Mapping the Causal Connections among Exchange Rate Indicators and Exchange Rate: New Evidence from NARDL Econometric Approach
DOI:
https://doi.org/10.22555/pbr.v25i2.923Keywords:
NARDL, bound test, exchange rate, US dollar, Pakistani RupeeAbstract
The aim of the study is to find out the symmetric or asymmetric relationship between the macroeconomic fundamentals and exchange rate of Pakistani Rupee against the US Dollar which has never been analyzed briefly in previous literature. The NARDL approach has been applied with the selected macroeconomic fundamentals i.e., GDP, foreign reserves, inflation rate, interest rate, oil price, gold price, trade balance, and money supply for the data analysis. The data of exchange rate and selected macroeconomic fundamentals have been taken during the time period of 2011 to 2022 from the official IMF IFS database. The findings indicate that foreign reserves and inflation possess an asymmetric relationship with the exchange rate in long run. The increase in productive inflation only helps to stabilize the exchange rate whereas all other significant variables weakens the Pakistani currency either in short -run or long run i.e., decrease in money supply, GDP, inflation and increase in interest rate. The findings will be helpful for the policymakers and economists to implement their policies accordingly to prevent the further depreciation the of Pakistani Rupee against US Dollar.
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