Remittances, bilateral trade and linkage between foreign exchange markets: Evidence from the Commonwealth of Independent States (CIS)

  • Mirzosaid SultonovEmail author
Research article


In this paper, we investigate the linkage between the foreign exchange markets of Russia, Armenia, the Kyrgyz Republic, Moldova and Tajikistan. These countries are chosen based on their similar history and present social, political and economic conditions. Considering the significant dependence of Armenia, the Kyrgyz Republic, Moldova and Tajikistan on remittances from and trade with Russia, we believe that the exchange rates and their variations in the mentioned dependent economies are defined by Russia’s national currency exchange rate and its variations. We apply a two-step procedure to test for causality-in-mean and variance between the foreign exchange markets. In the first step, we use an exponential generalised autoregressive conditional heteroskedasticity (EGARCH) model to compute the conditional mean and the conditional variance. In the second step, we use the standardised residuals and their squared values derived from the first step in a cross-correlation function (CCF) to examine the causality-in-mean and the causality-in-variance. A generalised version of Cheung and Ng’s (J Econ 72(1):33–48, 1996) Chi square test statistic suggested by Hong (J Econ 103(1–2):183–24, 2001) will be used to test the hypothesis of no causality from lag 1 to a given lag of k in the cross-correlation coefficients. The Russian economy has become more integrated with the global economy through the sale of energy resources. The changes in demand for energy resources cause volatility in the flow of international currency and consequently affect Russia’s foreign exchange market. The recent sharp decrease in oil prices and significant devaluation of the Rouble are good examples of this relationship. The empirical findings show that remittances serve as a link which causes the foreign exchange markets’ returns in remittance-receiving countries to be dependent on foreign exchange market outcomes in the remittance-sending country. The findings of this research have significant implications for economic policy analysis and decision making in economies dependent on the inflow of remittances.


Remittance Foreign exchange market Causality 

JEL Classification

F24 F31 F41 


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Copyright information

© Japan Economic Policy Association (JEPA) 2018

Authors and Affiliations

  1. 1.Tohoku University of Community Service and ScienceSakataJapan

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