THE RESEARCH ON ECONOMIC FACTORS THAT DETERMINE REAL EFFECTIVE EXCHANGE RATE: HETEREGENEOUS PANEL DATA ANALYSIS

Abstract

While the exchange rate level is influential on real and financial markets, some real and financial factors are determinant of exchange rates. To be able to explain the interactive relations between exchange rates and economic factors is an issue that attracts the attention of consumers, investors and every units in an economy. In this context, the study aims to examine the effects of selected economic factors on real effective exchange rates. These relations have been investigated for Brazil, Russian Federation, China, South Africa and Turkey with the panel data analysis for the period between the years of 2009-2018. Official reserve assets, monetary base, consumer price index and oil prices are determined as an independent variables. In general terms, it is observed that the increase in reserve assets positively affects the real effective exchange rate, but the effects of the movements in the monetary base, consumer price index and oil prices vary by the countries. The different driving power of economies is influential on this result. The fact is that when each country can correctly analyze the determinants of real effective exchange rate of its country, economic units and policy makers will benefit.