ANALYSIS OF THE FACTORS AFFECTING EXCHANGE RATE VARIABILITY IN PAKISTAN

The Paper examines/analyzed the factors contributing exchange rate vitality in Pakistan. The study was conducted on some major factors contributing to exchange rate volatility, and their relative importance. Annual data for the period 1975-2010 is used, taken from Economic Survey of Pakistan (various issues) and International Financial Statistics. The main variables used to check variability are inflation, Growth rate, imports and exports on exchange rate volatility. Simple Linear Regression model with ordinary least method (OLS) is used to analyze the results. The study revealed that inflation is the main factor affecting exchange rate in Pakistan. The study further show that the second important variable which bring more variation in exchange rate is economic growth, while order of export and import in variation lies at third and fourth position. Based on the finding of the study it is recommended to harmonize fiscal policies with monetary policy first and then make effective link of both these policies with trade policy.