Factors effecting exchange rate: a case of pakistan

This paper investigate different macroeconomic factor that affect exchange rate of Pakistan. Macroeconomic factor include export, import, interest, inflation and current account. Data has been collected annually from 1991 to 2014. Augmented Dickey-Fuller test has been applied to check for stationarity in the data. Exchange rate and interest were found stationary at level, while rest of the variables were stationary at first difference. Johansen co-integration test has been applied to observe for long term relation among variables. Result revealed that there are three co-integrated equations, as there likelihood values are greater than the critical value both at 5% and 1%. So, Johansen co-integration test rejects the assumption of no co-integration. Two stages least square regression has been applied to observe relationship between dependent variable and independent variables. Export, interest and inflation found significant, while import and current account were insignificant