Impact of the Exchange Rate on Inflation in Afghanistan (2015-2023)

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Published Mar 12, 2025
https://doi.org/10.70436/nussj.v2i01.29
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Vol. 2 No. 01 (2025): January-March

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Iftikharullah Fakhar
Department of National Economics, Faculty of Economics, Nangarhar University, Jalalabad, Afghanistan.
Mohammad Sadiq Rahnuma
Department of Commerce, Faculty of Economics, Nangarhar University Jalalabad, Afghanistan.
Shafiullah Sultanzai
Department of National Economics, Faculty of Economics, Nangarhar University, Jalalabad Afghanistan

Abstract

This study evaluates the effect of exchange rate volatility on inflation in Afghanistan. The Afghan economy is highly import-dependent and faces significant external economic pressures. Using nine years of quarterly time series data and applying the Autoregressive Distributed Lag (ARDL) model, the research examines both short-term and long-term dynamics of the relationship, with a special emphasis on the moderating role of money supply. The results indicate that variation in exchange rate significantly affects inflation in the short term, with both current and lagged effects, underlining the vulnerability of domestic prices to external shocks. On the other hand, the study found no evidence of a long-run relationship between exchange rates, inflation, and money supply. Moreover, contrary to theoretical expectations, changes in money supply did not reveal a statistically significant effect on inflation during the period. These findings underscore the critical contribution of exchange rate stability in controlling inflation and focus on the need for targeted monetary and structural policies to weaken inflationary pressures. Policymakers should strengthen exchange rate management, reduce reliance on imports, and improve institutional capacity to achieve sustainable economic stability.

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This work is licensed under a Creative Commons Attribution 4.0 International License.

How to Cite
Fakhar, I., Rahnuma, M. S., & Sultanzai , S. (2025). Impact of the Exchange Rate on Inflation in Afghanistan (2015-2023). Nangarhar University Social Science Journal, 2(01), 48–55. https://doi.org/10.70436/nussj.v2i01.29

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