Panel Data Analysis of Exchange Rate for Fragile Five

Abstract

After the Bretteon Woods System, as a result of the preffering especially the flexible exchange rate systems of developed countries the exchange rate risk has emerged. The transfer for the flexible exchange systems in the majority of developing countries started with the financial liberalization in the 1990’s. In this period, the progress of information technology and globalization have rendered exchange rate policies and exchange rates a priority for countries and exchange rates have become effective on macroeconomic indicators. In this study was examined exchange rate behaviour of Morgan Stanley’s “Fragile Five Countries” which are Brazil, India, Indonesia, South Africa and Turkey. For this purpose with the Panel Cointegration Tests was investigated if there is long termed relationship between the exchange rate and international reserves, money supply and The Bloomberg U.S. Financial Conditions Index(BFCIUS). As well as, Granger Causality test is applied using Panel Data Causality Techniques are used to uncover the direction of relation between variables. Thus Panel Vector Autoregression (PVAR) Model was estimated among the variables. The present study is distinguished from previous studies by investigation of long term relationship between also The BFCIUS, exchange rate. Data base is containing from the exchange rate index, international reserve index, Money supply index and BFCIUS variables presented by Bloomberg and monthly data includes 1015 observations done in the period of March 2000 – January 2017.