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External Debt and Real Exchange Rate Volatility in South Asia

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  • Md. Moazzam

Abstract

This study empirically examines the mechanism that connects debt accumulation to exchange rate volatility through the lens of important macroeconomic variables in South Asian Countries. One of the most influential explanatory factors behind exchange rate volatility is deemed as the flow of external debt for these countries. Using data from the World Development Indicators for the period 1980–2020, it is shown that external debt increases exchange rate volatility, significantly. The model is identified via panel Granger tests for relevant variables, estimated for a wide range of covariates and tested for all possible sources of endogeneity via subsequent robustness analyses. JEL Classification: C33, F31, H6, O53

Suggested Citation

  • Md. Moazzam, 2023. "External Debt and Real Exchange Rate Volatility in South Asia," South Asian Journal of Macroeconomics and Public Finance, , vol. 12(1), pages 83-110, June.
    • Handle: RePEc:sae:smppub:v:12:y:2023:i:1:p:83-110
    DOI: 10.1177/22779787221107711
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    More about this item

    Keywords

    External debt; exchange rate volatility; Granger causality; panel data analysis; system GMM;
    All these keywords.

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • H6 - Public Economics - - National Budget, Deficit, and Debt
    • O53 - Economic Development, Innovation, Technological Change, and Growth - - Economywide Country Studies - - - Asia including Middle East

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