Volume 8, Issue 6, December 2019, Page: 375-381
Determinants of Real Exchange Rate: Case of Jordan
Dalia Ibrahim Mustafa, Department of Islamic Banking, School of Shari'a, The University of Jordan, Amman, Jordan
Received: Oct. 5, 2019;       Accepted: Oct. 22, 2019;       Published: Oct. 29, 2019
DOI: 10.11648/j.ijber.20190806.17      View  31      Downloads  9
Abstract
This paper aims to investigate the determinants of real exchange rate in Jordan, four determinants were chosen which are; governmental expenditures, foreign reserves, workers' remittances receipts and term of trade. Time series quarterly data were collected for the period of 2000-2017. The unit root tests and Johansen's coingetration were performed to find that there is a long relationship among the variables of this study. Then VECM was tested to find a long-run causality running the determinants to RER equilibrium which can be reached within 3 quarters. Also, it can be endorsed that government expenditures can negatively affect RER in significance, both in short-run and long-run dynamics. However, three other variables of the study have positive and lower association with RER. The results imply an opportunity to enhance the real exchange rate through monitoring the governmental spending, and setting a policy to encourage the migrants to increase their remittances they send home. The foreign reserves are necessary to stabilize RER. However, TOT is also affected by RER, when exchange rate rises it suggests lowering the prices of the domestic goods and services, however, it may not affect the prices of the exported commodities. Therefore, there were possibilities for several corrective policy actions to reduce the misalignment in real exchange rate. Thus it is suggested that the capital government spending should concentrate more on capital expenditures, and to follow the track of trade liberalization in tendency to depreciate RER. Also, workers' remittances should be encouraged to promote economic development through increasing the opportunity for household investments.
Keywords
Real Exchange Rate, Governmental Expenditures, Foreign Reserves, Workers' Remittances Receipts, Term of Trade, Vecm, Jordan
To cite this article
Dalia Ibrahim Mustafa, Determinants of Real Exchange Rate: Case of Jordan, International Journal of Business and Economics Research. Vol. 8, No. 6, 2019, pp. 375-381. doi: 10.11648/j.ijber.20190806.17
Copyright
Copyright © 2019 Authors retain the copyright of this article.
This article is an open access article distributed under the Creative Commons Attribution License (http://creativecommons.org/licenses/by/4.0/) which permits unrestricted use, distribution, and reproduction in any medium, provided the original work is properly cited.
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