The role of exchange rate in Mongolia: A shock absorber or a source of shocks?

MPRA Paper from University Library of Munich, Germany

Abstract: The paper examines the role of exchange rate in Mongolia using a theoretical framework of a stochastic small open economy model. Based on a Structural Vector AutoRegression (SVAR) framework with zero long-run restrictions on quarterly data for the period 2000:Q1 to 2011:Q2, we highlight that real demand shock is the main source of business cycle and real exchange rate fluctuations. Furthermore, our analysis outlines that exchange rate acts as a shock absorber in the economy rather than a source of shocks. These results lend additional support to the macroeconomic policy of a flexible exchange rate for Mongolia. As a result, this implies the flexible exchange rate policy promotes monetary policy independence to control and stabilize inflation and output in Mongolia.

Keywords: SVAR model; Open economy macroeconomics; business cycle; Mongolia (search for similar items in EconPapers)
JEL-codes: C51 E32 F31 F41 (search for similar items in EconPapers)
Date: 2011-11, Revised 2011-11
References: Add references at CitEc
Citations:

Downloads: (external link)
https://mpra.ub.uni-muenchen.de/72145/1/MPRA_paper_72145.pdf original version (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:72145

Access Statistics for this paper

More papers in MPRA Paper from University Library of Munich, Germany Ludwigstraße 33, D-80539 Munich, Germany. Contact information at EDIRC.
Bibliographic data for series maintained by Joachim Winter ().