Inflation is an increase in the price of a set of goods and services that is representative of the economy as a whole and an exchange rate is the current market price for which one currency can be exchanged for another. If the U.S. exchange rate for the Pakistani Rupee is Rs. 85, this means that one American Dollar can be exchanged for 85 Pakistani Rupees. Different journals give their opinion about relationship between inflation and exchange rate. Now we explain journal’s views about this relationship.

Haldane (1995) present the design of inflation target is linked umbilical to the welfare cost of inflation. Yates (1995) the design of many inflation targeting regimes includes specific exception for trouble that are predictable to outcome in momentary price level actions lone. This has been observing that optimal design of inflation depends upon the costs of inflation. Depending on how agents form expectations of future inflation, direct exchange rate effects coming through import prices may result only in price level shifts. This arises perceive that a portion of the observed inflation in the CPI index is the result of changes in import prices that are drives by recent movements in the exchange rate, and they form their expectations of future CPI inflation by looking through or ignoring these effects.

Svensson (1997) present the objectives of monetary policy which serves to place the choice of exchange rate and inflation targeting. Monetary police can control inflation and exchange rate in the long run. In the short run monetary policy can influence the inflation that have adverse effects. Since central bank control the exchange rate and nominal exchange rate does not have an inherent significant for welfare and economic growth. The choice between an exchange rate target and an explicit inflation target should be seen as the choice between different intermediate targets in order to fulfill the goal for monetary policy. Monetary policy cannot prevent such variability in the real exchange rate. But the negative consequences of such variability can be minimized with an inflation target.

Bleaney and Fielding (1999) present those developing countries which peg their exchange rate achieve lower inflation. Developing countries face a trade-off choosing exchange rate regime floating the exchange rate allows the authorities greater freedom to respo