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1 – 10 of 573Sami 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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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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Izabela Pruchnicka-Grabias, Iwona Piekunko-Mantiuk and Scott W. Hegerty
The Polish economy has undergone major challenges and changes over the past few decades. The country's trade flows, in particular, have become more firmly tied to the country’s…
Abstract
Purpose
The Polish economy has undergone major challenges and changes over the past few decades. The country's trade flows, in particular, have become more firmly tied to the country’s Western neighbors as they have grown in volume. This study examines Poland's trade balances in ten Standard International Trade Classification (SITC) sectors versus the United States of America, first testing for and isolating structural breaks in each time series. These breaks are then included in a set of the cointegration models to examine their macroeconomic determinants.
Design/methodology/approach
Linear and nonlinear and nonlinear autoregressive distributed lag models, both with and without dummies corresponding to structural breaks, are estimated.
Findings
One key finding is that incorporating these breaks reduces the significance of the real exchange rate in the model, supporting the hypothesis that this variable already incorporates important information. It also results in weaker evidence for cointegration of all variables in certain sectors.
Research limitations/implications
This study looks only at one pair of countries, without any third-country effects.
Originality/value
An important country pair's trade relations is examined; in addition, the real exchange rate is shown to incorporate economic information that results in structural changes in the economy. The paper extends the existing literature by conducting an analysis of Poland's trade balances with the USA, which have not been studied in such a context so far. A strong point is a broad methodology that lets compare the results the authors obtained with different kinds of models, both linear and nonlinear ones, with and without structural breaks.
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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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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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Christina Anderl and Guglielmo Maria Caporale
This paper aims to explain real exchange rate fluctuations by means of a model including both standard fundamentals and two alternative measures of inflation expectations for five…
Abstract
Purpose
This paper aims to explain real exchange rate fluctuations by means of a model including both standard fundamentals and two alternative measures of inflation expectations for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) over the period January 1993–July 2019.
Design/methodology/approach
Both a benchmark linear autoregressive distributed lag (ARDL) model and a nonlinear autoregressive distributed lag (NARDL) specification are considered.
Findings
The results suggest that the nonlinear framework is more appropriate to capture the behaviour of real exchange rates given the presence of asymmetries both in the long and short run. In particular, the speed of adjustment towards the purchasing power parity (PPP) implied long-run equilibrium is three times faster in a nonlinear framework, which provides much stronger evidence in support of PPP. Moreover, inflation expectations play an important role, with survey-based ones having a more sizable effect than market-based ones.
Originality/value
The focus on linearities and the estimation of a NARDL model, which is shown to outperform the linear ARDL model both within sample and out of sample, is an important contribution to the existing literature which has rarely applied this type of framework; the choice of an appropriate econometric method also makes the policy implications of the analysis more reliable; in particular, monetary authorities should aim to achieve a high degree of credibility to manage them and thus currency fluctuations effectively; the inflation targeting framework might be especially appropriate for this purpose.
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Guogang Wang and Nan Lin
The development of China's foreign exchange market and the reform of Chinese yuan (hereinafter “CNY”) exchange rate are closely linked with each other. Their respective journey…
Abstract
Purpose
The development of China's foreign exchange market and the reform of Chinese yuan (hereinafter “CNY”) exchange rate are closely linked with each other. Their respective journey through the past 70 years can both be divided into three historical periods; as follows: China's foreign exchange market underwent a difficult exploration period, a formation and development period and an innovative development period; in the meanwhile, the formation mechanism of CNY exchange rate also witnessed three periods marked successively by a single exchange rate system with administrative pricing, an explorative formation mechanism of CNY exchange rate and a reformed, marketized CNY exchange rate mechanism.
Design/methodology/approach
In the present world, the development of almost every country is closely linked to the international community, which is the result of the heterogeneity in system, market, humanity and history, in addition to the differences in natural resource endowments and the diversity in technology, administration, information, experience and diplomacy. International economic exchanges require foreign exchange, which gives rise to the existence and development of the foreign exchange market.
Findings
The 70-year history of China's foreign exchange market has proven the need to continue safeguarding national sovereignty and interests of the people, stick to the general direction of serving economic development, adhere to the strategy of steadily and orderly promoting the construction of the foreign exchange market, keep on making innovation in monetary policy operation and unbendingly stay away from any systemic financial risks.
Originality/value
During the 70-year history of the new China, as an indispensable economic resource in China's economic development, the foreign exchange mechanism bolstered each stage of economic development and was always an important manifestation of China's economic sovereignty. It is argued that during the 30-year planned economy that preceded reform and opening-up, China pursued a closed-door policy with few international economic exchanges. The subtext of such argument is that China did not have (or hardly had much of) a foreign exchange mechanism during this period, which is clearly in conflict with historical evidence. In fact, although China did not have an open foreign exchange market before the reform and opening-up, it had a clear foreign exchange management system and exchange rate system.
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Omneia Helmy, Mona Fayed and Kholoud Hussien
The theoretical and empirical literature stipulated that exchange rate shocks do influence the domestic price of imports. Hence, this paper aims to investigate the underlying…
Abstract
Purpose
The theoretical and empirical literature stipulated that exchange rate shocks do influence the domestic price of imports. Hence, this paper aims to investigate the underlying relationship between the exchange rate and prices known as the exchange rate pass-through.
Design/methodology/approach
The paper uses a structural vector auto-regression (SVAR) model, drawing on Bernanke (1986) and Sims (1986), to empirically examine and analyze the pass-through of exchange rate fluctuations to domestic prices in Egypt.
Findings
The empirical results of the monthly data between 2003 and 2015 revealed that the exchange rate pass-through in Egypt is fairly substantial but incomplete and slow in the three price indices [IMP, producer price index and consumer price index (CPI)]. However, the impact is more prominent for consumer prices than for any other price index. This finding could be attributed to the fact that the CPI in Egypt is composed of a relatively large number of subsidized commodities and goods with administered prices as well as the authorities’ behavior in manipulating prices (i.e. export ban). This is expected to weaken the transmission of exchange rate shocks.
Practical implications
The result has interesting implications for Egypt’s ability to attain an effective inflation targeting regime.
Originality/value
The study contributes to the literature by assessing the effect of changes in the exchange rate (the Egyptian £ vis-à-vis the US$) on prices using an updated time series from 2003 to 2015. It addresses the limitations of the study of Nafie et al. (2004), which found no strong relationship between the exchange rate and inflation rate in the Egyptian context. One of these limitations was using the CPI, as the only price index.
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Pham Dinh Long, Bui Quang Hien and Pham Thi Bich Ngoc
The paper aims to shed light on the effects of inflation on gold price and exchange rate in Vietnam by using time-varying cointegration.
Abstract
Purpose
The paper aims to shed light on the effects of inflation on gold price and exchange rate in Vietnam by using time-varying cointegration.
Design/methodology/approach
Using cointegration techniques with fixed coefficient and time-varying coefficient, the study exams the impacts of inflation in models and compares the results through coefficient estimates.
Findings
A significant inflation impacts are found with the time-varying cointegration but not with the fixed coefficient cointegration models. Moreover, monetary policy affects exchange rate not only directly via its instruments as money supply and interest rate but indirectly via inflation. Also, interest rate is one of the determinants of gold price.
Originality/value
To the best of our knowledge, this paper is the first to use time-varying cointegration to analyze the impact of inflation on the gold price and exchange rate in Vietnam. Gold price and exchange rate fluctuations are always the essential and striking issues, which have been emphasized by economists and policymakers. In macroeconometric researches, cointegration models are often used to analyze the long-term relations between variables. Attentionally, applied models show a limitation when estimating coefficients are fixed. This characteristic might not really match with the data properties and the variation of the economy. Currently, time-varying cointegration models are emerging method to solve the above issue.
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The purpose of this paper is to evaluate and analyze impacts of the monetary policy (MP) – money aggregate and interest rate – on the exchange rate in Vietnam.
Abstract
Purpose
The purpose of this paper is to evaluate and analyze impacts of the monetary policy (MP) – money aggregate and interest rate – on the exchange rate in Vietnam.
Design/methodology/approach
The study uses data over the period of 2008–2018 and applies the vector autoregression model, namely recursive restriction and sign restriction approaches.
Findings
The main empirical findings are as follows: a contraction of the money aggregate significantly leads to the real effective exchange rate (REER) depreciating and then appreciating; a tightening of the interest rate immediately causes the REER appreciating and then depreciating; and both the money aggregate and the interest rate strongly determine fluctuations of the REER.
Originality/value
The quantitative results imply that the MP affects the REER considerably.
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