Modelling Market Pressure and Intervention Index for Pakistan Using Cointegration Approach

Gilal, Muhammad Akram, Chandio, Rafiq Ahmad

Abstract


To work with a model based approach to Exchange Market Pressure, estimation on level data may be spurious. This paper addresses that issue by utilizing a Cointegration framework to estimate parameters of a Weymark’s (1995) model. Based on Weymark (1995) model’s estimated parameters, an exchange market pressure and an intervention index is constructed. The results indicate downward pressure and active Central Bank intervention. Post reform period shows a drop in market pressure and the central bank foreign exchange intervention. An intervention index mean value for the entire period suggests that foreign exchange reserves relieved most of the pressure. This has an important policy implication that monetary authorities in Pakistan are not independent in formulating an effective monetary policy.

 


Full Text: PDF DOI: 10.5539/ijef.v6n4p51

Creative Commons License
This work is licensed under a Creative Commons Attribution 3.0 License.

International Journal of Economics and Finance  ISSN  1916-971X (Print) ISSN  1916-9728 (Online)

Copyright © Canadian Center of Science and Education

To make sure that you can receive messages from us, please add the 'ccsenet.org' domain to your e-mail 'safe list'. If you do not receive e-mail in your 'inbox', check your 'bulk mail' or 'junk mail' folders.