Monetary Policy and Exchange Rate Volatility in Pakistan : A VAR Approach

This paper investigated empirically the relationship between monetary policy and exchange rate volatility in Pakistan along time span from 1971 to 2014. The outcome of unrestricted VAR explained as “there is weak linkage among exchange rate volatility and lag period monetary policy instruments like interest rate and money supply”. Granger Causality Test also reflects that a unidirectional relationship exit among exchange rate volatility (VOLEXR) and interest rate (IR), among exchange rate volatility and interest rate and money supply(M2) and among money supply and interest rate respectively. Impulse Response Function affirmed a weak coordination in exchange rate volatility and monetary policy