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Exploring unbalanced impacts of exchange rate volatility on the shadow economy: new evidence from BRICS nations

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  • Nenavath Sreenu

    (Maulana Azad National Institute of Technology Bhopal)

Abstract

This study investigates the influence of exchange rate fluctuations on the informal economy within the BRICS countries from 2010 to 2019. Employing linear and nonlinear analytical methods, this research utilizes linear autoregressive distributed lag (ARDL) models to analyze the relationship between exchange rate variations and the shadow economy in each BRICS nation. The study consistently reveals significant evidence of the impact of exchange rate fluctuations on the informal economy across both short-term and long-term timeframes. Moreover, employing a nonlinear ARDL model uncovers distinct and uneven effects of exchange rate volatility among the BRICS nations, emphasizing the varied characteristics of currency fluctuations in the clandestine economy. The findings underscore the need for BRICS member states to develop and implement tailored fiscal strategies to mitigate the risks associated with exchange rate volatility. Recognizing these dynamics is crucial for policymakers and stakeholders to effectively address the unequal ramifications of the informal sector within each country. Considering these findings, policymakers must devise economic policies that account for the diverse attributes of each nation’s informal economy. Implementing measures to reduce and manage the impacts of exchange rate fluctuations can foster stability and resilience within the informal sector, ultimately contributing to broader economic development objectives. This study contributes to the existing literature by employing linear and nonlinear methodologies to explore the relationship between currency exchange rates and the informal economy within the BRICS context. The identification of varied impacts across nations underscores the importance of tailored policy responses to address the unique challenges of exchange rate volatility on informal economic activities.

Suggested Citation

  • Nenavath Sreenu, 2024. "Exploring unbalanced impacts of exchange rate volatility on the shadow economy: new evidence from BRICS nations," Economic Change and Restructuring, Springer, vol. 57(4), pages 1-26, August.
    • Handle: RePEc:kap:ecopln:v:57:y:2024:i:4:d:10.1007_s10644-024-09727-5
    DOI: 10.1007/s10644-024-09727-5
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    More about this item

    Keywords

    Exchange rate volatility; Shadow economy; ARDL; Asymmetric effect;
    All these keywords.

    JEL classification:

    • F31 - International Economics - - International Finance - - - Foreign Exchange
    • F1 - International Economics - - Trade
    • F15 - International Economics - - Trade - - - Economic Integration
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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