Munich Personal RePEc Archive

Exchange rate Volatility and Interest rate Risk: In the case of Pakistan.

Hussain, Adnan and Mubin, Muhammad and Lal, Irfan (2011): Exchange rate Volatility and Interest rate Risk: In the case of Pakistan. Published in: Kashmir Economic Review , Vol. 19, No. 2

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Abstract

The study examines the effects of volatility of exchange rate volatility on interest rates and inflation. For this purpose the study used monthly data over the period January 1990 to December 2010. To explore the volatility of exchange rate study used the ARCH (Auto Regressive Conditional Heterosidasticity) and GARCH (Generalized Auto regressive conditional Heterosidasticity). The result shows that positive association between exchange rate risk and interest rate in the form risk premia. The result of the study fulfills the interest parity condition and purchasing power parity.

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