Co-movement between Exchange Rate Fluctuations and Economic Factors in Pakistan’s Economy (1990-2013)

Adeel Rahim, Humair Khan, Zahir Ullah, Yasir Arafat

Abstract


Prior to 1976, business community of the world followed gold as a stable standard exchange rate for international business. After flexible exchange rate system implemented in the world in 1976, different solutions for stabilizing the exchange rate system were introduced to reduce the effects of exchange rate fluctuations on business. Pakistan and US Economy relies on trade for improving its GDP, lowering inflation rate and enhancing the economy of the Country. However if the trade balance is sufficient but the exchange rate fluctuation is significant then GDP would decrease instead of increasing and the economy might be negatively affected. It is understandable that imports of Pakistan are more than its exports and if exchange rate also fluctuates between Pakistan and the imported country then the country economy would disturb. Due to this imbalance in import/export, Pakistan relies on different institutions like IMF, World Bank, etc. These loans many help in balance of payment, partial stability but on the same time depreciate the economy if Pakistan. These loans are in the form of US dollars and Pakistani rupees are mostly associated with US dollars. Pakistan economy suffers a setback when these loans are returned. This paper looks as to how exchange rate fluctuations between Pakistan and USA and affects Pakistan’s economy and what are the factors which are disturbed due to exchange rate fluctuations between the two countries.

Keywords


Exchange rate, gross domestic product, imports, exports

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References


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