Abstract
This study tries to investigate the Exchange Rate volatility effects on Jordanian International Trade for the period (1997Q 1-2013Q 2). The variables include Real Exchange Rate (RER) volatility on Real Gross Domestic Product (RGDP), Exports (EX) and Imports (IMP). In order to estimate volatility, this study used the Autoregressive Conditional Heteroscedasticity (ARCH) model proposed by Engle (1982) and the Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model proposed by Bollerslev (1986). The results show that there is negative effects of real exchange rate volatility on imports and exports of Jordanian economy and a positive effect on real GDP.
Highlights
The Central Bank of Jordan (CBJ) plays a great role in stabilizing the Jordanian Dinar (JOD) exchange rate
After that and in the year 1973 CBJ decided to link the JOD with only the US, with nominal exchange rate JOD 0.296/$1.In February 1975 CBJ decided to link the JOD with a Special Drawing Rights till 1987, CBJ decided to conduct a policy of floating exchange rate, this policy leaded the country to the currency crises1989 and for deeper recession, this policy continued till February 1989 when the JOD linked again with US dollar at the rate of 0.709JD/$ 1 till now. (Abu-Al Sondos and Momani, 2012)
Fixed exchange rate regime in which the central bank set the exchange rate value has a major effect on the microeconomic variables specially the trade balance variation, this study tries to model the exchange rate in suitable way to investigate the effects of this policy on Jordanian economy by investigate real exchange rate volatility effects on the real GDP, Exports and Imports
Summary
The Central Bank of Jordan (CBJ) plays a great role in stabilizing the Jordanian Dinar (JOD) exchange rate. The policy of stabilizing the exchange rate was conducted by CBJ since 1950, when the Jordanian Dinar linked with Sterling Pound (₤) at nominal exchange rate equals JD1/₤1. This price continued till November 1967 the nominal exchange rate became 0.857 JD/₤. Fixed exchange rate regime in which the central bank set the exchange rate value has a major effect on the microeconomic variables specially the trade balance variation, this study tries to model the exchange rate in suitable way to investigate the effects of this policy on Jordanian economy by investigate real exchange rate volatility effects on the real GDP, Exports and Imports. The objective of this study is to find the relationship between the real exchange rate volatility and the real GDP as well as Exports and Imports volatility, in order to find the effects of the volatility on the trade balance in Jordan
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