An Investigation into the Sources of Depreciations in Mongolian Tugrik Exchange Rate: A Structural VAR Approach

This paper empirically investigates the sources of fluctuations in real and nominal Mongolian Tugrik (MNT) exchange rates by estimating the structural vector autoregressive (SVAR) model over the period January 1994–May 2021 and decomposing the exchange rate series into stochastic components induced...

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Autor principal:	Gunbileg Ganbayar
Formato:	article
Lenguaje:	EN
Publicado:	MDPI AG 2021
Materias:	SVAR long-run restriction real shock nominal shock Mongolian Tugrik Risk in industry. Risk management HD61 Finance HG1-9999
Acceso en línea:	https://doaj.org/article/a33f674baa5441c4b5cc4815e6f2dd03
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spelling	oai:doaj.org-article:a33f674baa5441c4b5cc4815e6f2dd032021-11-25T18:08:35ZAn Investigation into the Sources of Depreciations in Mongolian Tugrik Exchange Rate: A Structural VAR Approach10.3390/jrfm141105291911-80741911-8066https://doaj.org/article/a33f674baa5441c4b5cc4815e6f2dd032021-11-01T00:00:00Zhttps://www.mdpi.com/1911-8074/14/11/529https://doaj.org/toc/1911-8066https://doaj.org/toc/1911-8074This paper empirically investigates the sources of fluctuations in real and nominal Mongolian Tugrik (MNT) exchange rates by estimating the structural vector autoregressive (SVAR) model over the period January 1994–May 2021 and decomposing the exchange rate series into stochastic components induced by real and nominal shocks under the assumption of the long-run neutrality of nominal shocks on the real exchange rate level. The empirical results show that the real MNT exchange rate movements are primarily due to the real shocks, while the nominal shocks have a major role in explaining nominal exchange rate movements in the short and long run. The nominal exchange rate shows a delayed over-shooting occurring between one and three years after a nominal shock hits the economy. The long-run effect of a monthly one standard deviation nominal shock on nominal MNT exchange rate is 2.5%, which results in a permanent divergence between real and nominal MNT exchange rate and causes non-cointegrated relation between real and nominal MNT exchange rates. The historical decomposition of forecast error indicates that the nominal shock plays a significant role in explaining the depreciation in nominal MNT exchange rate over the last three decades. Our recommendation is to stop “cash handling” policy, minimize monetary shock, and coordinate fiscal and monetary policies to avoid large nominal depreciation.Gunbileg GanbayarMDPI AGarticleSVARlong-run restrictionreal shocknominal shockMongolian TugrikRisk in industry. Risk managementHD61FinanceHG1-9999ENJournal of Risk and Financial Management, Vol 14, Iss 529, p 529 (2021)
institution	DOAJ
collection	DOAJ
language	EN
topic	SVAR long-run restriction real shock nominal shock Mongolian Tugrik Risk in industry. Risk management HD61 Finance HG1-9999
spellingShingle	SVAR long-run restriction real shock nominal shock Mongolian Tugrik Risk in industry. Risk management HD61 Finance HG1-9999 Gunbileg Ganbayar An Investigation into the Sources of Depreciations in Mongolian Tugrik Exchange Rate: A Structural VAR Approach
description	This paper empirically investigates the sources of fluctuations in real and nominal Mongolian Tugrik (MNT) exchange rates by estimating the structural vector autoregressive (SVAR) model over the period January 1994–May 2021 and decomposing the exchange rate series into stochastic components induced by real and nominal shocks under the assumption of the long-run neutrality of nominal shocks on the real exchange rate level. The empirical results show that the real MNT exchange rate movements are primarily due to the real shocks, while the nominal shocks have a major role in explaining nominal exchange rate movements in the short and long run. The nominal exchange rate shows a delayed over-shooting occurring between one and three years after a nominal shock hits the economy. The long-run effect of a monthly one standard deviation nominal shock on nominal MNT exchange rate is 2.5%, which results in a permanent divergence between real and nominal MNT exchange rate and causes non-cointegrated relation between real and nominal MNT exchange rates. The historical decomposition of forecast error indicates that the nominal shock plays a significant role in explaining the depreciation in nominal MNT exchange rate over the last three decades. Our recommendation is to stop “cash handling” policy, minimize monetary shock, and coordinate fiscal and monetary policies to avoid large nominal depreciation.
format	article
author	Gunbileg Ganbayar
author_facet	Gunbileg Ganbayar
author_sort	Gunbileg Ganbayar
title	An Investigation into the Sources of Depreciations in Mongolian Tugrik Exchange Rate: A Structural VAR Approach
title_short	An Investigation into the Sources of Depreciations in Mongolian Tugrik Exchange Rate: A Structural VAR Approach
title_full	An Investigation into the Sources of Depreciations in Mongolian Tugrik Exchange Rate: A Structural VAR Approach
title_fullStr	An Investigation into the Sources of Depreciations in Mongolian Tugrik Exchange Rate: A Structural VAR Approach
title_full_unstemmed	An Investigation into the Sources of Depreciations in Mongolian Tugrik Exchange Rate: A Structural VAR Approach
title_sort	investigation into the sources of depreciations in mongolian tugrik exchange rate: a structural var approach
publisher	MDPI AG
publishDate	2021
url	https://doaj.org/article/a33f674baa5441c4b5cc4815e6f2dd03
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An Investigation into the Sources of Depreciations in Mongolian Tugrik Exchange Rate: A Structural VAR Approach

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