Pakistan experienced significant contraction in exports, together with sharp appreciation in real effective exchange rate, between 2015 and 2018. However, subsequent devaluations have only had a limited effect in reversing the trend. This has raised questions on the usefulness of exchange rate policies in promoting exports. This paper uses a Bayesian SVAR model to answer this question. I find that exchange rate shocks do have a significant effect on exports. However, the effect materialises with a lag of at least one year. The exchange rate elasticity of exports increases from close to 0 in the first quarter to 1.33 in the sixth quarter. These shocks also explain all of the slowdown in exports between 2015 and 2018.
|Place of Publication||Bristol Economics Discussion Papers|
|Number of pages||25|
|Publication status||Unpublished - 8 Apr 2019|
- Bayesian SVAR; Sign Restrictions; Exchange Rate Elasticity of Exports