DETERMINANTS OF REAL EXCHANGE RATE MOVEMENTS IN SOUTH ASIAN COUNTRIES: AN EMPIRICAL EVIDENCE

Kalim Ullah Bhat, Ch Mazhar Hussain, syed Zulfiqar Shah

Abstract


This study investigates the determinants of real exchange rate
movements in South Asian Countries. The determinants which are examined in the study are fiscal, monetary and other (stock returns, real income and political stability). Panel data of 15 years from 1998 to 2012 has been used in the study, where four cross sections are included. Multicollinearity test, panel unit root tests, Kao’s cointegration test and FMOLS (fully modified ordinary least square) are applied in the study. All the variables are found stationary at first difference although Kao’s cointegration test results are not found favorable for co-integration. However, FMOLS results are in favor of co-integration. Some variables are proved to have opposite direction as expected although they are found consistent with some previous studies.

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