Asymmetrical Effects of Real Exchange Rate Volatility during Covid-19 Pandemic on the Demand for Money in Zimbabwe

Authors

Keywords:

asymmetrical exchange rate, economic uncertainty, Covid-19, money demand stability

Abstract

The understanding of symmetrical or asymmetrical effects of exchange rate volatility improves the effectiveness of macroeconomic management policies. This study examines the long-run asymmetrical effects of exchange rate volatility on real demand for money in Zimbabwe, using monthly data from January 2018 to September 2020. Exchange rate shocks are calculated by decomposing exchange rate volatility measure into positive and negative components to examine their short-run and long-run effects and to determine whether the long-run effects of the components of exchange rate movements are symmetrical or asymmetrical. The linear ARDL and the non-linear ARDL models are estimated. The study employs the F-bounds test to confirm the longrun relationship and the Wald test for the asymmetrical effect. The results show that exchange rate depreciation in Zimbabwe has symmetrical effects on real demand for money. Thus, exchange rate policies in Zimbabwe should assume linearity in the passthrough effects on real demand for money.

JEL Classification: E41; E52; E6

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Author Biographies

Upenyu Sakarombe, Zimbabwe Ezekiel Guti University

Lecturer, Faculty of Business, Economics and Accounting, Bindura.

Rudo Makoni-Marimbe

Research Associate, MSc and BSc in Economics (UZ), Harare

Lloyd K. Badze

Researcher, MSc Finance & Investments Scholar (NUST), MACC (UZ), CPA(Z)

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Published

2022-02-28

How to Cite

Sakarombe, U., Makoni-Marimbe, R., & Badze, L. (2022). Asymmetrical Effects of Real Exchange Rate Volatility during Covid-19 Pandemic on the Demand for Money in Zimbabwe. Tanzanian Economic Review, 11(2), 41–56. Retrieved from https://ter.udsm.ac.tz/index.php/ter/article/view/83