Title
Remittances and Rupee Volatility across Uncertainty and Exchange Rate Regimes: Threshold GARCH-MIDAS Evidence from Pakistan
Authors
Abstract
Remittances are usually described as a steady source of foreign exchange, but their effect on a currency may depend on the policy setting in which they arrive. This study examines that question for Pakistan, using 2,847 daily PKR/USD returns from the State Bank of Pakistan (August 2014 to February 2026), monthly workers’ remittances, Pakistan’s economic policy uncertainty (EPU) index, and the global geopolitical risk (GPR) index. It proposes a threshold GARCH-MIDAS model in which the effect of remittance growth on long-run variance switches when lagged uncertainty crosses an estimated threshold, and allows for a structural break in May 2022. On average, a one-percentage-point rise in remittance growth raises long-run variance by about 9%. The effect is far from constant. Controlling for the break, it is about 50% larger when EPU is above roughly 64 than below it, and after May 2022 it vanishes altogether. Bootstrap tests reject a constant effect, both with and without the break, while geopolitical risk produces a weaker threshold. The low-uncertainty regime, however, coincides almost exactly with the 2015–2017 near-peg of the rupee, so uncertainty and exchange rate management cannot be cleanly separated. Interaction terms used in earlier work give conflicting signs, and no model forecasts better out of sample.
Keywords
Remittances, Exchange Rate Volatility, Economic Policy Uncertainty, Geopolitical Risk, Threshold GARCH-MIDAS, Pakistan
Classification-JEL
C32, C58, F24, F31, G15
Pages
62-86
How to Cite
Bhatty, K. A., & Channa, W. A. (2026). Remittances and Rupee Volatility across Uncertainty and Exchange Rate Regimes: Threshold GARCH-MIDAS Evidence from Pakistan. International Journal of Wealth Management, 1, 62-86.