Search results
1 – 10 of over 71000
– The purpose of this study is to analyze the relationship between country risk, stock prices and the exchange rate of the renminbi (RMB) compared to that of the US dollar.
Abstract
Purpose
The purpose of this study is to analyze the relationship between country risk, stock prices and the exchange rate of the renminbi (RMB) compared to that of the US dollar.
Design/methodology/approach
An extended open macroeconomic model with investment–saving, liquidity preference–money supply and aggregate supply functions was used by applying comparative static analysis. After checking the series for stationarity and cointegration, a vector autoregressive model was applied. Lag length was selected based on the Akaike information criterion, and the coefficients were calculated for the overall sample and for pre- and post-July 2005 periods.
Findings
The stock market index is a significant determinant of variation in the exchange rate: when the Chinese stock market performs well, the RMB appreciates and vice versa. Country risk is not a significant determinant of the exchange rate, but the exchange rate of the RMB is a highly significant determinant of the country risk of China: depreciation of the RMB results in higher country risk and vice versa.
Research limitations/implications
Linear interpolation was used to calculate the monthly values of some of the variables for which only annual data were available.
Practical implications
The authorities should revalue the exchange rate of the RMB against the US dollar, which will result in lower country risk for China. One way to achieve this is to strengthen the performance of stock markets.
Originality/value
To the best of the authors’ knowledge, this is the first study to explore the relationship between the country risk of China and the exchange rate of the RMB. Using an open macroeconomic model, this novel research analyzes the relationships between country risk, stock prices and the exchange rate of the RMB from a different perspective.
Details
Keywords
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…
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
Keywords
The purpose of this paper is to examine movements of the Singapore dollar exchange rate against the US dollar.
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
Keywords
Tantatape Brahmasrene and Jui‐Chi Huang
A plethora of studies suggests the pricing decisions depend on product substitutability, costs, market structures, and the magnitude of exchange rate uncertainty in the…
Abstract
A plethora of studies suggests the pricing decisions depend on product substitutability, costs, market structures, and the magnitude of exchange rate uncertainty in the international setting. Taking a departure from existing literature, this paper examines the average degree of exchange rate pass‐through to the prices of export product under low to high exchange rate volatility. A panel data estimation method is performed using the annual US export data to 69 export destinations across 111 four‐digit Standard Industrial Classification (SIC) industries. An average zero or insignificant pass‐through estimate for all industries in the high exchange‐rate‐fluctuation sub‐sample confirms the hypothesis. In this period of high exchange risk, the possible high hedging engagements disconnect the relationship between exchange rate movements and export pricing.
Details
Keywords
The purpose of this article is to analyse methods for determination of exchange rates in response to fundamental economic variables and changes in monetary policies.
Abstract
Purpose
The purpose of this article is to analyse methods for determination of exchange rates in response to fundamental economic variables and changes in monetary policies.
Design/methodology/approach
The paper undertakes empirical examination of exchange rate movements and their structural changes in response to changes in macroeconomic variables and monetary policies in the USA, the Euro area, and Japan.
Findings
Exchange rates have been influenced by macroeconomic fundamentals and have been impacted by the conduct of monetary policies in some cases. Some structural changes in exchange rates have coincided with implementation of drastic monetary policies but not in others. The Japanese quantitative easing policy has had an effect on exchange rates.
Originality/value
Monetary policy has been often examined; however, few studies have examined the response of exchange rate movements to monetary policies. Moreover, structural changes in exchange rates are examined in comparison with domestic monetary policies in the USA, the Euro Area, and Japan.
Details
Keywords
This study seeks to investigate the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies…
Abstract
Purpose
This study seeks to investigate the sensitivity of stock returns at the industry level to market, exchange rate and interest rate shocks in the four major European economies: France, Germany, Italy, and the UK.
Design/methodology/approach
The paper utilises the methodology of Campbell and Mei (1993) to decompose systematic risks into components attributable to news about future dividends (cash flows), real interest rates and excess returns.
Findings
In addition to significant market risk, the paper finds significant levels of exposure to exchange rate risk in industries in all four markets. Significant levels of interest rate risk are only identified in Germany and France. All three sources of risk contain significant information about future cash flows and excess returns.
Research limitations/implications
Future research could investigate the extent of exposure in other markets, or investigate whether the findings change at the firm level. Additionally it could be investigated whether recent asset pricing work such as Campbell and Vuolteenaho (2004) can be utilised to investigate this research problem.
Practical implications
The paper identifies which industry portfolios have significant exposures and decomposes these risks. This information is relevant for investors and portfolio managers, as well as financial management within the firm.
Originality/value
The paper utilises an alternative econometric methodology to investigate the extent of exposure to exchange rate and interest risks in industrial portfolios in four European markets.
Details
Keywords
Marc W. Simpson and Sanjay Ramchander
This paper shows that the University of Michigan’s ”Survey of Consumers“ can be useful in predicting the direction of change in five U.S. dollar exchange rates. The explanatory…
Abstract
This paper shows that the University of Michigan’s ”Survey of Consumers“ can be useful in predicting the direction of change in five U.S. dollar exchange rates. The explanatory power, however, is contingent on the particular survey question employed and the forecast horizon under consideration. The study finds that the survey question regarding car purchases does especially well in predicting the future direction of exchange rate movements. Furthermore, the results generally indicate that the survey is more useful when making distant (i.e., 12‐month ahead) currency forecast than for making near term (i.e., 3‐month and 6‐month ahead) predictions.
Details
Keywords
This article is concerned with the reconsideration of the proposition that monetary policy is more effective under flexible exchange rates than under fixed, in the light of the…
Abstract
This article is concerned with the reconsideration of the proposition that monetary policy is more effective under flexible exchange rates than under fixed, in the light of the low elasticities of imports and exports with respect to the exchange rate that may prevail in the short run. It is shown that when the framework put forward in this context is modified, recent results are not generally supportable.
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.
Details
Keywords
Masagus M. Ridhwan, Affandi Ismail and Peter Nijkamp
Empirical studies regarding the impact of the real exchange rate (RER) on economic growth are extensively available. However, the literature as a whole appears to report varying…
Abstract
Purpose
Empirical studies regarding the impact of the real exchange rate (RER) on economic growth are extensively available. However, the literature as a whole appears to report varying results, while the causes of such differences have not been analyzed systematically. The present study aims to fill the gap in the literature.
Design/methodology/approach
In this paper, the authors compile 543 empirical estimates from 51 studies of the exchange rate-growth nexus in order to meta-analyze its relationship. Meta-analysis allows the authors to quantitatively synthesize previous empirical studies and explain the variation in the results. This method also enables us to investigate the possibility of publication bias, as there is a tendency in research only to report results that are both statistically significant and show the expected signs.
Findings
After addressing publication bias and heterogeneity in the estimates, the meta-regression results show that RER depreciation (or undervaluation) genuinely favors economic growth. On average, RER depreciation has a greater impact on economic growth in developing countries than the developed ones. The study’s results imply that maintaining an undervalued RER could be favorable to spur economic growth, especially in developing countries.
Originality/value
Initially predominant in the medical literature, meta-analysis has been on a rising edge in economics. This progress has produced many systematic quantitative review analyses with continuously improved statistical-econometric practices related to economic variables. However, to the authors’ knowledge, no comprehensive meta-regression analysis of the relationship between exchange rate and economic growth has been conducted and published in any publicly accessible academic outlet. Therefore, this study aims to fill this gap in the literature.
Details