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The Impact of Monetary Policies on the Exchange Rate: A GMM Approach

Author

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  • Amir Khordehfrosh Dilmaghani

    (Department of Economics, University of Mazandaran, Iran.)

  • Amir Mansour Tehranchian

    (Department of Economics, University of Mazandaran, Iran.)

Abstract

This paper investigates the impact of monetary policies on the exchange rate of selected developing countries during the period 2001-2010. For this purpose, in addition to the theoretical explanation, dynamic panel data based on the generalized method of moments (GMM) have been used to estimate the model. Our findings indicate that the lag of exchange rate variable has a positive and significant effect on the exchange rate. This result reflects the dynamics of the exchange rate over time. Additionally, this paper indicates that the coefficient of liquidity as an indicator of monetary policy is positive and significant. Moreover, GDP, inflation, and exports of goods and services have negative, positive, and negative effects on the exchange rate, respectively, and all are statistically significant. Paying more attention to the exchange rate and the optimal control of liquidity in the economy is suggested as a policy recommendation in this research.

Suggested Citation

  • Amir Khordehfrosh Dilmaghani & Amir Mansour Tehranchian, 2015. "The Impact of Monetary Policies on the Exchange Rate: A GMM Approach," Iranian Economic Review (IER), Faculty of Economics,University of Tehran.Tehran,Iran, vol. 19(2), pages 177-191, Spring.
    • Handle: RePEc:eut:journl:v:19:y:2015:i:2:p:177
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    2. Nyoni, Thabani, 2018. "Modeling and Forecasting Naira / USD Exchange Rate In Nigeria: a Box - Jenkins ARIMA approach," MPRA Paper 88622, University Library of Munich, Germany, revised 19 Aug 2018.

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