Abstract
Article history: Received September 18, 2014 Accepted 10 December 2014 Available online December 15 2014 Impact of exchange rate volatility has received a great attention from the last century, its importance is certain in all sectors of the economy and it affects welfare as well as social life of the economy. Exchange rate between two currencies tells the value of one currency in terms of others one. Depreciation/Appreciation of exchange rate affects economic growth in terms of trade and shifts income to/from exporting countries from/to importing countries. The factors affecting exchange rate are inflation, interest rate, foreign direct investment, government consumption expenditure and balance of trade. This research study examines the impact of oil prices and exchange rate volatility on economic growth in Germany based on 40-year annual data. Cointegration technique is applied to check the impact of macroeconomic variables on exchange rate in the long run and short run. It is estimated that imports, exports, inflation, interest rate, government consumption expenditure and foreign direct investment had significant impacts on real effective exchange rate in the long run and short run. Sin addition, Engle Granger results indicate that relationship was significant for the long run and its error correction adjustment mechanism (ECM) in short a run is significant and correctly signed for Germany. Growing Science Ltd. All rights reserved. 5 © 201 Exchange rate volatility Gross domestic product Co integration
Highlights
Gross domestic product is one of the important barometers to measure the economic growth
The research problem is to find out the macroeconomic variables like imports, exports, inflation, interest rate, government consumption expenditure and foreign direct investment have a significant impact on exchange rate
The results of this study have indicated that exchange rates and oil prices had positive relation with gross domestic product (GDP) of the Germany
Summary
Gross domestic product is one of the important barometers to measure the economic growth. Exchange rate volatility and fluctuation in oil prices adversely influence on economic growth. This problem is faced by both developing and developed countries. The research problem is to find out the macroeconomic variables like imports, exports, inflation, interest rate, government consumption expenditure and foreign direct investment have a significant impact on exchange rate. The aim of this study is to check the long run as well as short run impact of exchange rate and oil prices on economic growth, and to identify macroeconomic variables that are affected by exchange rate such as inflation, export, import, interest rate, foreign direct investment, government consumption expenditure and what are those factors which control volatility in the exchange rate
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