Abstract
The recent shocks in demand and supply caused by Covid-19 influence and the current depreciation of the Georgian Lari (GEL) reduced the trust of economic agents in currency. There is no objective macroeconomic reason that would change their attitude to the future of currency for the better. Depreciation of a currency impacts all the components of GDP, leading to myriad problems in economic growth. The depreciation of the national currency is generally perceived as positively affecting the country's export. The study analyzes the impact of Georgian Lari's exchange rate depreciation on Georgia's export using monthly GEL exchange rate data from May 2006 to April 2020. The paper employs Autoregressive Distributed Lag Model (ARDL) for its advantages of measuring cointegration, usefulness in the small samples, and being unbiased in measuring a long-run relationship between variables. Outcomes indicate that the exchange rate depreciation has an inverse long-run impact on export in the long-run period. The exchange rate impact on Georgia's export shows inelastic demand for Georgia's export goods. The study contributes to the literature while providing the implication of currency depreciation on exports of the Georgian economy. The estimated value of the exchange rate has been found to exert no direct pressure on the amount of export. In the paper, possible reasons for such implications are also examined. Paper found that the control variable interest rate also has an inverse impact on Georgia's export performance in the long-run as well as in the short-run. International reserves positively influence the export in the long-run with a high significance level. The paper also discusses possible ways of stabilization of national currency.
Highlights
Depreciation of the exchange rate has been one of the academics and financial analysts' most up-to-date issues
The recent shocks in demand and supply caused by Covid-19 influence exchange rates, affecting inflation, interest rates, foreign trade, and other macroeconomic variables
The National Bank of Georgia made more than 20 interventions in 2020, trying to stabilize the currency, and these interventions are to be continued in the first part of 2021
Summary
Depreciation of the exchange rate has been one of the academics and financial analysts' most up-to-date issues. The National Bank of Georgia's key concern is that its monetary interventions control the exchange rate. Depreciation of a currency impacts all the components of GDP, leading to myriad problems in economic growth. The recent shocks in demand and supply caused by Covid-19 influence exchange rates, affecting inflation, interest rates, foreign trade, and other macroeconomic variables. These shocks cause economic uncertainty, which is another reason for exchange rate fluctuations. The National Bank of Georgia made more than 20 interventions in 2020, trying to stabilize the currency, and these interventions are to be continued in the first part of 2021. As foreign currency inflow to Georgia decreased considerably, these interventions must somehow stop
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