Macroeconomic Correlates of Foreign Exchange Rate in SAARC Countries
Keywords:
Foreign Exchange Rate, SAARC, Panel Data AnalysesAbstract
The aim of the research is to explore the effects of macroeconomic correlates on the exchange rates of South Asian Association for Regional Cooperation (SAARC) nations. The panel data set covering the years 1980 to 2020 was utilized for this purpose. The approach of Levin, Lin, and Chu is used to do the unit root analysis. The Kao Residual Co-integration test is utilized to ascertain the long-run relationship. For the long-run coefficient of variables, the Fully Modified Ordinary Least Squares approach (FMOLS) is employed. The technique of FMOLS is used to measure the long run coefficients. Kao Residual Co-integration test indicates co-integration for any scenario of opportunity cost. The results of FMOLS demonstrated that, in the SAARC nations, wide money has positive influence on the exchange rate, whereas the trade, inflation rate, total debt services, GDP growth rate, and tariff rate had a negative impact. As a policy suggestion, the policy makers need to locate fiscal and monetary measures to adjust macroeconomic correlates for the desired exchange rate stability.
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