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1 – 10 of over 3000This paper analyzes the information content of the forward exchange rates implied by the interest rate parity, using the Korea and U.S. interest rates and Won/dollar exchange rates…
Abstract
This paper analyzes the information content of the forward exchange rates implied by the interest rate parity, using the Korea and U.S. interest rates and Won/dollar exchange rates observed during the period of March 1991 to December 2002. First, we test the cointegration between implied forward exchange rates and future spot exchange rates to examine their longrun relationship, and find the existence of cointegration. Next, we examine the international Fisher effect and estimate an error correction model for their shortrun relationship. Our analysis supports the international Fisher effect for longer maturities. Our result also supports the error correction model that states that the future spot exchange rates will be adjusted reflecting the information contained in the past-period implied forward rates which is not fully reflected to current spot rates. Finally, we also find that the term structure of implied forward exchange rates is associated with the changes in future spot rates for longer maturities. Based on our findings, we conclude that the longrun relationship exists between the implied forward exchange rates and future spot exchange rates, and the shortrun deviation from the relationship tend to disappear as they return to the longrun relationship in the course of time.
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Jin-Wan Cho, AiLian Bian and Kyung-In Park
While undergoing currency crises, countries under fixed exchange rate regime elect to adopt flexible exchange rate regime. It is generally expected that if a country launches…
Abstract
While undergoing currency crises, countries under fixed exchange rate regime elect to adopt flexible exchange rate regime. It is generally expected that if a country launches floating exchange rate regime, the exchange rate volatility increases. Therefore, the increase in exchange rate volatility may increase exposures to currency risks at the firm level. Previous research, however, such as Bian, Park and Cho (2006) shows that right after the currency crisis of 1997~1998, currency risk exposure for Korean firms actually decreased after the government adopted flexible exchange rate regime. In this study, we intend to study the effects of changes in exchange rate regimes on foreign currency exposures at the firm level around the currency crises in the 1990s using worldwide data. We use 2116 firms in 23 countries finds evidence that exchange rate exposure of majority of firms decreases after the financial crises. In a sub-sample analysis in which sub-samples are created depending on whether the home country changed exchange rate regime from fixed to flexible, we find that the reduction of exposure was greater for firms in countries that changed the regimes than those in countries that did not.
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Sami Zaki Alabdulwahab and Ahmed Sabry Abou-Zaid
This paper aims to empirically investigate the sources of real exchange rate fluctuations in Egypt using structural vector autoregression (SVAR). The data covers the period…
Abstract
Purpose
This paper aims to empirically investigate the sources of real exchange rate fluctuations in Egypt using structural vector autoregression (SVAR). The data covers the period between 1980 and 2016, where exchange regime has been changed more than once.
Design/methodology/approach
This paper investigates the source of real exchange rate fluctuations for the period between 1980 and 2016 using the SVAR method. The SVAR method will incorporate real gross domestic product (GDP), real effective exchange rate (REER) and price level in a multidimensional equations system. However, impulse response function (IRF) and error variance decompositions (EVDC) will be generated by the system to have a behavioral insight of real exchange rate in response to economic shocks.
Findings
The IRF and EVDC results indicate a significant impact of demand shocks over the real exchange rate relative to supply shocks and monetary shocks in the period between 1980 and 2016. On the other hand, monetary shocks will have a negligible effect on the real exchange rate in the short run and converging to its previous level in the covering period of the study.
Originality/value
In the best of the authors' knowledge, the topic of the source of the real exchange rate fluctuations in Egypt has not been discussed in a wide range due to the lack of time series data. However, this study provides constructed data for REER for Egypt with the published method in the International Monetary Fund (IMF). Furthermore, the study involves theoretical and econometric modeling to ensure the reliability of the economic results.
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Sérgio Kannebley Júnior, Diogo de Prince and Daniel Quinaud Pedron da Silva
Brazil uses the dollar as a vehicle currency to invoice its exports. This fact produces a tendency toward equalizing the prices of products in dollars in the international market…
Abstract
Purpose
Brazil uses the dollar as a vehicle currency to invoice its exports. This fact produces a tendency toward equalizing the prices of products in dollars in the international market and reducing the ability of firms to practice pricing-to-market (PTM). This study aims to evaluate the hypothesis by estimating error correction models in panel data, obtaining estimates of PTM for 25 manufacturing products exported by Brazil between 2010 and 2020.
Design/methodology/approach
This study uses the correlated common effect estimator proposed by Pesaran (2006) and Chudik and Pesaran (2015b) to estimate the PTM coefficients.
Findings
Results of this study indicate that exporters practice local-currency pricing stability for dollar prices. This study obtains that Brazilian exporters tend to stabilize their dollar price for exports, reducing heterogeneity between destination markets. The results are in agreement with the hypothesis of the prevalence of the coalescing effect of Goldberg and Tille (2008) and lower sensitivity of the markup adjustment to the specific market, as pointed out by Corsetti et al. (2018). The pricing of Brazilian exports in dollars reflects a profit maximization strategy that considers an international price system based on global demand for products.
Originality/value
In addition to analyzing the dollar role in the pricing of Brazilian exports through the triangular decomposition, this study also shows the importance of examining the cross-section dependence of errors, considering the heterogeneous cointegration in export pricing models and producing PTM estimates for short-term and long-term.
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The purpose of this research is to study the relationship between exchange rate fluctuations and stock market returns of the seven highest economic performing emerging countries…
Abstract
Purpose
The purpose of this research is to study the relationship between exchange rate fluctuations and stock market returns of the seven highest economic performing emerging countries (E7).
Design/methodology/approach
The study is conducted using the daily data for exchange rates and stock market returns in each of the E7 countries from January 1, 2019, to January 1, 2022. The study employs the ordinary least squares, autoregressive distributed lag error correction regression and generalized autoregressive conditional heteroskedasticity (GARCH (1,1)) regression models to fully investigate the impact of exchange rate on stock markets. For further investigation, the GARCH (1,1) model is run twice for each country with and without the inclusion of exchange rate to determine its effect on the volatility of stock returns.
Findings
The findings support the presence of cointegration relationship between the variables for all countries. The results reveal significant positive long-run relationship between exchange rates and stock market returns in all countries except for Indonesia, which evidenced a significant negative impact. The results of the GARCH (1,1) add that the inclusion of exchange rate in the model accounts for a slight change in the volatility of stock returns.
Originality/value
The research provides empirical evidence that appreciating currencies are perceived positively by investors leading to better performing capital markets. The outcomes of this study may assist policy makers in understanding to what degree changes in exchange rates can influence capital markets, as well as narrow the gap in literature regarding which theory is more relevant in explaining how exchange rate fluctuations impact market values.
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Billy Prananta and Constantinos Alexiou
The authors explore the relationship between the exchange rate, bond yield and the stock market as well as the effect of capital market dynamics on the exchange rate before and…
Abstract
Purpose
The authors explore the relationship between the exchange rate, bond yield and the stock market as well as the effect of capital market dynamics on the exchange rate before and during the COVID-19 pandemic.
Design/methodology/approach
The authors employ a non-linear autoregressive distributed lag (NARDL) methodology using daily data of the Indonesian economy over the period 2012–2021.
Findings
Whilst, over the full sample period, the authors find no cointegration between the exchange rate, the 10-year bond yield and stock market, for the COVID-19 period, evidence of cointegration is present. Furthermore, the results suggest that asymmetric effects are evident both in the short as well as the long run.
Originality/value
To the best of the authors’ knowledge, this is the first time that the relationship between the exchange rate, bond yield and the stock market as well as the effect of capital market dynamics on the exchange rate before and during the COVID-19 pandemic has been explored in the case of the Indonesian economy.
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The purpose of this paper is to examine and analyze the exchange rate pass-through into inflation (ERPT) in Vietnam.
Abstract
Purpose
The purpose of this paper is to examine and analyze the exchange rate pass-through into inflation (ERPT) in Vietnam.
Design/methodology/approach
The paper examines and analyzes the ERPT in Vietnam by applying vector autoregression model over the period 2008‒2018.
Findings
The key finding of the research is that from the impulse response results, the transmission of exchange rate shocks to inflation is significant in Vietnam, and this is incomplete exchange rate pass-through. Moreover, the evidence from variance decompositions argues that exchange rate is an important factor to explain the fluctuation of inflation.
Originality/value
In overall, the depreciation or appreciation of exchange rate in Vietnam will considerably impact inflation.
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Kurtulus Bozkurt, Hatice Armutçuoğlu Tekin and Zeliha Can Ergün
This study aims to measure the relationship between demand and exchange rate shocks in the tourism industry.
Abstract
Purpose
This study aims to measure the relationship between demand and exchange rate shocks in the tourism industry.
Design/methodology/approach
A panel data set is constructed covering the period between 1995 and 2017, and the data set includes the top 26 countries that host 10 million tourists and above in the world as of 2017. The standard errors of the series are used as an indicator of shocks. First, the cross-sectional dependency, stationarity and the homogeneity of the series are examined; second, a panel cointegration analysis is implemented; third, long-term panel cointegration coefficients are analyzed with Dynamic Common Correlated Effects (DCCE) approach; and, finally, Dumitrescu and Hurlin’s (2012) Granger non-causality test is used to detect the causality.
Findings
The preliminary analyses show that the variables are cross-sectional dependent and heterogeneous and are stationary in their first difference; hence, the effects of the shocks are temporary. On the other hand, as a result of the panel cointegration analysis, it is found that both series are cointegrated over the long-term. However, the long-term coefficients estimated with the DCCE approach are found not to be statistically significant. Finally, as a result of the Dumitrescu and Hurlin’s (2012) Granger non-causality test, it is concluded that there is a causality running from exchange rate shocks to demand shocks.
Originality/value
To the best of the authors’ knowledge, the cointegration between the tourism demand shocks and exchange rates shocks has not been investigated before, and therefore, this study is considered to be a pioneering study that will contribute to the literature.
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This paper analyzes the impact of macroeconomic variables such as real exchange rate, exchange-rate volatility, and economic growth of the UK and Norway on Norway’s bilateral…
Abstract
This paper analyzes the impact of macroeconomic variables such as real exchange rate, exchange-rate volatility, and economic growth of the UK and Norway on Norway’s bilateral trade flow to the UK via maritime and other transport modes. The first two models considered trade volume (import and export) via only maritime transport, while the third and fourth models considered trade volume via modes other than maritime transport. The empirical validity of the Marshall-Lerner condition is tested to see whether a devaluation of the real exchange rate improves the trade balance in the long term. In addition to the long-term relationship among variables, short-term effects are also evaluated. The results show that the real income of Norway and its trading partner (the UK) is the main determinant of bilateral trade flow via maritime and other transport modes. Moreover, the results indicate that in the long run, the Marshall-Lerner condition is satisfied only for bilateral trade via modes other than maritime transport.
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Banna Banik and Chandan Kumar Roy
Exchange rate uncertainty leads to an indecisive environment for imports and exports that would condense international trade, foreign direct investment, trade earnings, trade…
Abstract
Purpose
Exchange rate uncertainty leads to an indecisive environment for imports and exports that would condense international trade, foreign direct investment, trade earnings, trade volumes, economic growth and welfare. This study aims to examine, empirically, the effect of exchange rate uncertainty on bilateral trade performance, focusing on eight SAARC member economies using the popular modified gravity model of trade.
Design/methodology/approach
The paper includes eight SAARC members – Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka panel data set over the period 2005–2018. The authors consider both standardized value (standard deviation) and conditional variance model to determine volatility of exchange rate. Primarily, ordinary least squares, random effects and fixed effects estimation techniques are employed to investigate the impact of exchange rate volatility. Endogeneity and robustness of the findings have been tested using the simultaneity-adjusted model and dynamic panel data two-step system GMM estimation techniques.
Findings
Empirical findings endorse the view that exchange rate volatility lowers trade flows in the SAARC regions. However, this adverse effect of exchange rate uncertainty on trade is pretty small. The negative correlation between exchange rate volatility and bilateral trade remains consistent and significant after controlling of simultaneous causality, autocorrelation, year effects, country-pair heterogeneity and endogeneity irrespective of panel data estimation techniques and different measures of volatility.
Originality/value
The present paper is original work.
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