth; exchange rate; trade; Markets; Computable General Equilibrium (CGE) model;
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