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
Date Written: November 30, 2010
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: Suggested Citation