Exchange rate dynamics in E7 economies: Assessing evidence through the Lens of economic drivers and sustainable energy pathways

This research analyzes the factors that influence exchange rate behavior in the E7 countries (Brazil, China, India, Indonesia, Mexico, Russia, and Turkey) from an environmental and macroeconomic standpoint. It evaluates the impact that the consumption of renewable energy, trade openness, economic growth, inflation, natural resource rent, and the level of industrialization have on the varying currency values of these countries as they undergo structural transitions. The Driscoll–Kraay standard error estimation technique was employed to examine the effects by accounting for the long panel data properties of cross-sectional dependence, heteroskedasticity, and serial correlation. The results confirm that renewable energy consumption and trade openness lead to depreciation of domestic currencies due to high levels of imports, reliance upon external financing, and the degree of exposure to the global market. For domestic currency appreciation, inflation and economic growth are found to be significant due to productivity increases, capital flow into the country based on favorable rates, and fiscal policy adjustments. Furthermore, the impact of industrialization on exchange rate movements was shown to not be significant from a statistical standpoint, indicating high levels of heterogeneity among E7 countries about their industrial base. The findings provide reliable evidence on how energy transition and macroeconomic fundamentals interact to influence exchange rate behavior within major emerging markets, highlighting the need for governments to work cooperatively on policy development involving energy, trade, and macroeconomic issues.