The Sources of Real Exchange Rate Fluctuations in Pakistan

This study examines the sources of real exchange rate fluctuations in Pakistan and use the SVAR (Structure Vector Autoregressive) technique to analysis the impact of different macroeconomics shocks for fluctuation in real exchange rate of Pak rupee. According to Blanchard and Quah (1999), the recognition of the structural shocks in macroeconomics variables found primarily on long run restrictions. Structural decomposition shows that about sixty percent of the variance in forecasting the real foreign exchange rate at a sphere of four quarter is due to nominal shocks in macroeconomics variables. The finding gives some empirical support to sticky price model (Dornbusch, 1976) of exchange rate