Number of Downlaods: 128
Published Date: Jan 15, 2021
Hot Money Cools on Pakistan amid COVID-19: Evidence from Nonlinear ARDL- (WP – 192)
This study investigates key determinants, and the behaviour of hot money in Pakistan for the period from May 2015 to June 2020 with a view to capture the impacts of COVID-19. It specifically assesses the asymmetric impact of interest rate on hot money quantum. In the context of Pakistan, such asymmetric impact appears to be neglected. In an attempt to fill this gap, this study pays special attention to the curious case of hot money invasion and exit in recent years. This is taking a note on Pakistan’s debt and equity markets that are over-heated due to massive inflows of hot money in to the economy. In this process, it examines the impact of COVID-19 outbreak on hot money and how it has accelerated outflows. In doing so, a Nonlinear Autoregressive Distributed Lag (NARDL) framework has been employed to capture inherent nonlinearities that may otherwise give misleading inference. The results reveal that there exists a long-run asymmetric association between the policy rate and hot money quantum. The results show a long-run positive effect of the increase in the policy rate. At the same time, there is a negative effect of decrease in policy rate on hot money inflows. Moreover, the findings explicitly show that COVID-19 had a drastic impact on hot money, where despite a high interest rate, hot money flushed out of the market.