The Effect of Remittances and Interest Rate on Exchange Rate Volatility in Pakistan
Keywords:
Remittances, Interest Rate, Exchange Rate Volatility, Generalized Method of Moments, Etc.Abstract
Exchange rate is considered as one of the most significant factor of
a country‟s economic growth and its volatility can significantly impact the
international trade. The topic of exchange rate volatility is an increasing
concern of not only the researchers but the policy makers around the
world over the years. This study intends to investigate the impacts of the
remittances and interest rate on exchange rate volatility in Pakistan as
Pakistan receives a considerable amount of foreign exchange in terms of
worker‟s remittances. To estimate the relationship among the variables,
the monthly time series data for the period of 2006-2018 has been
analyzed by using Generalized Method of Moments (GMM) and
Augmented Dicky-Fuller (ADF) has been applied for confirming the
stationary of the series. The results reveal that the remittances affect the
exchange rate volatility as described by GMM. Afterward the exchange
rate volatility is also influenced by interest rate as revealed by GMM.
Taking to account the remittances and interest rate have negative impacts
on exchange rate volatility in Pakistan. The ramification of the study is
that growing in remittances and interest rate can be effective in curbing
the exchange rate volatility.
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