Rashid, Abdul and Husain, Fazal (2012): On the modeling of exchange rate: some evidence from Pakistan. Forthcoming in: International Review of Applied Financial Issues and Economics

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Abstract
This paper tests the interconnected form of PPP and UIP while allowing the random component of exchange rate in the specification. We find a significant longrun association among exchange rates, price and interest rate differentials. Besides the PPP and UIP conditions, the previous period exchange rate plays an important role in explaining exchange rate variability. The coefficient of error correction term reveals substantial convergence towards longrun equilibrium. These findings are interesting because they explicate the dilemma of PPP and UIP and illustrate the significance of the joint modelling of these parity conditions in explaining the convergence towards equilibrium exchange rates.
Item Type:  MPRA Paper 

Original Title:  On the modeling of exchange rate: some evidence from Pakistan 
English Title:  On the Modeling of Exchange Rate: Some Evidence from Pakistan 
Language:  English 
Keywords:  purchasing power parity, uncovered interest rate parity, random walks, exchange rate regimes 
Subjects:  C  Mathematical and Quantitative Methods > C5  Econometric Modeling > C53  Forecasting and Prediction Methods ; Simulation Methods F  International Economics > F3  International Finance > F31  Foreign Exchange 
Item ID:  47547 
Depositing User:  Dr Abdul Rashid 
Date Deposited:  11 Jun 2013 14:18 
Last Modified:  17 Oct 2019 08:17 
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URI:  https://mpra.ub.unimuenchen.de/id/eprint/47547 