Quantitative Analysis of Inflation and Unemployment Rates on Exchange Rate Movement: An Empirical Study Based on Data in the US from 2009 to 2022

Abstract

The research paper determined the impact of inflation and unemployment rates on the exchange rates in the United States from January 2009 to December 2022, the statistically significant variables among the variables included in this study. The independent variables besides the two used were: - interest rates and bank lending rates. Two regression models were performed, with the first comprising all the variables and the second containing all the independent variables that turned significant in the first regression model. Terms of trade categorized as favorable and unfavorable were used as a control variable on the second regression model with only inflation and unemployment rates. Unemployment rates were negatively related to Exchange in that a percentage increase in this rate would contribute to a reduction in the Exchange rate by 2.63 units. On the other hand, inflation rates increase by a percentage would increase Exchange rates by 0.34 units. Analysis was done in Microsoft Excel and reported at a 95% Confidence Interval. Around 64% of the exchange rates in the United States were explained by these variables used in the study.