The Impact of Consumer Price Index on Foreign Exchange Reserves of Afghanistan

Nadir Shah Nadir, Ezatullah Karimi


The Foreign Exchange Reserves (FERs) are important tool and source of financing for the state of national development used for balance of payment and maintains in foreign currencies by the central bank of Afghanistan. In addition, Inflation is measured by Consumer Price Index (CPI) is the change in price of a basket of goods and services bought by a group of households. This study investigated the impact of CPI on foreign exchange reserves of Afghanistan and used regression model. The time series data was collected from the International Monetary Fund (IMF) website and is monthly (2014- 2020). Moreover, the data was normalized by using Log. The results indicate that CPI has a negative association with FERs in Afghanistan as CPI increases, FER decreases and vice versa. The government may improve FERs while boosting the country's economy and may consider different strategies to monitor inflation.

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