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Article
Publication date: 31 May 2011

Jacques A. Schnabel

This paper seeks to argue that any competitive advantage realized by a firm that produces domestically and exports to a foreign market due to a real depreciation…

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Abstract

Purpose

This paper seeks to argue that any competitive advantage realized by a firm that produces domestically and exports to a foreign market due to a real depreciation (appreciation) of the domestic (foreign) currency is purely transitory and thus not sustainable. Diversification of manufacturing operations across a number of countries and appropriate production rescheduling in light of real exchange rate changes are required to transform the character of this competitive advantage from merely transitory to sustainable.

Design/methodology/approach

Analytic proof is provided of the dependence of an exporting firm's real profit margin on the real exchange rate. A simple contemporaneous and one‐period lagged model of the current account balance is then posited to argue that real exchange rates exhibit mean‐reversionary behavior.

Findings

The Marshall‐Lerner condition, which is a mainstay of balance‐of‐payments models is shown to imply that real exchange rates exhibit mean‐reversionary behavior. Extensive empirical evidence is cited that accords with this theoretical conclusion. Thus, any gain in competitive advantage due to a change in real exchange rates that accrues to a firm with a single manufacturing operation is merely transitory and not sustainable.

Practical implications

To position itself to achieve sustainable competitive advantage from changes in real exchange rates, a firm must maintain a global supply chain diversified across many countries. With the flexibility provided by such disparate plant locations, production schedules can be adjusted in response to real exchange rate changes, to wit, increased (reduced) manufacturing should be programmed in countries whose currencies have experienced real depreciations (appreciations). Owing to oscillating real exchange rates, these requisite production schedule adjustments are expected to be perpetual.

Originality/value

The algebraic formulation of the firm's inflation‐adjusted profit margin's dependency on the real exchange rate and the analytical proof that the Marshall‐Lerner condition implies mean‐reversionary behavior in real exchange rates are both novel. The implications with regard to competitive advantage are likewise original.

Details

Competitiveness Review: An International Business Journal, vol. 21 no. 3
Type: Research Article
ISSN: 1059-5422

Keywords

Article
Publication date: 27 June 2008

Yu Hsing

The purpose of this paper is to examine movements of the Singapore dollar exchange rate against the US dollar.

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Abstract

Purpose

The purpose of this paper is to examine movements of the Singapore dollar exchange rate against the US dollar.

Design/methodology/approach

An extended open macroeconomic model with the IS, LM, and AS functions and comparative static analysis are employed and applied. The Newey‐West method is employed to estimate consistent estimates for the standard error and covariance when the forms of both autocorrelation and heteroskedasticity are unknown.

Findings

The real exchange rate in Singapore is negatively associated with real M1, country risk, the real US treasury bill rate, and a binary variable for the period since the Asian financial crisis, and positively influenced by the real stock price, world output, and the amount of foreign exchange reserves. Real government deficit spending is statistically insignificant.

Research limitations/implications

Other exchange rate models may be considered and compared.

Practical implications

The Reserve Bank of Singapore may use the outcomes of this paper as a reference in monitoring exchange rate movements. Among others, changes in country risk, stock values, foreign exchange, the world interest rate, and world output are expected to influence the exchange rate.

Originality/value

Several important variables such as country risk, the Asian financial crisis, stock values, and the amount of foreign exchange are included to find their impacts on the exchange rate.

Details

International Journal of Development Issues, vol. 7 no. 1
Type: Research Article
ISSN: 1446-8956

Keywords

Open Access
Article
Publication date: 25 May 2022

Hock Tsen Wong

The study examines the impact of real exchange rates and asymmetric real exchange rates on real stock prices in Malaysia, the Philippines, Singapore, Korea, Japan, the…

Abstract

Purpose

The study examines the impact of real exchange rates and asymmetric real exchange rates on real stock prices in Malaysia, the Philippines, Singapore, Korea, Japan, the United Kingdom (UK), Germany, Hong Kong and Indonesia.

Design/methodology/approach

This study uses the asymmetric autoregressive distributed lag (ARDL) approach and non-linear autoregressive distributed lag (NARDL) approach.

Findings

The asymmetric ARDL approach shows more economic variables are found to be statistically significant than the ARDL approach. The asymmetric real exchange rate is mostly found to have a significant impact on the real stock price. Moreover, real output and real interest rates are found to have a significant impact on the real stock price. The Asian financial crisis (1997–1998) and the global financial crisis (2008–2009) are found to have a significant impact on the real stock price in some economies.

Research limitations/implications

Economic variables are important in the determination of stock prices.

Originality/value

It is important to examine the impact of asymmetric real exchange rate on the real stock price as the depreciation of real exchange rate could have different impacts than the appreciation of real exchange rate on the real stock price. The previous studies in the literature mostly found the significant impact of nominal exchange rate on the nominal stock price.

Details

Journal of Economics, Finance and Administrative Science, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2077-1886

Keywords

Book part
Publication date: 13 May 2019

Rosaria Rita Canale and Rajmund Mirdala

The role of money and monetary policy of the central bank in pursuing macroeconomic stability has significantly changed over the period since the end of World War II…

Abstract

The role of money and monetary policy of the central bank in pursuing macroeconomic stability has significantly changed over the period since the end of World War II. Globalization, liberalization, integration, and transition processes generally shaped the crucial milestones of the macroeconomic development and substantial features of economic policy and its framework in Europe. Policy-driven changes together with variety of exogenous shocks significantly affected the key features of macroeconomic environment on the European continent that fashioned the framework and design of monetary policies.

This chapter examines the key basis of the central bank’s monetary policy on its way to pursue and preserve the internal and external stability of the purchasing power of money. Substantial elements of the monetary policy like objectives and strategies are not only generally introduced but also critically discussed according to their accuracy, suitability, and reliability in the changing macroeconomic conditions. Brief overview of the Eurozone common monetary policy milestones and the past Eastern bloc countries’ experience with a variety of exchange rate regimes provides interesting empirical evidence on origins and implications of vital changes in the monetary policy conduction in Europe and the Eurozone.

Details

Fiscal and Monetary Policy in the Eurozone: Theoretical Concepts and Empirical Evidence
Type: Book
ISBN: 978-1-78743-793-7

Keywords

Book part
Publication date: 22 April 2015

Barbara Pistoresi and Alberto Rinaldi

Relying on a new dataset, this paper examines the genesis of current account fluctuations and the investment cycle in Italy. We perform a Granger causality test that shows…

Abstract

Relying on a new dataset, this paper examines the genesis of current account fluctuations and the investment cycle in Italy. We perform a Granger causality test that shows that the persistent current account deficits in the years from unification to World War I were generated by variations in capital inflows, as hypothesized by Fenoaltea, and not by the dynamics of GDP, as in the Bonelli–Cafagna model. Finally, we show that these capital inflows prompted an industrial investment cycle in equipment and machinery but not – as claimed by Fenoaltea (1988) – a general investment cycle which included also construction and more volatile components of investment. These patterns held under both fixed and floating exchange rate regimes.

Details

Research in Economic History
Type: Book
ISBN: 978-1-78441-782-6

Keywords

Book part
Publication date: 23 October 2017

Rajmund Mirdala and Júlia Ďurčová

Asynchronous current account trends between North and South of the Euro Area were accompanied by significant appreciations of real exchange rate originating in the strong…

Abstract

Asynchronous current account trends between North and South of the Euro Area were accompanied by significant appreciations of real exchange rate originating in the strong shifts in consumer prices and unit labor costs in the periphery economies relative to the core countries of the Euro Area. The issue is whether the real exchange rate is a significant driver of persisting current account imbalances in the Euro Area considering that, according to some authors, differences in domestic demand are more important than is often realized. In the paper we examine relative importance of real exchange rate and demand shocks according to the current account adjustments in the Euro Area member countries. Our results indicate that while the prices and costs related determinants of external competitiveness affected current account adjustments primarily during the pre-crisis period, demand drivers shaped current account balances mainly during the crisis period.

Details

Economic Imbalances and Institutional Changes to the Euro and the European Union
Type: Book
ISBN: 978-1-78714-510-8

Keywords

Abstract

Details

Nonlinear Time Series Analysis of Business Cycles
Type: Book
ISBN: 978-0-44451-838-5

Abstract

Details

Panel Data Econometrics Theoretical Contributions and Empirical Applications
Type: Book
ISBN: 978-1-84950-836-0

Book part
Publication date: 26 April 2014

Nikolaos Giannellis and Georgios P. Kouretas

The aim of this study is to examine whether China’s exchange rate follows an equilibrium process and consequently to answer the question of whether or not China’s…

Abstract

Purpose

The aim of this study is to examine whether China’s exchange rate follows an equilibrium process and consequently to answer the question of whether or not China’s international competitiveness fluctuates in consistency with equilibrium.

Design/methodology/approach

The theoretical background of the paper relies on the Purchasing Power Parity (PPP) hypothesis, while the econometric methodology is mainly based on a nonlinear two-regime Threshold Autoregressive (TAR) unit root test.

Findings

The main finding is that China’s price competitiveness was not constantly following a disequilibrium process. The two-regime threshold model shows that PPP equilibrium was confirmed in periods of relatively high – compared to the estimated threshold – rate of real yuan appreciation. Moreover, it is implied that the fixed exchange rate regime cannot ensure external balance since it can neither establish equilibrium in the foreign exchange market, nor confirm that China’s international competitiveness adjustment follows an equilibrium process.

Practical implications

The results do not imply that China acts as a currency manipulator. However, a main policy implication of the paper is that China should continue appreciating the yuan to establish external balance.

Originality/value

This paper is the first which accounts for a nonlinear two-regime process toward a threshold, which is defined to be the rate of change in China’s international competitiveness. Consequently, the paper draws attention to the role of China’s international competiveness in accepting the PPP hypothesis.

Details

Macroeconomic Analysis and International Finance
Type: Book
ISBN: 978-1-78350-756-6

Keywords

Article
Publication date: 26 November 2021

Mohini Gupta and Sakshi Varshney

The aim the study is to explore the impact of real exchange rate volatility and other macroeconomic variable such as price of import, industrial production and real

Abstract

Purpose

The aim the study is to explore the impact of real exchange rate volatility and other macroeconomic variable such as price of import, industrial production and real exchange rate on 45 import commodities, considering global financial crisis period on India's import from the US. The empirical analysis at disaggregate level of import indicates the existence of both short-run and long-run effect in one-third importing commodities. The results show both positive and negative effect and causality among variables.

Design/methodology/approach

The study uses E-GARCH model to gage the real exchange rate volatility, an autoregressive distributive lag (ARDL) bound test technique to discover the adequate short- and long-run relationships and Toda-Yamamoto causality method to analyze the causality among variables. The study uses the time period from 2002:M09 to 2019:M06.

Findings

The empirical analysis at disaggregate level of import indicates the existence of both short-run and long-run effect in one-third importing commodities. The results show both positive and negative effects and causality among variables.

Practical implications

The finding of the study suggests that macroeconomic variables have significant role and could be important to undertake the small and medium scale industries in policymaking. Government may need to make decision for micro, small and medium enterprises (MSMEs) as their performance can bring change in the trade to compete globally by increasing and controlling the price of the import and defending the domestic competitiveness.

Originality/value

The study uses additional variable namely price of import and includes the global financial crisis period to measure dampening effect on each commodity by using robust econometric technique in context of emerging nation like India.

Details

South Asian Journal of Business Studies, vol. ahead-of-print no. ahead-of-print
Type: Research Article
ISSN: 2398-628X

Keywords

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