Asymmetric Effect of the Interaction between Exchange Rate and Inflation on Economic Growth: An Applied Study in Syria

Abstract

This study examines the asymmetric effect of the interaction between the exchange rate and inflation on economic growth in Syria over the period 2010–2022 using monthly data and the nonlinear autoregressive distributed lag model NARDL. Real gross domestic product growth is employed as one of the key indicators as dependent variable, while the exchange rate, inflation, and their interaction term are used as key explanatory variables, alongside other variables which are considered as determiners of the domestic product like real interest rate, broad money supply, and trade openness as control and explanatory variables. The findings reveal the existence of a long-run equilibrium relationship among the variables and show that the Syrian economy responds asymmetrically to positive and negative shocks in the exchange rate, inflation, and their interaction. The results also indicate that the interaction term has an independent and statistically significant effect on economic growth, confirming that the combined impact of exchange rate deterioration and inflationary pressures is stronger than the isolated effect of each variable. These findings highlight the importance of coordinated monetary and economic policies to enhance macroeconomic stability and support growth.