The impact of macroeconomic indicators on exchange rate in Tanzania

Thumbnail Image
Journal Title
Journal ISSN
Volume Title
The University of Dodoma
Exchange rate in Tanzania has been fluctuating from time to time due to many factors. Therefore, this study aimed at examining the impact of macroeconomic indicators on exchange rate in Tanzania using annual time series data from 1991 to 2021.The study used Co integration and Vector Error Correction model (VECM) to test the relationship between the macroeconomic indicators and exchange rate.The Granger causality test is also used to examine the causal link between variables. The unit root test indicated that all variables were integrated after first difference. The Johansen Co integration test result indicated that variables were co integrated. The Vector Error Correction model (VECM) indicates that there is positive short run and long run effect between Gross Domestic Product (GDP) growth rate and Interest rate on exchange rate while there is negative short run and long run impact of inflation rate on exchange rate in Tanzania. Granger causality test revealed that there is bidirectional causal relationship between GDP growth rate, Inflation rate and Trade openness on exchange rate while there is un-directional causal relationship between interest rate and exchange rate in Tanzania. Therefore, based on the results, this study recommends that the government of Tanzania through central bank should implement both monetary and fiscal policies to keep inflation rate, interest rate as well as GDP growth rate stable. Also the government should restrict over use of foreign currencies for domestic transactions so as to make our currency is stable compared to other currencies.
Dissertation (Ma in economics)
Macroeconomic indicators, Exchange rate, Gross Domestic Product, GDP, Inflation, Tanzania
Chacha, N. M. (2023). The impact of macroeconomic indicators on exchange rate in Tanzania (Master dissertation). The University of Dodoma.