The Impact of Exchange Rate on Inflation in Pakistan

Abstract

In order to examine the effects of independent variables broad money, exchange rate, remittances, and wholesale price index on inflation and the Consumer Price Index (CPI), Trade openness in Pakistan, this study uses EViews for regression analysis and incorporates data from 1990 to 2022. The unit root test known as the Augmented Dickey-Fuller (ADF) is employed to evaluate whether the variables are stationary. The exchange rate and inflation have a statistically significant link, according to the results. According to the positive coefficient, changes in the exchange rate are associated with an increase in inflation. This discovery adds to our understanding of the complex mechanisms of inflation in Pakistan. In order to strengthen the conclusions' robustness, the study highlights the significance of taking into account both statistical and economic significance as well as any potential restrictions, like endogeneity issues.