Effects of Currency Devaluation on the Economy of the SAARC Countries: A Theoretical Review
Keywords:
Granger Casualty Test, Wald Test, Smooth Transition Regression Model, depreciation, Inflation, Currency CollapseAbstract
This paper theoretically discusses the effects of currency devaluation on the economy of the
SAARC countries. The work of different scholars show that exchange rate, output growth, supply
vs. demand shifts, inflation, currency collapse, government expenditures, rate of money growth,
depreciation, current account deficit, fiscal deficit, flat industrial production, foreign investments,
foreign investors, money supply, are the major factors that are responsible for the devaluation of
currencies in these countries. The previous studies mostly employed vector error correction
model and simple regression model. The current study suggests that Smooth Transition
Regression Model, Granger Casualty Test and Wald Test can be applied for further indepth
vision.
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