Exchange Rate policies and past Trends: Pakistan has been passed through different exchange rate regimes since its independence in 1947. Pakistan has followed fixed exchange rate regime up to 1971and pegged its exchange rate with pound sterling. In June 1972, the US dollar became dominant currency across the globe with the collapse of Pound sterling and then, Pakistan pegged its currency to US dollar (Hina & Qayyum, 2015).Fixed exchange rate system was followed by the State Bank of Pakistan up to 7th January 1982. The manage float exchange rate system was followed by central bank during the period of 1982-1999 in which the value of PKR-US dollar exchange rate was devalued from 12.71 to 51.77 PKR/US dollar. Finally, the central bank followed the policy of market-based exchange rate system from 1999 onward and the value of rupee depreciated further from 58.03 to 62.55 per US dollar during the period 2000-2008 (Zamir et al. 2017).
Pakistan experienced low fluctuations in the currency exchange rate during the fixed exchange rate regime (1972-1981).Pakistan has been experiencing the high exchange rate volatility since 1982 when the central bank started to follow managed-floating currency exchange rate system. Following figures shows PKR-US dollar exchange rate volatility during different exchange rate systems. (Hussain et al., 2015). Currency exchange rate volatility is estimated through GARCH modelling technique over different time periods characterized by different exchange rate regimes.
1.Exchange Rate Volatility during the Flexible Exchange Rate Regime
2.Exchange Rate Volatility during Managed-Floating Exchange Rate Regime
3.Exchange Rate Volatility during Fixed Exchange Rate Regime
References:
Hina, H., & Qayyum, A. (2015). Exchange Rate Determination and Out of Sample Forecasting: Cointegration Analysis. University Library of Munich, Germany.: MPRA Paper 61997.
Hussain, S. B., Hussain, S., & Hussain, F. (2015). Exchange rate volatility during different exchange rate regimes and its relationship with exports of Pakistan. The Journal of Governance and Public Policy, 7(2), 75-96.
Zamir, M., Amin, A., Ullah, S., & Khan, S. U. (2017). Exchange Rate Volatility in Pakistan and Its Impact on Selected Macro Economic Variables (1980-2014). business, 9, 167-187.
