Currency Depreciation And Output Nexus: Evidence From Pakistan
Author: Muhammad Nawaz

Currency depreciation as a channel of output management has been a hot and controversial topic in both developed and developing economies. In Pakistan’s case relevant research would require study of data available for the period 1972 to 2010. The stationarity of the variables under consideration at different orders requires the application of the bounds testing approach to cointegration. The findings based on open economy IS-LM framework induce a negative effect of currency depreciation on output levels. This is consistent with both the cross-correlation scrutiny and the long-run estimates of the auto-regressive distributive lag (ARDL) model. The short-run estimates of error-correction model (ECM) may lead to significant increment in output levels due to the depreciation of Pak-Rupee. Government spending may cause to reduce the output in the short, as well as, in the long-run which furnishes strong support to the crowdingout hypothesis. The terms of trade, positive in the short-run, are negatively related to output in the long, in both versions of the model. However, surprise money has been insignificant in both long and short-run ECM. The country would need a clear long term policy regime that inspires trust of the international community and restores the exporters’ confidence. Supervisor:- Dr. Ejaz Ghani

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Keywords : Currency Depreciation, Currency Depreciation-Pakistan, Output Nexus
Supervisor: Ejaz Ghani

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