Causal Effects and Dynamic Relationship between Exchange Rate Volatility and Economic Development in Liberia

Authors

  • Abimelech Paye Gbatu Academy of Chinese Energy Strategy, China University of Petroleum, Beijing 102249, China
  • Zhen Wang Academy of Chinese Energy Strategy, China University of Petroleum, Beijing 102249, China
  • Presley K. Wesseh Jr. China Center for Energy Economics Research, College of Economics, Xiamen University, Xiamen 361005, China
  • Isaac Yak Repha Tutdel Academy of Chinese Energy Strategy, China University of Petroleum, Beijing 102249, China

Abstract

Studies envisioned to inform on major policy issues are paramount for Liberia's economic recovery. Therefore, we employ an unrestricted vector autoregressive model to analyze the dynamic associations between exchange rate volatility (ERV) and Liberia's real gross domestic product (RGDP). The empirical results show no significant relationship between ERV and Liberia's RGDP in the short-run, but variance decomposition analysis reveals that innovations to Liberia's RGDP lead to fluctuations in ERV in the long-run. Hence, we recommend that Liberia's policymakers should exert stronger monetary policy control to ensure the existence of single currency regime in the long-run. Also, technological innovation is required to boost domestic production in order to offset the negative effect of ERV on trade.

Keywords: Economic growth; exchange rate volatility; Liberia; unrestricted VAR model

JEL Classifications: E31, E32, E52

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Author Biographies

Abimelech Paye Gbatu, Academy of Chinese Energy Strategy, China University of Petroleum, Beijing 102249, China

Academy of Energy Strategy;College of Business Administration;Department of Management Science and Engineering;PhD CANDIDATE;Research interest include energy economic, macroeconomic and econometric analysis

Zhen Wang, Academy of Chinese Energy Strategy, China University of Petroleum, Beijing 102249, China

Professor of Finance

Presley K. Wesseh Jr., China Center for Energy Economics Research, College of Economics, Xiamen University, Xiamen 361005, China

Assistant ProfessorCollege of Economics 

Isaac Yak Repha Tutdel, Academy of Chinese Energy Strategy, China University of Petroleum, Beijing 102249, China

PhD candidate

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Published

2017-07-27

How to Cite

Gbatu, A. P., Wang, Z., Wesseh Jr., P. K., & Tutdel, I. Y. R. (2017). Causal Effects and Dynamic Relationship between Exchange Rate Volatility and Economic Development in Liberia. International Journal of Economics and Financial Issues, 7(4), 119–131. Retrieved from http://econjournals.com/index.php/ijefi/article/view/4796

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