Examining the Dynamic Relationship Between Monetary Policy and Exchange Rate in Afghanistan: A Wavelet Approach

Document Type : Original Article

Authors

Morteza Modabber ¹

Mohsen merara ²

Mahdi Nouri ¹

¹ tehran

² Professor, Department of Economics, Faculty of Economics, Tehran University, Tehran, Iran

https://doi.org/10.22067/erd.2025.95459.1318

Abstract

Given the expansion of international trade and the increasing role of the exchange rate in determining foreign exchange returns, this variable has become one of the key components in macroeconomic analyses. In this paper, the dynamic relationship between monetary policy and the exchange rate in the Afghan economy during the period from January 2011 to July 2021 is examined using continuous wavelet analysis. This approach allows the study of the interaction of variables in both time and frequency dimensions and allows short-term and long-term changes in the relationships between variables to be identified.The results of the study indicate that the monetary base in the medium term at the beginning and end of the period under study has played a causal role in the changes in the exchange rate, although at times in the short term this relationship has been reversed. However, the exchange rate has been the cause of the changes in the two variables of foreign exchange auction and capital bond auction, especially in the long term. Therefore, foreign exchange auction and capital bond auction have changed in the long term in response to changes in the exchange rate, while the cause of changes in the exchange rate, especially in the medium term, is related to the change in the monetary base.

Keywords

Exchange rate

monetary base

foreign exchange auction

capital securities auction

Afghanistan

Subjects

• Capital and money markets

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