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Causal Effects and Dynamic Relationship between Exchange Rate Volatility and Economic Development in Liberia

Author

Listed:
  • Abimelech Paye Gbatu

    (Academy of Chinese Energy Strategy, China University of Petroleum, Beijing 102249, China)

  • Zhen Wang

    (Academy of Chinese Energy Strategy, China University of Petroleum, Beijing 102249, China)

  • Presley K. Wesseh Jr.

    (China Center for Energy Economics Research, College of Economics, Xiamen University, Xiamen 361005, China.)

  • Isaac Yak Repha Tutdel

    (Academy of Chinese Energy Strategy, China University of Petroleum, Beijing 102249, China)

Abstract

Studies envisioned to inform on major policy issues are paramount for Liberia's economic recovery. Therefore, we employ an unrestricted vector autoregressive model to analyze the dynamic associations between exchange rate volatility (ERV) and Liberia's real gross domestic product (RGDP). The empirical results show no significant relationship between ERV and Liberia's RGDP in the short-run, but variance decomposition analysis reveals that innovations to Liberia's RGDP lead to fluctuations in ERV in the long-run. Hence, we recommend that Liberia's policymakers should exert stronger monetary policy control to ensure the existence of single currency regime in the long-run. Also, technological innovation is required to boost domestic production in order to offset the negative effect of ERV on trade.

Suggested Citation

  • Abimelech Paye Gbatu & Zhen Wang & Presley K. Wesseh Jr. & Isaac Yak Repha Tutdel, 2017. "Causal Effects and Dynamic Relationship between Exchange Rate Volatility and Economic Development in Liberia," International Journal of Economics and Financial Issues, Econjournals, vol. 7(4), pages 119-131.
    • Handle: RePEc:eco:journ1:2017-04-17
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    Cited by:

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    More about this item

    Keywords

    Economic Growth; Exchange Rate Volatility; Liberia; Unrestricted Vector Autoregressive Model;
    All these keywords.

    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation
    • E32 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Business Fluctuations; Cycles
    • E52 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit - - - Monetary Policy

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