Does asymmetry matter in the relationship between exchange rate and remittance? Evidence from a remittance recipient country based on ARDL and NARDL

Akhtar, Sharmin and Masih, Mansur (2018): Does asymmetry matter in the relationship between exchange rate and remittance? Evidence from a remittance recipient country based on ARDL and NARDL.

Abstract

The relationship between the exchange rate and remittance has been addressed in the literature. The results of these research papers, however, have been conflicting in terms of causal relationship between these variables. Even when some researches have proven the causality between them, they assume linear and symmetric relationship between them. In our paper, we first test their cointegrating relationship by using time series technique of Autoregressive Distributed Lags (ARDL) and then test the linear and symmetric assumption in their relationship based on Nonlinear AutoRegressive Distributed Lag (NARDL). We used 42 years of annual data from 1976 to 2017 of Bangladesh collected from the World Development Indicators database. We used Bangladesh, as it is one of the top ten remittance receiving country in the world. This paper finds that exchange rate significantly impacts remittance in the long run. It also finds that the relationship between the exchange rate and remittance is nonlinear and asymmetric in both long and short run. Policy makers may follow semi-fixed exchange rate policy to maximise the remittance income of the country, while managing exchange rate risk through other economic variables.

• Item Type: MPRA Paper
• Language: English
• Keywords: Exchange rate, Remittance, Asymmetry, Nonlinear ARDL, Causality, Co-integration
• Subjects: C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes; C - Mathematical and Quantitative Methods > C5 - Econometric Modeling > C58 - Financial Econometrics; G - Financial Economics > G1 - General Financial Markets > G15 - International Financial Markets

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