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IMPACT OF EXCHANGE RATE UNCERTAINTY ON
EXPORTS: A CASE OF PAKISTAN WITH US, UK AND UAE


Taqadus Bashir

International Islamic University Islamabad

Maria Hassan
International Islamic University Islamabad

Sara naseer
International Islamic University Islamabad

Alia afzal
International Islamic University Islamabad

 

ABSTRACT


Primary objective of this paper is to investigate fluctuations in exports resulting from the volatility in exchange rate of Pakistan with three of its major trading partners, the United States of America (US), United Kingdom (UK), and the United Arab Emirates (UAE). Data in this research covers a longer period of time using monthly data from 1988:8 to 2011:6. Empirical testing provides the results that volatility in exchange rate of Pakistan with UK, and UAE project significantly negative impact exports of Pakistan but in case of US this relation is not proved to be significant. Fully modified OLS results for this paper are highly supportive for the proposed model predicting exports of Pakistan to be highly correlated with exchange rate of Pakistan with its major trading Partners explaining the change in exports because of uncertainty in the currency market. Technically supporting this paper, ADF is used purposively to check stationarity of the variables, Garch (1,1) model to check volatility of exchange rate, and ARDL results are achieved using ARDL cointegeration with Wald test technique to check the long run relationship also VECM is used to estimate speed of adjustment in exports in short run due to change in exchange rate.


Keywords:
Exchange rate, Bounds Test, Exports.