Empirical Relationship between general elections and exchange rate: A study from Pakistani Market 1970 – 2009

Abstract

The paper studies the link between general elections in Pakistan and the depreciation of exchange rate. The paper is unique in a way that no previous study has been done in Pakistan. We strive to prove that Pakistani politicians try to manipulate the exchange rate in some way so that they can get votes of citizens and when the elections are over, exchange rate depreciates at an increasing rate. Due to the presence of high degree of random disturbance in the data we used vector auto regression. The results given by vector auto regression confirms all the previous studies that whenever the elections are over the exchange rate depreciates at a very high rate than it was before the elections which in turn also confirmed that in pre-elections; politicians try different methods to get votes in their favor. We took time series data from 1970 to 2009, which covers a total of nine general elections held in Pakistan. Keywords - Depreciate, Elections, Exchange Rate, Political stability