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Journal of Economic Integration 2009 March;24(1) :175-189.
Productivity Shocks and Nominal Exchange Rate Variability: a Case Study of Pakistan

Muhammad ZakariaEatzaz Ahmad 

Quaid-i-Azam University
Copyright ©2009 Journal of Economic Integration

This paper empirically examines the impact of productivity shocks on nominal exchange rate movements of Pak-rupee against currencies of its major trading partners using quarterly time-series data for the flexible exchange rate period (1983Q1 to 2006Q4). By taking into account the endogeneity problem the Generalized Method of Moments (GMM) provides results that are consistent with the theoretical predictions. The results suggest that variability in bilateral nominal exchange rates is explained in part by relative productivity differentials in the tradable and nontradable sectors both at home and abroad.

JEL Classification: C22, C51, F31

Keywords: nominal exchange rates | productivity | relative prices
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