Are Real Devaluations Contractionary? an Empirical Analysis for Pakistan
Journal Title: Asian Economic and Financial Review - Year 2012, Vol 2, Issue 1
Abstract
The failure of Bretton Woods system in 1970s diverted the attention of the researchers and policy makers from the orthodox wisdoms of elasticities, absorptions and Keynesian towards the new structuralist theories of contractionary depreciations. The present study has been carried out to test this contractionary hypothesis of real depreciations for Pakistan in the framework of a three version IS curve approach by using annual data over the period, 1973-2008. The main finding of the study is that real depreciation increases the output gap in Pakistan. The results also show that movement towards a more flexible exchange rate regimes also raises the output gap.
Authors and Affiliations
Naeem Ur Rehman Khattak| Dean, Faculty of Social Sciences, University of Peshawar, Pakistan, Muhammad Tariq| Ph.D. Scholar at Department of Economics, University of Peshawar, Pakistan
Keywords
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