摘要：This paper investigates the impact of lagged-exchange rate along with market risk and financial
sector indicators on country risk in Kuwait. For this purpose, time series analyses both in aggregated
and disaggregated approach are conducted along with the correlation and descriptive outcomes.
Overall study sample is divided into fourth groups; namely the whole-time period, 1980 to
1990, 1991 to 2000, 1991-2005 and finally 1995-2005. To achieve this objective, regression equations
are developed, indicating the set of lagged predictors along with market and financial sector
indicators of exchange rate volatility. For the whole sample of the study, it is found that exchange
rate lagged values are significant predictors of country risk from 1980 to 2005. Under the first
subsample, lagged 1 and market risk through real interest rate are blamed for creating exchange
rate (ER) volatility. For the 2nd disaggregated analysis, the factors like lagged 1 of ER along with
deposit interest (DIR) and price level of the Government (PLG) are significant predictors of
exchange rate. Additionally, during the period 1995-2005, none of the regression models appears
to create the exchange rate volatility. However, for the last disaggregated time series analysis, it is
found that ERL1, and PLG significantly determine the country risk in the region of Kuwait. Findings
of the study are contributing in the present literature while confirm the fact that lagged values
of exchange rate are very much significant to be observed to understand the current trend in ER.
Besides, the results can also support the argument that exchange rate risk and interest rate are
interlinked with each other.
