Business and Management Horizons ISSN 2326-0297 2013, Vol. 1, No. 1 www.macrothink.org/bmh 17 Performance of CHEERs Based Equilibrium Exchange Rate of Pakistan Muhammad Awais Bhatti (Corresponding author) School of Business Management, College of Business, University Utara Malaysia, Sintok-Kedah, Malaysia E-mail: awaisbhatti_786@yahoo.com Noman Arshed University of Edinburgh, UK Muhammad Haseeb College of Business, University Utara Malaysia, Sintok-Kedah, Malaysia Received: February 17, 2013 Accepted: March 7, 2013 Published: March 13, 2013 doi:10.5296/bmh.v1i1.3374 URL: http://dx.doi.org/10.5296/bmh.v1i1.3374 Abstract In pursuit to sketch the Pakistan USA Exchange Rate patterns for the duration of 1991M3 to 2010M5 using the CHEERS model, the role of Goods Market and Financial Market is implied through the Purchasing Power Parity (PPP) and Uncovered Interest Parity (UIP) respectively. The results using Vector Error Correction Model (VECM) revealed that both Parities work in combination with near unity elasticities to explain the motion of Exchange Rate in Long Run, but it showed very slow degree of convergence (around 3 and half years) to this equilibrium path after any shock. Keywords: exchange rate modeling and forecasting, purchasing power parity, uncovered interest parity