—This study first attempts to identify the
determinants of nominal rupee-dollar exchange rate in
Pakistan. Apart from providing theoretical explanation on
possible determinants of nominal rupee-dollar exchange rate,
the study tests their statistical significance using Cointegration
modeling approach. It finds that the relative price, domestic
output, current account balance, exports, financial deepening,
interest rate differential, and budget deficit turn out to be
statistically significant determinants of nominal rupee dollar
exchange rate in Pakistan. Furthermore, this paper also
analyzes the effects of policy uncertainty on exchange rate
behavior using GARCH model. It finds that uncertainty
related to output, current account deficit, budget deficit,
external debt, and domestic investment contributes to the
volatility of nominal rupee-dollar exchange rate in Pakistan.
—Nominal exchange rate, time series model,
The author is with the Department of Economics, University of Karachi,
Karachi-75270, Pakistan (e-mail:email@example.com).
Cite:Abdul Waheed, "Effects of Policy Uncertainty on Nominal Rupee-Dollar Exchange Rate in Pakistan," International Journal of Trade, Economics and Finance vol.3, no.6, pp. 428-431, 2012.