Exchange Rate Volatility and Interest Rate Risk: In Case of Pakistan

Kashmir Economic Review Vol. 19, No. 1 & 2, January – December, 2010

11 Pages Posted: 1 Jan 2014

See all articles by Adnan Hussain

Adnan Hussain

Benazir Bhutto Shaheed University, Lyari, Karachi; University of Karachi - Applied Economics Research Centre

Muhammad Mubeen

Bilkent University, Department of Management, Students; IQRA University - IQRA University (Gulshan Campus)

Irfan Lal

Institute of Business Management (IoBM); University of Karachi - Applied Economics Research Centre; Institute of Business Management

Date Written: November 30, 2010

Abstract

The study examines the volatility of exchange rate effects on interest rates and inflation. For this purpose the study used monthly data over the period January 1990 to December 2010. To explore the volatility of exchange rate study used the ARCH (Auto Regressive Conditional Heterosidasticity) and GARCH (Generalized Auto regressive conditional Heterosidasticity). The result shows that positive association between exchange rate risk and interest rate in the form risk premia in the interest rate. The result of the study fulfills the interest parity condition and purchasing power parity.

Keywords: Exchange rate volatility, ARCH and GARCH

JEL Classification: F31

Suggested Citation

Hussain, Adnan and Mubeen, Muhammad and Lal, Irfan, Exchange Rate Volatility and Interest Rate Risk: In Case of Pakistan (November 30, 2010). Kashmir Economic Review Vol. 19, No. 1 & 2, January – December, 2010, Available at SSRN: https://ssrn.com/abstract=2373159

Adnan Hussain

Benazir Bhutto Shaheed University, Lyari, Karachi ( email )

Faqir Mohammad Dura Khan Road,
Near cheel chowk
Karachi, Sindh 75500
Pakistan

HOME PAGE: http://www.bbsul.edu.pk

University of Karachi - Applied Economics Research Centre ( email )

Mail University Road
Karachi University
Karachi, SC Sind 75270
Pakistan

Muhammad Mubeen (Contact Author)

Bilkent University, Department of Management, Students ( email )

Ankara
Turkey

IQRA University - IQRA University (Gulshan Campus) ( email )

Abid Town, Block-2, Gulshan-e-Iqbal
Karachi, Sindh 75300
Pakistan

Irfan Lal

Institute of Business Management (IoBM) ( email )

Plot # 84
Korangi Creek
Karachi, Sindh 75190
Pakistan

University of Karachi - Applied Economics Research Centre ( email )

Main University Road
Karachi University
Karachi, SC Sindh 75270
Pakistan
00923212348843 (Phone)

Institute of Business Management ( email )

D-93040 Regensburg
Germany

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