International Journal of Management and Economics

www.managementjournals.net
Online ISSN: 2664-7079, Print ISSN: 2664-7060
Received: 15-01-2022, Accepted: 30-01-2022, Published: 15-02-2022
Volume 4, Issue 1, 2022, Page No. 7-12

Da Afghanistan Bank (DAB) intervention and Macro determinants of Afghani

exchange rate (2009-2018)
Asmatullah Qani1*, Mohammad Nasir Nasrat2, Asadullah Aandyal1, Abdul Malik Nazari1
1
Assistant Professor, Faculty of Economics, Helmand University, Afghanistan
2
Assistant Professor, Department of Banking and Finance, Faculty of Economics, Kandahar University,
Afghanistan

Abstract
Such study is Under the Title of The DAB intervention and macro Determinants of Afghani Exchange rate
during (2009-2018).Two Different Model was applied to in order to Receive a credible Findings from the Data,
thus Multi collinearity, Autocorrelation & Heteroscedasticity tests are done before the Multiple Regression
Model, in order the first model stated that the overall model is Significant and DAB intervention in Exchange
rate is with opposite of its Monetary policy Objectives, meaning that the Foreign Exchange and Capital Notes
auctions have positive relationship with Exchange rate and thus increasing the Volatility of Exchange rate and
the overall second model is Significant and shown that The GDP with a Significant Negative Relation, BM with
a Significant positive Relation and Real IR had insignificant positive Relation with The Exchange rate.

Keywords: exchange rate, intervention, real interest rate and broad money

Introduction
The rate of One currency in Exchange of other Currency is called Exchange rate. This price is Either of
Domestic Currency Units per foreign Currency or Vice versa (Philbeam, 2006). Foreign exchange rate
intervention is any announcements or transactions by an Official Agent of Government in order to influence the
value of Exchange rate, the intervention is done through monetary authorities in most countries (Dominguez,
1998) [7]. After the Breakdown of Bretton woods fixed Exchange rate system in 1973, many countries adopted
floating Exchange rate regime and the volatility become an inevitably fact the in these countries, and thus
volatility refers to all changes or movements which has impact in Depreciation or Appreciation of a Currency
(Kilicarslan, Z.,2018) [12]. The intervention in Exchange rate was left to Countries, till 1977 the IMF Executive
Board provided an intervention policy Guidance: 1) Countries should not Manipulate Exchange rate in order for
the Adjustments of Balance of Payment or to Gain Unfair Competitive Advantage. 2) Countries should intervene
to counter Disorderly Market Conditions. 3) Countries should take into Account the interest of other countries in
Exchange rate. (Dominguez, 1998) [7]. The above three principles explicitly states that in order to decrease
volatility in exchange rate countries can use intervention policy.
The central banks define intervention narrowly which refers to sale or purchase of Foreign Assets against
Domestic assets in Foreign exchange market (Dominguez, 1998) [7]. To Achieve Monetary Policy Objectives, the
monetary authorities or Central Bank Sell and Purchase Foreign Currency against Domestic Currency (kiarie,
2012). According the motives of interventions are: to Effect the level of Exchange rate, to Effect the Speed of
Currency (appreciation or Depreciation), Effect the volatility in Exchange rate and others (Adler and mora,
2011) [3].
There are two kind of intervention in Exchange rate sterilized intervention refers to when authorities in short
time intervene by the same token the monetary base is not effected, it is said to be offset action, non-sterilized
intervention refer to when in an intervention the monetary base is effected it is said Tobe No offset Action thus
the exchange rate can be effected (sarno and Taylor, year, 2001) [1].

Materials and Method

The research is conducted based on secondary data which is collected from IMF, WDI, DAB Monetary
Department directly from (2009 - 2018). According to the issue, two models are applied, the first one is DAB
intervention that incurred (120) months data of Foreign Exchange Auction (USD sales) and Capital notes auction
(buying Afghani) the independent variable and Exchange rate (AF/USD) dependent variable. The second model
has three macro variables GDP, Broad money (M2) and Real interest rate as Independent variables and
Exchange rate (AF/USD) Dependent variable. Before running the multiple Regression for credibility of findings
the Stationary, Multi-collinearity, Autocorrelation and Heteroscedasticity tests are applied, The Analysis is done
through Stata-14 statistical software.

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First Model

Fig 1

First Model Equation:

Ln_ERt/Ln_ERt-1 = α +Ln_FXt/Ln_ERt-1*X1+Ln_CNt/Ln_CNt-1*X2+ϵt

Second Model

Fig 2

Equation for second Model:

Exchange rate (Af/USD) = α+ β1(GDP)+β2(Real IR )+ β3(Broad Money)+ϵt

Results and Discussion

For the analysis of the first model, the below mentioned test was applied, the Augmented Dicky fuller (ADF) test
was applied for stationarity and indicated that the data is stationary in its first difference, the bruesch-pagan test
for Multi-collinearity checking and the Durbin Watson test for checking Autocorrelation are shown in Table. 1.

Table 1: Regression of the First model

Source SS DF MS No of obs = 119
Model .954787886 2.477393943 F(2,116) = 29.18
Residuals 1.8980908 116.016362852 Prob>F = 0.0000
R-squared = 0.3347
Total 2.85287869 118.024176938 Adj R-squared = 0.3232
Root MSE = 0.12792
Ln-ER Coef. Std.error. t P>|t| [95% conf. interval]
Ln-Fxs 0.0980773 0.025438 3.86 0.000.0476942.1484604
Ln-CNs 0.0748884 0.0154197 4.86 0.000.0443477.1054291
Constant 0.0552747 0.5721568 0.10 0.92 -1.077954 1.188503
Source: calculated by stata

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Figure 1 : ER , FX & CNs
22 24 26
4.4

4.2
Ln_ERN
4

3.8
26

24 Ln_FxN

22
26

24
Ln_CnN
22

20
3.8 4 4.2 4.4 20 22 24 26

Fig 3: ER, FX & CNs

As mentioned in Table. 1, there are 119 monthly observation with the Existence of one Dependent variable (i.e=
Ln-Exchange rate) and two independent variable (i.e= Ln-Foreign Exchange and Ln-Capital Notes) in which the
overall test is significant in 5% significance level and R-squared is 0.3347 it means that the two dependent
variable can Explain the relation with dependent variable by 33.47%, the coefficients point out that the FXs has
significant positive relationship with Exchange rate meaning that a one million increase in FX auction the
Exchange rate increased by 0.0980773 (Going to be Depreciated )and CNs also has significant positive
relationship with Exchange rate meaning that a one million increase in CN auction the Exchange rate increased
by 0.0748884 (Going to be Depreciated ) the constant term show that if the overall Effect of these two variables
Omitted the monthly change in Exchange rate would be 0.0552747.

Table 2: Regression for the Second model

Source SS DF MS No of obs = 11
Model 888.268515 3 296.089505 F(2,116) = 19.14
Residuals 108.293833 7 15.4705476 Prob>F = 0.0009
R-squared = 0.8913
Total 996.562348 10 99.6562348 Adj R-squared = 0.8448
Root MSE = 3.9333
ER Coef. Std.error. t P>|t| [95% conf. interval]
GDP -2.276252 0.8391354 -2.71 0.030 -4.26049 -.2920144
Real-IR 0.1684747 0.2919705 0.58 0.582 -.5219259.8588753
BM 0.1429208 0.0263913 5.42 0.001.0805153.2053263
Constant 46.83023 9.477092 4.94 0.002 24.42046 69.2399
Source: Calculated by stata

The above (Table. 2) there are Eleven years’ observation incurred from 2008 to 2018. The overall applied
regression is significance with a 0.8913 R-squared value meaning that the three independent variables such as
GDP, Real interest rate and Broad money can Explain Dependent variable Exchange rate by 89.13%. the
coefficients shows that the GDP has significant negative relation with Exchange rate (i.e= if one billion of GDP
is increased the Exchange rate would decrease by -2.276252 indicates appreciation of Afghani against USD) the
Real-IR has insignificant positive relation with Exchange rate (i.e= if one percent of Real-IR is increased the
Exchange rate would Increase by 0.1684747 indicates Depreciation of Afghani against USD) and the BM has
significant positive relation with Exchange rate (i.e= if one billion of Broad money supply is increased the
Exchange rate would increase by 0.1429208 indicates depreciation of Afghani against USD).

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Fig 4: Exchange rate and GDP relation

Fig 5: Exchange rate and RIR relation

Fig 6: Exchange rate and board money relation

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Fig 7: Scatterplot Matrix of the second model

Scatterplot Matrix of the second model

Conclusion
1. There was a significant positive relation of DAB intervention by Foreign Exchange with Exchange rate, it
means that the Foreign Exchange auction is Depreciating Afghani Exchange rate, and this non sterilized
intervention at the mentioned period was ineffective regarding DAB monetary policy objective.
2. There was a significant positive relation of DAB intervention by Capital notes with Exchange rate, which
means that the Capital notes auction is Depreciating Afghani Exchange rate, and this non sterilized
intervention at the mentioned period was ineffective regarding DAB monetary policy objective.
3. The study found a significant positive relation between BM and Afghani Exchange rate, that means the
increase in the supply of BM Depreciating Afghanis/USD Exchange rate, so the authorities should Consider
the money supply Effects in the Economy.
4. The study revealed a significant negative relation between GDP and Afghani Exchange rate, which means
that the increase in country’s GDP value leads Appreciation of Afghanis/USD Exchange rate.
5. The study indicates a significant positive relation between R-IR and Afghani Exchange rate and that means
the increase in Real-IR leads Depreciation of Afghanis/USD Exchange rate. The Real-IR may cause of more
Consumption in GDP components which is already financed by imports and may imposed downward
pressure on Afghanis.

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