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Exchange Rate Determination: Empirical Evidence From Liberia
University West, Department of Economics and IT, Divison of Law, Economics, Statistics and Politics.
2017 (English)Independent thesis Advanced level (degree of Master (One Year)), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

The purpose of this study is to investigate the determinants of the nominal exchange rate in Liberia, assess the relationships among the variables, and test the validity of the PPP theory in Liberia. The Fully Modified Ordinary Least Squares and Cointegration Regression were applied to monthly data from January 2006 to December 2016. Similar to past research papers, the paper employs macroeconomic variables from three approaches for exchange rate determination, Purchasing Power Parity, Monetary and Portfolio Balance, and Balance of Trade approaches. The study finds the relative consumers price of Liberia’s CPI to the United States’ CPI as an important long-run determinant of the Liberian dollar to US dollar nominal exchange rate. In the short-run, the variables do not adequately explain the nominal exchange rate behavior. The difference of the trade balances of Liberia and the US has short-run causality on the exchange rate. All the variables including nominal exchange rate, consumer price index, short-term interest rate differential, and trade balance are cointegrated and have long-run relationships. The PPP theory does not hold for the period under study. 

Place, publisher, year, edition, pages
2017. , p. 31
Keyword [en]
Open Door Policy, Fully Modified Ordinary Least Squares, Cointegration regression, Macroeconomic fundamentals, Exchange rate determination
National Category
Economics
Identifiers
URN: urn:nbn:se:hv:diva-11491Local ID: EXF800OAI: oai:DiVA.org:hv-11491DiVA: diva2:1141134
Subject / course
Nationalekonomi
Educational program
Mäklarekonom
Supervisors
Examiners
Available from: 2017-09-18 Created: 2017-09-14 Last updated: 2017-09-18Bibliographically approved

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