Determinants of Exchange Rates in Somalia

ABSTRACT
Article History
Received: 24 March 2017
Revised: 2 May 2017
Accepted: 24 May 2017
Published: 15 June 2017
Keywords
Exchange rate
Trade balance
Money supply
Monetary policy
External debt
Price
Somalia.
The purpose of this paper is to investigate the factors that determine exchange rates in
Somalia and how those factors influence the exchange rates. To examine the
relationship, a Monetary Approach to Exchange rate is employed to estimate the effects
of trade balance, money supply, external debt and lack of government on exchange rate
in Somalia for the period from 1970 to 2014 using MRA under OLS method. Main
findings indicate that trade balance, money supply and external debt has a negative
significant relationship to exchange rate in Somalia while lack of Government has a
positive relationship to exchange rate. Also, this study examined some variables.
Exchange rates also may be affected by some other factors that have not been
considered in this study, so that this study recommends that central bank of Somalia
should enact policies that improve the political factors it contributes towards gaining
value of the Somalia shilling. This study adds lack of government to Monetary
Approach Model, which has not been found in the scholarly literature.