Global Jou nal o Economic and
Finance Resea ch
Vol. 02(10): 1056-1063, Oc obe 2025
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e-ISSN: 3050-5348
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DOI URL:h ps://doi.o g/10.55677/GJEFR/08-2025-Vol02E10 pg. 1056
Fo eign Exchange Ra e Policies and hei Impac on Achie ing he Sa ing-
In es men Balance in Eme ging Ma ke s: An Economic S udy using he
ARIMA Model
Ka a Hasan Dina 1, Abdulmahdi Raheem Hamza2, Ta a Mekki Bad i3
1,2,3College o Adminis a i e sciences, Business Adminis a ion Depa men , Al-Mus aqbal Uni e si y, Babylon 51001, I aq.
1. INTRODUCTION
The ela ionship be ween o eign exchange a e policies and mac oeconomic s abili y has long been a cen al conce n o
policymake s in eme ging ma ke s. Among he many condi ions o mac oeconomic equilib ium, he sa ings-in es men balance
is a c ucial indica o o an economy's heal h and sus ainabili y (Obs eld and Rogo , 1995). O e he pas i e decades, eme ging
ma ke s ha e aced signi ican challenges in main aining his balance, pa icula ly in he ace o inc easing global inancial
in eg a ion and ola ili y (Bayoumi and Thomas, 1995).
The choice o exchange a e egime has p o ound implica ions o a coun y's abili y o achie e in e nal and ex e nal
equilib ium. Acco ding o he uneasy ilemma hypo hesis, a coun y canno simul aneously main ain a ixed exchange a e, ee
capi al mobili y, and an au onomous mone a y policy (F ankel, 1999). This ilemma o ces eme ging ma ke s o make di icul
choices when designing exchange a e policies, wi h di ec consequences o sa ings and in es men dynamics.
The global inancial c isis o 2008-2009 and subsequen economic unce ain ies ha e enewed in e es in unde s anding
how exchange a e policies can help eme ging ma ke s achie e g ea e mac oeconomic s abili y (Bems e al., 2013). T adi ional
app oaches o main aining sa ing-in es men balance o en elied on di ec policy in e en ions, bu mo e ecen schola ship
sugges s ha exchange a e lexibili y migh se e as an au oma ic s abilize , educing he need o such in e en ions (B oda,
2006).
The esea ch aims o ill he gap in he li e a u e by sys ema ically in es iga ing he ela ionship be ween exchange a e
policies and he sa ings-in es men balance in eme ging ma ke s based on he ARIMA model. While p e ious s udies ha e
explo ed his ela ionship using a ious me hodologies, he applica ion o ime-se ies analysis h ough ARIMA models o e s a
mo e nuanced unde s anding o he dynamic in e ac ions be ween hese a iables (Box e al., 2015).
Eme ging ma ke s ha e been he speci ic ocus o ecen esea ch. In hei 2020 s udy, Ghosh e al. looked a how
exchange a e egimes a ec ed mac oeconomic s abili y in eme ging na ions and disco e ed ha managed loa ing egimes we e
KEYWORDS: o eign exchange a e
policies, sa ing-in es men balance,
eme ging ma ke s, ARIMA model,
mac oeconomic s abili y.
Co esponding Au ho :
Abdulmahdi Raheem Hamza
Publica ion Da e: 10 Oc obe -2025
DOI: 10.55677/GJEFR/08-2025-Vol02E10
License:
This is an open access a icle unde he CC
BY 4.0 license:
h ps://c ea i ecommons.o g/licenses/by/4.0/
ABSTRACT
This s udy uses he Au o eg essi e In eg a ed Mo ing A e age (ARIMA)
model o analyze ime-se ies da a om 2010 o 2022 in o de o in es iga e he
ela ionship be ween o eign exchange a e policies and he sa ing-in es men
balance in eme ging ma ke s. We examine he e ec s o a ious exchange a e
egimes, om ixed o loa ing, on he balance be ween na ional sa ings and
in es men using panel da a om 15 eme ging economies. Acco ding o ou
esea ch, na ions wi h mo e accommoda ing cu ency a e policies a e be e
able o s ike a balance be ween sa ing and in es ing, pa icula ly du ing
pe iods o ex e nal economic shocks. The ARIMA model e eals ha exchange
a e lexibili y se es as a c ucial au oma ic s abilize , educing he need o
di ec policy in e en ions. Addi ionally, we iden i y ha ins i u ional quali y
and inancial ma ke de elopmen signi ican ly mode a e his ela ionship.
These esul s ha e impo an implica ions o policymake s in eme ging
ma ke s who a e conside ing exchange a e egime choices and hei b oade
mac oeconomic s abili y objec i es.
Abdulmahdi Raheem Hamza (2025), Global Jou nal o Economic and Finance Resea ch 02(10): 1056-1063
DOI URL:h ps://doi.o g/10.55677/GJEFR/08-2025-Vol02E10 pg. 1057
ypically linked o mo e s able cu en accoun balances and educed p oduc ion ola ili y. In a simila ein Behe e al. (2024).
in es iga ed he connec ion be ween exchange a e lexibili y and he co ela ion be ween sa ings and in es men s in Asian
eme ging coun ies and came o he conclusion ha highe lexibili y is linked o lowe co ela ion, which sugges s highe capi al
mobili y.
Rei e a ing hei " ea o loa ing" heo y, Khai unnisa & Zuh oh, (2022) con end ha many eme ging ma ke s wi h
nominally loa ing cu ency a es eally hea ily in e ene o lowe ola ili y, which has an impac on he sa ings-in es men
balance. Acco ding o hei analysis, such an in e en ion migh con ibu e o he p ese a ion o ex e nal s abili y, Bu i in ol es
some dis o ions in he balance be ween in es men s and sa ings.
In ecen yea s, he e has been a g owing in e es in using ime se ies models, especially he ARIMA model, o analyze
exchange a e mo emen s and hei mac oeconomic e ec s. Zhang e al. (2023) showed how well ARIMA models cap u e
complex dynamics by using hem o o ecas changes in exchange a es and hei e ec s on he cu en accoun in BRICS na ions.
In a simila ein, Sosa & Pe ei a (2020). used he ARIMA model o examine how exchange a e ola ili y and in es men choices
ela e o each o he in La in Ame ican eme ging economies.
Ou esea ch add esses h ee p ima y ques ions: (1) How do di e en exchange a e egimes a ec he sa ing-in es men
balance in eme ging ma ke s? (2) Wha is he ime-dependen na u e o his ela ionship, and how does i espond o ex e nal
shocks? (3) Wha ins i u ional and inancial ma ke condi ions enhance he e ec i eness o exchange a e policies in achie ing
sa ing-in es men equilib ium?
By answe ing hese ques ions, he esea ch seeks o con ibu e o he academic li e a u e and deba es on exchange a e
managemen in eme ging economies. The indings p o ide e idence-based insigh s ha can guide policymake s in hei decisions
ega ding he choice o exchange a e egime and hei b oade mac oeconomic managemen s a egies.
2. LITERATURE REVIEW
2.1 Theo e ical F amewo ks on Exchange Ra e Policies
The li e a u e on exchange a e egimes and hei mac oeconomic implica ions is ex ensi e and mul i ace ed. The
seminal wo k o Obs eld & Rogo (2000) and Al man (1962) es ablished he ounda ion o unde s anding how exchange a e
policies a ec mac oeconomic s abili y in open economies. Thei amewo k, la e expanded as he impossible ini y, highligh s
he undamen al ade-o s acing policymake s in open economies (Obs eld e al., 2005).
Mo e ecen heo e ical de elopmen s ha e ocused on he speci ic implica ions o exchange a e policies o eme ging
ma ke s. K omann & Sø ense (2019). in oduced he concep o "o iginal sin," desc ibing he di icul y eme ging ma ke s ace in
bo owing ab oad in hei own cu encies, which makes exchange a e luc ua ions pa icula ly cos ly. This ulne abili y has led
many eme ging ma ke s o main ain mo e igid exchange a e egimes o accumula e subs an ial o eign ese es as sel -insu ance
mechanisms (Ghosh, e .al, 2016)
The " ea o loa ing" hypo hesis, p oposed by Khai unnisa & Zuh oh,, (2022), a gues ha many eme ging ma ke s ha
o icially claim o ha e loa ing exchange a es ac ually in e ene hea ily o limi cu ency luc ua ions. This beha io , hey
con end, e lec s conce ns abou he pass- h ough e ec s o exchange a e mo emen s on in la ion and balance shee s, pa icula ly
when o eign cu ency deb is signi ican .
2.2 Sa ing-In es men Balance in Open Economies
One o he mos c ucial aspec s o mac oeconomic equilib ium is he sa ing-in es men balance, which is equen ly
exp essed as he cu en accoun balance. The well-known indings o Felds ein and Ho ioka (1980) indica ed low in e na ional
capi al mobili y due o he s ong link be ween domes ic sa ings and in es men a es ac oss na ions. Subsequen s udies,
howe e , ha e e ealed ha his ela ionship has e oded o e ime, especially be ween indus ialized coun ies and eme ging
ma ke s ha a e mo e inancially connec ed ( an de Vee & Ha e land .2019).
Exchange a e egimes, iscal policies, inancial g ow h, and demog aphic ends a e some o he many complica ed
elemen s ha a ec he sa ing-in es men balance in de eloping ma ke s (Cassing & To (2008). Exchange a e misalignmen s can
ha e a subs an ial impac on he cu en accoun balance by changing he ela i e p icing o adable and non- adable p oduc s,
which in u n in luences in es men and sa ings choices, as Pa bo eeah e al(2024) showed.
Mo e ecen esea ch has looked a how domes ic policies in e ac wi h global ac o s like isk a e sion and in e na ional
in e es a es o in luence he sa ing-in es men esul s in de eloping na ions (Ade mon e .al., 2018). As eme ging ma ke s ha e
assimila ed in o in e na ional inancial ma ke s, hese global de e minan s ha e g own in signi icance.
2.3 Applica ions o ARIMA Models in Economic S udies
Box and Jenkins (1970) c ea ed he ARIMA (Au o eg essi e In eg a ed Mo ing A e age) model, which is now a
common ool in economics o e alua ing and p edic ing ime-se ies da a. Wi h i s au o eg essi e (AR), in eg a ed (I), and mo ing
a e age (MA) componen s, he model excels in cap u ing he dynamic cha ac e is ics o ime se ies (Hyndman & A hanasopoulos,
2018).
Abdulmahdi Raheem Hamza (2025), Global Jou nal o Economic and Finance Resea ch 02(10): 1056-1063
DOI URL:h ps://doi.o g/10.55677/GJEFR/08-2025-Vol02E10 pg. 1058
ARIMA models ha e been used o p edic cu ency mo emen s and examine hei ola ili y in he con ex o exchange
a e s udies (Meese & Rogo , 1983). Mo e ecen uses ha e looked a how exchange a es ela e o o he mac oeconomic ac o s
like ou pu , in la ion, and he cu en accoun (Rogo , 1996).
ARIMA models ha e been especially used in a numbe o s udies o examine he dynamics o sa ing and in es ing.
Bussiè e e al. (2010) u ilized ime-se ies models o e alua e global imbalances, and Glick & Rogo (1995) used ime-se ies
models o s udy he ela ionship be ween p oduc i i y shocks and he cu en accoun . The e is a no able gap in he li e a u e,
none heless, since ew s udies ha e consis en ly used ARIMA models o in es iga e how exchange a e policies impac he sa ing-
in es men balance in eme ging na ions.
3. METHODOLOGY
3.1 The ARIMA Model F amewo k
The ARIMA (p,d,q) model is a s a is ical analysis model ha makes use o ime se ies da a o o ecas u u e ends o ge
a deepe unde s anding o he da a se . "ARIMA(p,d,q)" is he classi ica ion o a non-seasonal ARIMA model, whe e:p is he
numbe o au o eg essi e e ms,
• d is he numbe o nonseasonal di e ences needed o s a iona i y, and
• q is he numbe o lagged o ecas e o s in he p edic ion equa ion.
Ma hema ically, he ARIMA model can be exp essed as:
(1-∑φᵢBⁱ) (1-B) ᵈYₜ = (1+∑θⱼBʲ)εₜ
whe e:
• Yₜ is he alue o he ime se ies a he momen ,
• B is he backshi ope a o (BYₜ = Yₜ₋₁),
• φᵢ a e he au o eg essi e pa 's pa ame e s.,
• θⱼ a e he mo ing a e age pa 's pa ame e s.,
• εₜ is whi e noise.
We use a mul i a ia e ARIMA app oach o his analysis, which enables us o adjus o o he pe inen a iables and in es iga e
he ela ionship be ween exchange a e policy and sa ing-in es men balance. The ollowing is he model speci ica ion:
(1-∑φᵢBⁱ) (1-B)ᵈSIₜ = α + β(1-∑φᵢBⁱ)(1-B)ᵈERₜ + ∑γₖXₖₜ + (1+∑θⱼBʲ)εₜ
whe e:
• The sa ing-in es men balance, o SIₜ, is calcula ed as he cu en accoun balance exp essed as a pe cen age o GDP.
• ERₜ symbolizes he a iable o exchange a e policy,
• Xₖₜ Rep esen s a con ol a iable ec o ,
• α, β, and γₖ a e pa ame e s ha need o be es ima ed.
3.2 Da a Collec ion and Va iables
Qua e ly da a o 15 eme ging ma ke s—B azil, China, India, Indonesia, Malaysia, Mexico, he Philippines, Poland,
Russia, Sou h A ica, Sou h Ko ea, Thailand, Tu key, Colombia, and Chile— om 2010Q1 o 2022Q4 a e used in ou esea ch.
These na ions we e chosen because o hei di e se exchange a e egimes, economic impo ance, and ep esen a ion o many
a eas.
The p ima y a iables o in e es a e:
1. Sa ing-In es men Balance (SI): exp essed as a pe cen age o GDP ep esen ing he cu en accoun balance. In o ma ion
aken om he In e na ional Financial S a is ics (IFS) da abase main ained by he In e na ional Mone a y Fund.
2. Exchange Ra e Policy (ER): a composi e index ha anges om 1 (ha d peg) o 10 ( eely loa ing), based on he IMF's de
ac o classi ica ion o exchange a e egimes. The in o ma ion came om he Annual Repo on Exchange A angemen s
and Exchange Res ic ions (AREAER) published by he IMF.
3. Con ol Va iables:
• GDP g ow h a e (annual pe cen age change)
• In la ion a e (annual pe cen age change)
• Financial openness (Chinn-I o index)
• Fo eign exchange ese es (as a pe cen age o GDP)
• Fiscal balance (as a pe cen age o GDP)
• Te ms o ade (index)
• Ins i u ional quali y (Wo ld Bank Go e nance Indica o s)
All in o ma ion was ga he ed om eliable global sou ces, such as na ional s a is ical o ices, IMF da abases, and he Wo ld
Bank's Wo ld De elopmen Indica o s. S anda d ime-se ies me hods we e used o in e pola e missing alues.
Abdulmahdi Raheem Hamza (2025), Global Jou nal o Economic and Finance Resea ch 02(10): 1056-1063
DOI URL:h ps://doi.o g/10.55677/GJEFR/08-2025-Vol02E10 pg. 1059
3.3 Analy ical App oach
Ou analy ical app oach p oceeds in se e al s ages:
1. Uni Roo Tes s: We s a by using he Phillips-Pe on (PP) and Augmen ed Dickey-Fulle (ADF) es s o check o
s a iona i y in he ime se ies. To asce ain he p ope deg ee o di e encing (d) equi ed in he ARIMA model, his s ep
is essen ial.
2. Model Iden i ica ion: We de e mine he p ope AR and MA e ms o he model by u ilizing au oco ela ion unc ion
(ACF) and pa ial au oco ela ion unc ion (PACF) plo s. The bes model speci ica ion is chosen using he in o ma ion
c i e ia (AIC and BIC).
3. Pa ame e Es ima ion: Maximum Likelihood Es ima ion is used o es ima e he pa ame e s o he ARIMA model.
4. Diagnos ic Checking: Using he Ljung-Box es , we e i y ha he model's esiduals a e whi e noise. The model is e-
speci ied i he esiduals a e no whi e noise.
5. Impulse Response Analysis: To in es iga e he dynamic impac s o exchange a e policy shocks on he sa ing-
in es men balance, we employ impulse esponse analysis.
6. Fo ecas E alua ion: Ou -o -sample p edic ions and s anda d e o measu es (RMSE, MAE) a e used o assess he
ARIMA model's o ecas ing abili y.
7. Robus ness Checks: We pe o m a numbe o obus ness checks, such as u ilizing di e en sample pe iods and al e na e
measu emen s o sa ing-in es men balance and exchange a e egimes.
4. EMPIRICAL RESULTS
4.1 Desc ip i e S a is ics
The desc ip i e s a is ics o he p ima y a iables we conside ed in ou s udy a e shown in Table 1. The cu en accoun
as a pe cen age o GDP, o he sa ing-in es men balance, a ies signi ican ly among he eme ging ma ke s in ou sample, wi h a
mean o -0.2% and a ange o -8.7% o 12.3%. This sugges s ha , despi e signi ican a ie y, he na ions in ou sample gene ally
ha e a somewha nega i e sa ing-in es men balance.
Wi h alues anging om 2.1 o 9.8, he exchange a e policy index likewise exhibi s no able a ia ion, e lec ing he
a ie y o exchange a e egimes in ou sample. The majo i y o he na ions in ou sample appea o ha e in e media e exchange
a e egimes, nei he se e ely se no eely loa ing, based on he a e age alue o 5.7.
Table 1: Desc ip i e S a is ics
Va iable
Mean
S d. De .
Min
Max
Obse a ions
SI (Cu en Accoun % GDP)
-0.2
3.8
-8.7
12.3
780
ER (Exchange Ra e Policy Index)
5.7
2.1
2.1
9.8
780
GDP G ow h (%)
3.8
2.9
-8.2
10.5
780
In la ion (%)
4.2
3.5
-1.3
15.8
780
Financial Openness
0.6
0.3
-0.1
1.0
780
FX Rese es (% GDP)
15.3
8.7
3.2
45.6
780
Fiscal Balance (% GDP)
-1.8
2.5
-8.5
5.2
780
Te ms o T ade
100.0
12.5
72.3
138.9
780
Ins i u ional Quali y
0.1
0.8
-1.2
1.5
780
4.2 Uni Roo Tes s
The ou comes o he uni oo es s o he p ima y a iables a e shown in Table 2. The majo i y o a iables, acco ding
o he ADF and PP es s, ha e non-s a iona y alues bu u n s a iona y a e ini ial di e encing. This implies ha o he majo i y
o a iables, an ARIMA model wi h d=1 is sui able.
Table 2: Uni Roo Tes Resul s
Va iable
ADF (Le el)
PP (Le el)
ADF (1s Di )
PP (1s Di )
SI
-1.823
-1.956
-6.842***
-7.125***
ER
-2.015
-2.103
-5.976***
-6.234***
GDP G ow h
-4.567***
-4.892***
-
-
In la ion
-3.876**
-4.012**
-
-
Financial Openness
-2.345
-2.478
-5.678***
-5.892***
FX Rese es
-1.987
-2.045
-6.123***
-6.456***
Fiscal Balance
-2.567*
-2.678*
-5.876***
-6.012***
Te ms o T ade
-2.123
-2.234
-5.934***
-6.123***
Ins i u ional Quali y
-3.456**
-3.678**
-
-
No e: *, **, *** deno e signi icance a 10%, 5%, and 1% le els, espec i ely.
Abdulmahdi Raheem Hamza (2025), Global Jou nal o Economic and Finance Resea ch 02(10): 1056-1063
DOI URL:h ps://doi.o g/10.55677/GJEFR/08-2025-Vol02E10 pg. 1060
4.3 ARIMA Model Es ima ion
We es ima e an ARIMA (1,1,1) model o he link be ween exchange a e policies and sa ing-in es men balance based
on he uni oo es s and model iden i ica ion p ocedu es. Table 3 displays he indings.
Table 3: ARIMA (1,1,1) Model Resul s
Va iable
Coe icien
S d. E o
-s a is ic
p- alue
Cons an
0.012
0.008
1.500
0.134
AR(1)
0.345
0.067
5.149
0.000***
MA(1)
-0.278
0.054
-5.148
0.000***
ER
0.423
0.098
4.316
0.000***
GDP G ow h
0.256
0.076
3.368
0.001***
In la ion
-0.187
0.065
-2.877
0.004***
Financial Openness
0.198
0.087
2.276
0.023**
FX Rese es
-0.112
0.045
-2.489
0.013**
Fiscal Balance
0.387
0.092
4.207
0.000***
Te ms o T ade
0.145
0.056
2.589
0.010**
Ins i u ional Quali y
0.267
0.078
3.423
0.001***
No e: *, **, *** deno e signi icance a 10%, 5%, and 1% le els, espec i ely.
The indings show ha he sa ing-in es men balance and exchange a e lexibili y ha e a s a is ically signi ican
posi i e ela ionship. A one-uni inc ease in he exchange a e policy index, which indica es g ea e lexibili y, is linked o a 0.423
pe cen age poin imp o emen in he cu en accoun balance as a pe cen age o GDP, acco ding o he coe icien o 0.423, once
o he ac o s ha e been aken in o accoun .
GDP g ow h, iscal balance, e ms o ade, inancial openness, and ins i u ional quali y a e among he con ol a iables
wi h posi i e and s a is ically signi ican coe icien s, sugges ing ha hese elemen s imp o e he sa ing-in es men balance.
Fo eign exchange ese es and in la ion, on he o he hand, ha e nega i e coe icien s, indica ing ha a decline in he sa ing-
in es men balance is linked o bo h highe in la ion and la ge ese e holdings.
4.4 Impulse Response Analysis
The indings show ha g ea e exchange a e lexibili y imp o es he sa ings-in es men balance igh away, wi h he
bene i peaking a e abou ou qua e s. This bene icial impac las s o a ound a yea and a hal be o e ading o .
The indings show ha g ea e exchange a e lexibili y imp o es he sa ings-in es men balance igh away, wi h he
bene i peaking a e abou ou qua e s. This bene icial impac las s o a ound a yea and a hal be o e ading o .
4.5 Fo ecas E alua ion
We pe o med ou -o -sample p ojec ions o he 2021Q1–2022Q4 ime ame in o de o assess ou ARIMA model's
p edic ing pe o mance. Wi h low mean absolu e e o (MAE) and oo mean squa e e o (RMSE) alues, he model's p edic ing
accu acy is demons a ed by he esul s, which a e shown in Table 4.
Table 4: Ou -o -Sample Fo ecas E alua ion
Me ic
Value
RMSE
0.387
MAE
0.298
MAPE
12.3%
Theil's U
0.876
The Theil's U s a is ic o 0.876 indica es ha ou ARIMA model ou pe o ms a nai e no-change o ecas , con i ming he
model's p edic i e powe .
4.6 Robus ness Checks
To e i y he alidi y o he esea ch esul s, a se ies o es s we e conduc ed. Fi s , we used o he measu es o exchange
a e policy, such as he ola ili y o he nominal e ec i e exchange a e and he Reinha -Rogo e ec i e a e. Quali a i ely, he
esul s we e simila o hose epo ed p e iously. Second, o check o ime s abili y, we es ima ed he model o wo dis inc sub-
pe iods (2010-2016 and 2017-2022). Al hough sligh ly la ge in he second pe iod, he coe icien o he exchange a e policy
a iable was s ill posi i e and s a is ically signi ican in bo h sub-pe iods, sugges ing ha he associa ion may ha e s eng hened
ecen ly. Finally, we calcula ed he model o se e al g oups o coun ies acco ding o geog aphic egions and income le els. We
Abdulmahdi Raheem Hamza (2025), Global Jou nal o Economic and Finance Resea ch 02(10): 1056-1063
DOI URL:h ps://doi.o g/10.55677/GJEFR/08-2025-Vol02E10 pg. 1061
ound a consis en posi i e associa ion be ween exchange a e lexibili y and he sa ings and in es men balance ac oss hese
ca ego ies, despi e di e ences in e ec sizes.
5. CONVERSATION
5.1 In e p e a ion o Resul s
Ou esul s demons a e a s ong posi i e ela ionship be ween he sa ings-in es men balance in eme ging economies
and exchange a e lexibili y. This s udy (B oda, 2006) suppo s he idea ha lexible exchange a es ac as an au oma ic s abilize ,
helping o educe imbalances wi hou he need o di ec go e nmen in e en ion. Exchange a e luc ua ions can also ebalance a
coun y when i expe iences a sa ings-in es men imbalance by changing ela i e p ices, which in u n in luences sa ing and
in es men decisions. Acco ding o ou impulse esponse esea ch, his ela ionship is dynamic, meaning ha exchange a e
lexibili y wo ks bes in he sho and medium e m. This sugges s ha exchange a e adjus men s can help educe sho - e m
imbalances wi hou he need o mo e s ingen policy measu es. This inding has impo an policy implica ions.
Economic heo y and p e ious empi ical indings a e consis en wi h posi i e co ela ions ela ed o GDP g ow h,
inancial openness, inancial balance, e ms o ade, inancial openness, inancial balance, and ins i u ional quali y. Achie ing a
be e balance be ween sa ings and in es men is also a ibu ed o imp o ed ins i u ions, mo e a ac i e e ms o ade, iscal
discipline, s onge economic g ow h, and g ea e inancial in eg a ion (Chen and I o, 2007). The nega i e o eign exchange
ese es coe icien is o pa icula impo ance. I sugges s ha he inc ease in sa ings-in es men imbalances may be linked o he
buildup o ese es, which a e o en used as a ool o managing he exchange a e. This inding unequi ocally ein o ces he idea
ha ese e accumula ion may no be he op imal op ion o achie ing mac oeconomic s abili y and may cause economic
dis o ions (Eisenman and Lee, 2007).
5.2 Policy Implica ions
Ou indings ha e impo an policy implica ions o eme ging ma ke s in se e al aspec s:
1. Choice o exchange a e egime: When he ela ionship be ween exchange a e lexibili y and he sa ings-in es men
balance is posi i e, coun ies wi h mo e lexible exchange a e egimes a e be e able o achie e mac oeconomic
equilib ium. This inding suppo s he need o g ea e exchange a e lexibili y in eme ging ma ke s, especially hose
acing signi ican ex e nal shocks.
2. Complemen a y policies: Exchange a e lexibili y is no a panacea, bu i can help achie e a balance be ween sa ings
and in es men . Ou indings sugges ha addi ional measu es, such as inancial de elopmen , ins i u ional
imp o emen s, and iscal consolida ion, a e also necessa y. Consequen ly, policymake s should app oach
mac oeconomic managemen holis ically.
3. Rese e managemen : The e is clea ly a nega i e ela ionship be ween he sa ings-in es men balance and o eign
exchange ese es, meaning ha building ese es is no he op imal op ion o achie ing mac oeconomic s abili y.
Policymake s mus ca e ully balance he bene i s o building ese es agains any po en ial dis o ions.
4. Regional Coope a ion: I is well known ha many o he shocks a ec ing de eloping ma ke s a e global in scope.
The e o e, egional coope a ion in coo dina ing mac oeconomic policies and managing exchange a es is essen ial, which
imp o es each coun y's abili y o achie e a balance be ween in es men and sa ings.
5.3 Res ic ions
Despi e he s eng h o ou esul s, his s udy has se e al limi a ions ha should be conside ed:
1. Conce ns abou endogenous ac o s: Ou ARIMA model does no adequa ely accoun o po en ial endogenous ac o s,
al hough i cap u es he dynamic ela ionship be ween exchange a e policy and he sa ings-in es men balance. To
p ope ly add ess his issue, u u e s udies could use s uc u al ec o au o eg essi e (SVAR) models o ins umen al
a iables app oaches.
2. C oss-coun y a ia ion: I is ecognized ha he e is conside able a ia ion ac oss coun ies in he quali y o hei
ins i u ions, policy amewo ks, and economic s uc u es. These di e ences clea ly a ec he ela ionship be ween
exchange a e policy and he sa ings-in es men balance.
3. Ex e nal Shocks: Ou model does no accu a ely desc ibe he e ec s o di e en ypes o ex e nal shocks on he
ela ionship be ween exchange a e policies and he sa ings-in es men balance accoun . Addi ional insigh s can be
gained h ough a mo e comp ehensi e s udy o hese shocks, al hough i includes he e ms o ade as a con ol a iable.
6. CONCLUSION
Using he ARIMA model, his esea ch examined he ela ionship be ween o eign exchange a e policies and he
sa ings-in es men balance in eme ging ma ke s. Since he exchange a e is a measu e o in e na ional compe i i eness, which
signi ican ly a ec s in e es a es, ou esul s indica e ha lexible exchange a es a e an e ec i e au oma ic s abilize in eme ging
ma ke s, as hey a e associa ed wi h a be e balance be ween sa ings and in es men . Acco ding o a dynamic s udy, he bene i s
Abdulmahdi Raheem Hamza (2025), Global Jou nal o Economic and Finance Resea ch 02(10): 1056-1063
DOI URL:h ps://doi.o g/10.55677/GJEFR/08-2025-Vol02E10 pg. 1062
o exchange a e lexibili y on he sa ings-in es men balance a e mos p onounced in he sho and medium e m and g adually
decline o e ime. This end unde sco es he impo ance o exchange a e lexibili y as a means o co ec ing sho - e m
imbalances. Ou esul s also highligh he impo ance o complemen a y policies in achie ing a sus ainable sa ings-in es men
balance, such as inancial de elopmen , budge a y discipline, and ins i u ional imp o emen s. Main aining a ce ain le el o
o eign exchange ese es may no be he mos op imal op ion o achie ing mac o s abili y, as e idenced by he in e se
ela ionship be ween o eign exchange ese es and he sa ings-in es men balance. Fo eme ging ma ke policymake s
conside ing he po en ial o exchange a e egimes and hei mo e comp ehensi e mac oeconomic managemen plans, hese
indings ha e signi ican implica ions. Exchange a e lexibili y should be an in eg al pa o a comp ehensi e policy amewo k
ha add esses he undamen al ac o s a ec ing sa ing and in es men , al hough i may con ibu e o achie ing a balance be ween
hem. This s udy could be expanded in he u u e by examining he di e se e ec s o exchange a e policies on di e en ypes o
eme ging ma ke s, he ole o managing long- and sho - e m capi al lows, and he in eg a ion o exchange a e policies wi h
o he mac oeconomic policies in achie ing a balance be ween in es men and sa ing.
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