Beyond Fundamentals: Behavioral Drivers of USD/AFN Exchange Rate Volatility in Post-2021 Afghanistan

Abstract:
The paper presents the post-2021 dynamics of the USD/AFN exchange rate in reference to behavioral finance that fills a major weakness of the traditional exchange-rate theory as applied to economies in weak and post-conflict settings as is the case in Afghanistan. This research incorporates the behavioral finance principles in the analysis of currency movements. The study uses a quantitative time-series descriptive and analytical research methodology through secondary data to examine the variations in USD/AFN exchange rates in Afghanistan during the post-2021. The study also used a theory-based event behavior mapping structure to explain the movements in the exchange rate in terms of the main behavioral mechanisms. The research findings showed the contribution of behavioral biases in shaping USD/AFN exchange rates post-2021 in Afghanistan. The policy implications underline the roles of proper management of expectations, transparency, and strategic communication in the exchange rate stabilization endeavors.