MONETARY POLICY, EXCHANGE RATE DYNAMICS, AND INTERNATIONAL TRADE: A COMPARATIVE PANEL ANALYSIS OF ADVANCED, MIDDLE EASTERN AND AFRICAN ECONOMIES

The study examined the nexus between monetary policy, exchange rate dynamics, and international trade across fifteen advanced, Middle Eastern (GCC), and African economies from 2009–2024, using the Mundell–Fleming–Dornbusch framework. Employing Panel ARDL (PMG), PVAR, Panel GARCH/EGARCH, and mediation analysis, the study captures long-run relationships, short-run dynamics, and volatility effects. The findings reveal strong regime-dependent heterogeneity: monetary policy significantly influences exchange rates and trade in advanced economies, with about 70% of the effect transmitted through the exchange rate channel. In GCC countries, fixed exchange rate pegs weaken monetary transmission, making trade outcomes largely dependent on fiscal policy and oil prices. In African economies, exchange rate depreciation supports exports, but high volatility constrains overall trade performance. Exchange rate volatility consistently emerges as a key trade deterrent, while global demand remains the dominant external driver of exports. Granger causality and variance decomposition confirm a primary transmission path from interest rates to exchange rates and subsequently to trade, with notable feedback effects in African economies. The study recommends that policymakers adopt exchange rate regime–consistent monetary frameworks, strengthen financial markets, and implement measures to reduce exchange rate volatility in order to enhance trade resilience and macroeconomic stability in an increasingly shock-prone global economy.