As currency depreciates, inflation rate increases. In other words, with an increase in percentage change in nominal interest rate, inflation differential also tends to increase.
Theory suggests that there is a possitive correlation between nominal exchange rate and inflation.
After applying the theory on actual data, the results affirm that currency depreciation causes increase in inflation and vise versa.
| Year | Inflation_Rate_PAK | Inflation_Rate_USA | Nominal_Exchange_Rate |
| 1960 | 6.94736 | 1.45797 | 4.76190 |
| 1961 | 1.64041 | 1.07072 | 4.76190 |
| 1962 | -0.51646 | 1.19877 | 4.76190 |
| 1963 | 1.45648 | 1.23966 | 4.76190 |
| 1964 | 4.17958 | 1.27891 | 4.76190 |
| 1965 | 5.56863 | 1.58516 | 4.76190 |
| 1966 | 7.22762 | 3.01507 | 4.76190 |
| 1967 | 6.81139 | 2.77278 | 4.76190 |
| 1968 | 0.17062 | 4.27179 | 4.76190 |
| 1969 | 3.18698 | 5.46238 | 4.76190 |
| 1970 | 5.34984 | 5.83825 | 4.76190 |
| 1971 | 4.73069 | 4.29276 | 4.76190 |
| 1972 | 5.18323 | 3.27227 | 8.68138 |
| 1973 | 23.07008 | 6.17776 | 9.99424 |
| 1974 | 26.66303 | 11.05480 | 9.90000 |
| 1975 | 20.90450 | 9.14314 | 9.90000 |
| 1976 | 7.15832 | 5.74481 | 9.90000 |
| 1977 | 10.13296 | 6.50168 | 9.90000 |
| 1978 | 6.13869 | 7.63096 | 9.90000 |
| 1979 | 8.26704 | 11.25447 | 9.90000 |
| 1980 | 11.93823 | 13.54920 | 9.90000 |
| 1981 | 11.87991 | 10.33471 | 9.90000 |
| 1982 | 5.90352 | 6.13142 | 11.84746 |
| 1983 | 6.36203 | 3.21243 | 13.11697 |
| 1984 | 6.08716 | 4.30053 | 14.04633 |
| 1985 | 5.61483 | 3.54564 | 15.92839 |
| 1986 | 3.50641 | 1.89804 | 16.64750 |
| 1987 | 4.68121 | 3.66456 | 17.39880 |
| 1988 | 8.83793 | 4.07774 | 18.00329 |
| 1989 | 7.84426 | 4.82700 | 20.54149 |
| 1990 | 9.05213 | 5.39795 | 21.70737 |
| 1991 | 11.79127 | 4.23496 | 23.80076 |
| 1992 | 9.50904 | 3.02881 | 25.08279 |
| 1993 | 9.97366 | 2.95165 | 28.10718 |
| 1994 | 12.36819 | 2.60744 | 30.56659 |
| 1995 | 12.34357 | 2.80541 | 31.64268 |
| 1996 | 10.37380 | 2.93120 | 36.07868 |
| 1997 | 11.37549 | 2.33768 | 41.11152 |
| 1998 | 6.22800 | 1.55227 | 45.04666 |
| 1999 | 4.14263 | 2.18802 | 49.50069 |
| 2000 | 4.36666 | 3.37685 | 53.64818 |
| 2001 | 3.14826 | 2.82617 | 61.92716 |
| 2002 | 3.29034 | 1.58603 | 59.72378 |
| 2003 | 2.91413 | 2.27009 | 57.75199 |
| 2004 | 7.44462 | 2.67723 | 58.25786 |
| 2005 | 9.06332 | 3.39274 | 59.51447 |
| 2006 | 7.92108 | 3.22594 | 60.27133 |
| 2007 | 7.59868 | 2.85267 | 60.73851 |
| 2008 | 20.28612 | 3.83910 | 70.40803 |
| 2009 | 13.64776 | -0.35554 | 81.71289 |
| 2010 | 13.88113 | 1.64004 | 85.19381 |
| 2011 | 11.91676 | 3.15684 | 86.34338 |
| 2012 | 9.68505 | 2.06933 | 93.39519 |
| 2013 | 7.68950 | 1.46483 | 101.62889 |
| 2014 | 7.19167 | 1.62222 | 101.10008 |
| 2015 | 2.53951 | 0.11862 | 102.76927 |
| 2016 | 3.75259 | 1.26158 | 104.76911 |
| 2017 | 4.08537 | 2.13011 | 105.45516 |
| 2018 | | 2.44258 | |
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