Iranian Journal of Economic Research

The Investigation of Monetary Model to Exchange Rate Determination in MENA Countries: Panel Cointegration Approach

Authors

Parviz Mohammadzadeh 1
Hossein Asgharpur 1
Mohammad Bagher Beheshti 2
Ali Rezazadeh 3

1 Assistant professor of economics, Department of Economics, Tabriz University

2 Associate professor of economics, Department of Economics, Tabriz University

3 PhD Student in Economics, University of Tabriz

Abstract
The main objective of this paper is to examine of monetary approach to exchange rate determination in 14 MENA countries during 1975-2006. For this purpose, panel cointegration technique has been used to test the basic monetary model and flexible price monetary model of exchange rate determination. The empirical results indicate that there is a cointegration relationship between variables of basic and flexible price monetary models and therefore the monetary model is able to convincingly explain the exchange rates in MENA Countries. Hence, it could be concluded in the region the parity domestic currency vs. foreign currencies has been affected by mostly the amount of domestic money and increase (decrease) of amount of domestic liquidity leads to devaluation (evaluation) of domestic money. Also, the results show that there is negative significant relationship between exchange rate and output and positive significant relationship with expected inflation rate in Middle East and North Africa countries. This empirical evidence implies that in addition to liquidity, variables such as expected inflation rate and GDP are important in determination of the equilibrium exchange rate in MENA Countries.

Keywords

Exchange Rate
Monetary approach
Panel Cointegration, MENA

  • Receive Date 23 April 2016
  • First Publish Date 23 April 2016

Home

editorial board

Guide for Authors

Submit Manuscript

Contact Us