Foreign exchange rate and inflation relationship during Afghanistanda dollization

Dollarization has been consistently high in Afghanistan despite relatively low inflation, money supply and exchange rate towards central bank independence in last few years. The main content of this paper focuses effects of dollarization in Afghanistan especially emphasizing on factors like exchange rate, money supply and inflation, furthermore, in this paper we have also tried to see some light on the dollarization phenomenon in Afghanistan and to address the posed questions regarding the short-term and long-term effects of dollarization on the economic stability of the country. At the end, we will do some analytical calculations using Testing for the unit root ADF, Testing of Cointegration and Granger Causality Test further, we will conclude our findings in the form of some policy recommendations for the monetary authorities Afghanistan for the purpose of dealing the issue of dollarization in the country. It should be noted that we have conducted our study mostly based on literature review and study of similar cases around the world. Key words: Dollarization, Inflation. Exchange rate and Money supply.