Abstract:
The objective of the study is to examine the existence of long– run and short-run relationship between exchange rate and it is determinants (Real GDP, money supply, domestic investment, inflation rate, exports, imports, and government spending) in Sudan. The study hypotheses indicated the existence of a statistically significant relationship between the exchange rate as a dependent variable and it is determinant as independent variables. The study depended on annual time series data covering the period (1980-2016), which were collected from the Central Bank of Sudan and Central Bureau of Statistics. The study used the Auto Regressive Distributed Lag (ARDL) method associated with Error Correction Method (ECM). The results indicate that real GDP and exports have negative effect on exchange rate in both the long run and short-run, while domestic investment, inflation rate, government spending, imports, and money supply have positive effect on exchange rate in both long-run and short-run. The results showed that the adjustment coefficient (EC-1) has a negative sign and statistically significant, these findings indicate that the presence of an error correction mechanism works in this form. The coefficients of EC-1 are equal to (-0.56), which imply that deviation from the long-term exchange rate is corrected by only 56% in the model. The study recommended that to stabilize the exchange rate, policy makers should adopt suitable monetary and fiscal policies that aim at increasing real GDP and exports
