Abstract
This paper seeks to measure the impact of the Exchange rates on Inflation and Economic Growth in Liberia. This study uses (13) years of cross-exchange rate regime analysis in Liberia (2007-2019). This study used STATA 14 software program to run the time series data, using Ordinary Linear Square regression (OLS). We also run a VAR model to find the impulse response of the shock on Exchange rates to Inflation and Real GDP growth. This paper also introduces the Liberia Black market rate, which is higher than the official exchange rate on the markets. This study results show that our time series values for most of the variables are non-stationary in their level but became stationary at their percentage change, and the first differences, which were incorporated from the first degree in the regressions from 2007-2019. In this paper, we run a separate regression
on the Percentage change on the Real Exchange Rate and also percentage change on the Black market rate using Inflation and RGDP as our Dependent variables. Our results within this paper revealed a likelihood of a relationship between the variables in the long run. Therefore, our linear regression results indicate a significant positive impact from both percentage change within the official exchange rate and the black market rate changes on Inflation but negatively affect Real GDP (economy growth). Still, also, the estimates for the real GDP growth are significant at all levels. in so doing, this study encourages the Government of Liberia to consider implementing foreign exchange rate regime management policies, which should focus on both the foreign sectors and the domestic balance of the economy. The Liberia government should also develop proper management of Liberia's foreign policy to achieve an adequate level of exportation in the future.
Keywords
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