Are Real Devaluations Contractionary? an Empirical Analysis for Pakistan
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Keywords

New Structuralist theories, Open Economy IS Curve Model, Contractionary Depreciations, Output gap

How to Cite

Khattak, N. U. R. ., & Tariq, M. . (2012). Are Real Devaluations Contractionary? an Empirical Analysis for Pakistan. Asian Economic and Financial Review, 2(1), 119–134. Retrieved from https://archive.aessweb.com/index.php/5002/article/view/741

Abstract

The failure of Bretton Woods system in 1970s diverted the attention of the researchers and policy makers from the orthodox wisdoms of elasticities, absorptions and Keynesian towards the new structuralist theories of contractionary depreciations. The present study has been carried out to test this contractionary hypothesis of real depreciations for Pakistan in the framework of a three version IS curve approach by using annual data over the period, 1973-2008. The main finding of the study is that real depreciation increases the output gap in Pakistan. The results also show that movement towards a more flexible exchange rate regimes also raises the output gap.

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