Impact of Exchange Rate on Macroeconomic Indicators
Authors: Aleksandre Ergeshidze
The exchange rate is a pivotal pricing instrument that simultaneously impacts various components of the economy. Depreciation of nominal exchange rate is export promoting, which might be a desired export-led growth policy, and particularly critical to closing-down the widening current account imbalance. However, negative effects resulting from high dollarization and high share of imported intermediate inputs can outweigh positive effect. The aim of this research is to quantify impact of change in nominal exchange rate and test contractionary depreciation hypothesis on Georgian economy using structural and Bayesian vector autoregression. According to the acquired results, appreciation of nominal exchange rate is expected to decrease inflation, monetary policy rate, interest rate on domestic currency loans and economic growth in the medium run; however, impact on economic growth in the short run is statistically not significant.
Digital Object Identifier (DOI): doi.org/10.5281/zenodo.1316151Procedia APA BibTeX Chicago EndNote Harvard JSON MLA RIS XML ISO 690 PDF Downloads 809
 National Bank of Georgia - www.nbg.ge (accessed on 01/22/2018).
 National Statistics Office of Georgia - www.geostat.ge (accessed on 09/15/2017).
 Svensson, L. E. (2000). Open-economy inflation targeting. Journal of international economics, 50(1), 155-183.
 Krugman, Paul, and Lance Taylor. "Contractionary effects of devaluation." journal of International Economics 8, no. 3 (1978): 445-456.
 Aghion, P., Bacchetta, P., & Banerjee, A. (2000). “A simple model of monetary policy and currency crises. European economic review, 44(4), 728-738.
 Kamin, S. B., & Rogers, J. H. (2000). Output and the real exchange rate in developing countries: an application to Mexico. Journal of development economics, 61(1), 85-109.
 Diaz-Alejandro, C. F. (1965). Exchange-Rate Devaluation in a Semi-Industrialized Country: The Experience of Argentina 1955-1961. Mit Press.
 Cooper, Richard. "Exchange rate devaluation in developing countries." Princeton Essays in International Finance 86 (1971).
 Bahmani-Oskooee, Mohsen, and Ilir Miteza. "Are devaluations expansionary or contractionary? A survey article." Economic Issues Journal Articles 8, no. 2 (2003): 1-28.
 Krueger, Anne O. "Liberalization attempts and consequences." NBER Books (1978).
 Gylfason, Thorvaldur, and Michael Schmid. "Does devaluation cause stagflation?." Canadian Journal of Economics (1983): 641-654.
 Sims, C. A. (1980). Comparison of interwar and postwar business cycles: Monetarism reconsidered
 Litterman, R. B. (1986). Forecasting with Bayesian vector autoregressions—five years of experience. Journal of Business & Economic Statistics, 4(1), 25-38.
 Canova, F. (1995). Sensitivity analysis and model evaluation in simulated dynamic general equilibrium economies. International Economic Review, 477-501.
 Bańbura, M., Giannone, D., & Reichlin, L. (2008). Large Bayesian VARs (No. 966). ECB Working Paper.
 Podpiera, Jiri, Faezeh Raei, and Ara Stepanyan. "A Fresh Look at Potential Output in Central, Eastern, and Southeastern European Countries." (2017).
 Bakradze, G., & Billmeier, A. (2007). Inflation Targeting in Georgia: Are We There Yet?.