The purpose of this research is to study the determinants of the real exchange rate in
Syria during the period 1990 to 2011. We employed Vector Auto Regression (VAR) model
to study the long-term relationship between the real exchange rate and the f
actors affecting
it. Also we applied the Granger causality test to investigate the direction of the relationship
between these variables. In addition, the Impulse Response Functions (IRF) and the
Variance Decomposition to determine thecontribution of thesedeterminantsin the
interpretation ofthe variance oftherealexchangerateof the Syrian pound. Eight possible
determinants have been included in the empirical model: Foreign direct
investment,realGDPgrowthrate,money supply, government consumption, trade
openness,real interest rate, terms of trade, political stability indictor.
The variables that have been found to have a long run relationship with the real
exchange rate are: theforeign direct investment, real GDP growth rate and trade
openness.EspeciallyForeign direct investment and Real GDP growth rate which have the
greatest effect on the real exchange rate, while the trade openness had the least effect on
the real exchange rate in Syria.Leavingthe other determinants with insignificant effect on
real exchange rate in Syria.
