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The Effects of Exchange Rate Changes on Sudanese Output: An Asymmetric Analysis using the NARDL Model

Author

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  • Mesbah Fathy Sharaf

    (Faculty of Arts, University of Alberta)

  • Abdelhalem Mahmoud Shahen

Abstract

This study tests the hypothesis that the real effective exchange rate changes have an asymmetric impact on the domestic output in Sudan from 1960 to 2020. The analysis uses a multivariate framework by controlling for the various channels through which exchange rate changes could affect domestic output. To disentangle the potential asymmetric impact of exchange rate changes on domestic income, we use the nonlinear autoregressive distributed lag (NARDL) framework of Shin et al. (2014) to separate real currency appreciations from depreciation. The results show that fiscal policy has no statistically significant effect on domestic output, while monetary policy has a statistically significant long-run contractionary effect. Results of the NARDL model show long-run asymmetry in the effect of real currency appreciations and depreciations. In particular, real currency appreciations (depreciations) have an expansionary (contractionary) effect on domestic output. There is a considerable difference in the magnitude of the effect of the positive exchange rate shocks compared to the negative shocks, in which the magnitude of the effect of the real currency appreciations on domestic output is almost double that of real currency deprecations. Monetary authorities in Sudan can use the real exchange rate as an effective instrument to affect domestic output in the long run.

Suggested Citation

  • Mesbah Fathy Sharaf & Abdelhalem Mahmoud Shahen, 2023. "The Effects of Exchange Rate Changes on Sudanese Output: An Asymmetric Analysis using the NARDL Model," Working Papers 1640, Economic Research Forum, revised 20 Jul 2023.
    • Handle: RePEc:erg:wpaper:1640
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