The Asymmetric Impact of Monetary Shocks on the Parallel Exchange Rate Gap in Libya: An Econometric Study Using the NARDL Model During the Period (1970–2024)
DOI:
https://doi.org/10.65405/meg6dk08Keywords:
Monetary Shocks, Parallel Exchange Rate Gap, Asymmetry, NARDL Model, Libyan EconomyAbstract
This study aims to analyze the asymmetry in the impact of monetary shocks on the parallel exchange rate gap in the Libyan economy during the period (1970–2024), using the Nonlinear Autoregressive Distributed Lag (NARDL) model, by decomposing shocks into positive and negative components. The results of the Bounds Test indicate the existence of a long-run equilibrium relationship among the study variables. The results also show that the exchange rate gap is characterized by a high degree of persistence, which reflects the (continuation) of imbalances in the foreign exchange market.
The results reveal the presence of significant asymmetry in the long run only, as negative shocks lead to a statistically significant reduction in the gap, while positive shocks have no significant effect. The results of the error correction model also indicate a relatively high speed of adjustment toward equilibrium. Inflation exerts a positive and significant effect on the gap, while gross domestic product does not show a significant effect, which reflects the dominance of monetary factors in the Libyan economy. The results also confirm the crucial role of structural shocks.
The study contributes to the literature by providing empirical evidence on the existence of asymmetry in the parallel exchange rate market in a rentier economy, and it emphasizes the importance of using nonlinear models in analyzing monetary policy. Accordingly, the study recommends adopting gradual policies and enhancing institutional stability.
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References
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