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EXCHANGE RATE AS A DETERMINANT OF FLUCTUATION IN FOREIGN EXCHANGE RESERVES: EVIDENCE FROM ECONOMY OF PAKISTAN

Keywords: Foreign exchange reserves , nominal effective exchange rate , real effective exchange rate , cointegration.

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Abstract:

This study Models the relationship and causality link between Foreign exchange reserves and Exchange rate (nominal and real exchange rate) for economy of Pakistan using annually data series started from 1983 to 2009. The empirical Methodology usesCo integration analysis. TheCo integration result point out that there is a long run relationship exists between Foreign exchange reserves and Exchange rate. This study also examine causality relationship and also suggest that the causality direction goes from Nominal effective exchange rate and Real effective exchange rate towards foreign exchange reserves, it means that in Pakistan both Nominal effective exchange rate and Real effective exchange rate effect the Foreign exchange reserves.

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