Short-Run and Long-Run Effects of Exchange Rate Volatility on the Volume of Exports: A Case Study for Pakistan

Abstract

This paper investigates empirically the impact of exchange rate volatility on Pakistan’s exports to its major trading partners under the floating exchange rate regime for the period 1985 to 2001. Estimates of the co-integrating relations are obtained using Johansen’s technique, and estimates of the short-run dynamics are obtained utilizing an error-correction model. The major findings indicate that increases in exchange rate volatility approximated by the conditional variance of exchange rates exert a significant negative effect upon the volume of exports in the short-run. Key words: ARCH; exchange rate volatility; exports; error-correction model JEL classification: F14; F31; F41 1.

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