Impact of Exchange rate Volatility on Growth and Economic Performance: A Case Study of Pakistan, 1973-2003

Abstract

This paper investigates the impact of volatility of exchange rates on the manufactured production of Pakistan’s economy. After a short introduction of the underlying theories and empirical literature, the relationship between these two variables is estimated. In the regression, the conditional variance of the real exchange rate is the measure of uncertainty (GARCH estimation). The results obtained are positive but are insignificant, and do not support the position that excessive volatility or shifting of exchange rate regimes has pronounced effects for manufacturing production. These results are consistent with what we obtain from the impulse responses. It is believed, however, that the thesis adds to the body of evidence, suggesting that exchange rate variability has no significant effect on manufacturing products.