The Impact Of Exchange Rate Policy In Achieving Economic Stability

Abstract

This paper aims to investigate and analyze the effectiveness of monetary policy in achieving economic stability for Libya through the channel of exchange prices in both official and black markets, using annual data from 1980 to 2020. We adopted the gross domestic product, unemployment rate, and exchange rate as model variables, while these variables are considered some of the macroeconomic indicators. The analysis is performed by using structural break unit root tests, Gregory Hansen, and threshold co-integration ("FMOLS, DOLS, & CCR" methodology). Subsequently, the results revealed the existence of a "structural break" in 2003, and the long-term inverse relationship between official exchange rates and economic growth, indicating its importance as a stabilizing factor for the Libyan economy. Furthermore, reducing the Libyan unemployment rate would lead to an increase in economic growth.