The Impact of Exchange Rate Volatility on Economic Growth and Inflation in SAARC Member Countries: A Study of 2002-2020

Abstract

The exchange rate and its impacts are one of the challenges and important topics in macroeconomics that developed and developing countries strive to control economic shocks such as inflation while maintaining exchange rate stability and creating a conducive environment for sustainable economic growth. Exchange rate fluctuations can have extensive effects on economic growth and inflation rates, posing significant challenges for economic policymakers, business managers, and consumers. Therefore, this research examines the impact of exchange rate fluctuations on economic growth and inflation rates in the SAARC member countries during the years 2020-2002. The data is extracted from the World Bank and Heritage Foundation websites, and the research models are estimated using the Generalized Least Squares (GLS) method. The findings indicate that the impact of exchange rate fluctuations on economic growth in SAARC member countries was not statistically significant. However, it has a positive and significant impact on the inflation of this group of countries. Therefore, it is recommended for SAARC member countries to control exchange rate fluctuations to manage inflation.