The effect of macroeconomic variables on exchange rates in developed, developing and less developed countries

اقتصاد و توسعه منطقه ای

Volume 31, Autumn&Winter2025 - Serial Number 28, February 2025, Pages 180-210   

Document Type: Original Article

DOI: 10.22067/erd.2024.88686.1242

Authors

amirreza soori^{* 1}; fatemeh panahi²

¹Facility member ITSR

²Institute for trade studies and research

Abstract

The purpose of this study is to investigate and compare the impact of macroeconomic changes on the value of currency in developed, developing and less developed countries. The data used are quarterly panel data for the period 1996 to 2022, which are presented using the Sticky Price Monetary Model (SPMM) method.
The results of this study showed that there is a negative relationship between the exchange rate and the gross domestic product (GDP) in all the investigated groups. This means that increases typically lead to lower GDP, which can lead to higher prices and lower purchasing power. On the other hand, the results show that the relationship between the exchange rate and inflation (IN) and liquidity (M2) is positive in all groups, which indicates that it increases the exchange rate and increases prices and liquidity in the economy. This is especially the case in less developed countries, which may be affected by exchange rate fluctuations.
In addition, the research results showed that in the short term, the relationship between the exchange rate and the rate in the developed and developing evaluation is negative, which means that the increase in the interest rate is usually localized to strengthen. On the contrary, in the least developed, in the short term, there is a positive relationship between the assessment of the desire and the amount of attention given to specific economic reasons and existing shortages. These results indicate the importance of paying attention to the structural differences between countries and the need for policies based on the economic conditions of each country.
In this study, the Granger causality test was used for the long-term study between the exchange rate and economic changes and the interest rate. The results of the research indicate a long-term convergence between exchange rates and economic growth and interest rates. Greater economic growth increases income and stability in the production and service sector and ultimately lowers the exchange rate. On the other hand, the ratio between currency evaluation and evaluation is also negative in the long run for all the groups under investigation. Because the increase in interest in the long term may cause a decrease in capital or the attraction of foreign capital, which ultimately helps to strengthen the national currency. These results have multifaceted economic policies and show that the management of exploitation and economic growth evaluation can achieve stability.

Keywords

Macroeconomic changes; exchange rates; generalized moments; liquidity

References