Asymmetric J-curve: evidence from UK-German commodity trade

Empirica - Previous studies that have investigated the J-curve phenomenon between the UK and its largest trading partner from the European Union (EU), Germany, used aggregate bilateral trade data...     

The impact of exchange rate volatility on commodity trade between the US and Thailand

The impact of exchange rate volatility on trade flows continues to occupy the international finance literature. More recent studies have deviated from the traditional approach of using aggregate trade flows and have employed trade data at commodity level. This study investigates the impact of exchange rate uncertainty on the trade flows of 118 US exporting industries to Thailand and 41 US importing industries from Thailand. We find that exchange rate uncertainty has short-run effects on the trade flows of most industries. In the long-run, the main determinants of the trade flows are the level of economic activity in both countries.     

More evidence on the asymmetric effects of exchange rate changes on the demand for money: evidence from Asian

We try to assess the impact of exchange rate changes on the demand for money in eight Asian countries. When we followed the previous literature and the standard linear Autoregressive Distributed Lag (ARDL) approach, we found exchange rate changes had no long-run significant effects in five out of the eight countries in our sample. However, when we applied the nonlinear ARDL approach and separated appreciations from depreciations, at least one of them or both had significant effects on the demand for money in India, Indonesia, Korea, the Philippines, and Singapore, supporting asymmetric effects of exchange rate changes. There was also evidence of short-run asymmetric effects.     

Impact of exchange rate volatility on commodity trade between US and Hong Kong

The impact of exchange rate uncertainty on trade flows is still the center of attention in international economics. A few studies that have looked at this effect in Hong Kong have used either aggregate data between Hong Kong and the rest of the world or between Hong Kong and several of her major trading partners. They have been unable to locate any significant effect. Suspecting that existing studies could suffer from aggregation bias, we concentrate on the trade between Hong Kong and the US and disaggregate their trade flows further by commodity. Out of 140 Hong Kong importing industries and 104 exporting industries considered, we find short-run effects in the majority of the industries. The short-run effects translated into the long run in 81 of Hong Kong import industries and 51 of her export industries, a finding that contradicts previous research.     

Exchange rate effects on Korea–U.S. bilateral trade: A new look

This study examines the effect of exchange rate fluctuations on Korea׳s trade with the U.S. by taking the roles of exchange rate volatility and third country effects into account. An autoregressive distributed lag (ARDL) approach to cointegration is applied to estimate bilateral exports and imports of disaggregating 10 industries between Korea and the U.S. We find that Korea׳s major export industries are highly responsive to the bilateral exchange rate, volatility and third country effects in both the long- and short-run, whereas Korea׳s imports are mostly insensitive to changes in those three factors. It is also found that income in both countries plays an important role in influencing the bilateral trade flows in both the long- and short-run.     

New evidence for exchange rate pass-through: Disaggregated trade data from local ports

For the estimation of exchange rate pass-through (henceforth ERPT), except for some evidence based on firm-level data, even the most disaggregated level of national export data is still biased with aggregation over sub-regions within an exporting country. We investigate to what extent this aggregation within product category is biased by comparing ERPT estimates across local ports. We use monthly exports at the HS 9-digit level from January 1988 to December 2005 for five major Japanese ports. Using a panel data regression framework, we control for exporting industry and importing country. Statistical tests provide strong evidence that export prices are set at different levels across local ports and that they correspond differently with respect to fluctuations of exchange rates.     

Asymmetric effects of exchange rate changes on the demand for money in Africa

In order to account for currency substitution, the exchange rate is included in the demand for money. More recent studies have demonstrated that exchange rate changes could have asymmetric effects on the demand for money or domestic currency. In this paper, we consider the experiences of 18 African countries and show that in most countries, indeed exchange rate changes have short-run asymmetric effects on the demand for money. However, short-run effects translate to long-run asymmetric effects only in a limited number of African countries.     

Asymmetric effects of exchange rate changes on the demand for money in China

In order to account for currency substitution, the majority of recent studies relating to the specification of the demand for money include the exchange rate as another determinant of the demand for money. However, those who have estimated the demand for money in China have been unable to find any significant effects of exchange rate changes on the demand for money by the Chinese. We show that this is due to the assumption that exchange rate changes have symmetric effects. Once depreciations are separated from appreciations of the yuan, those exchange rate changes are shown to have significant effects on the demand for money in China, but in an asymmetric manner.     

Exchange rate uncertainty and US bilateral fresh fruit and fresh vegetable trade: an application of the gravity model

In order to analyse the effect of exchange rate uncertainty, we apply an empirical gravity equation to two sets of US bilateral trade data: fresh fruit over the period 1976–1999 for a panel of 26 countries; and fresh vegetables over the period 1976–2006 for a panel of nine countries. Based on panel estimation methods, and using both a moving SD measure and the Perée and Steinherr (1989) measure of exchange rate uncertainty, the results show that US bilateral fresh fruit trade has been negatively affected by exchange rate uncertainty. We also find some evidence that the exchange rate between the US dollar and the currencies of Latin American trading partners accounts for most of the negative impact of exchange rate uncertainty on bilateral trade flows in fresh fruit. In contrast, when using panel estimation methods and both measures of exchange rate uncertainty, we find no statistically significant evidence for any negative effect of exchange rate uncertainty on US bilateral fresh vegetable trade. However, we do find a statistically significant negative effect for exchange rate uncertainty when we estimate a US export gravity equation for fresh vegetables using the same panel of countries.     

The J-curve: evidence from commodity trade between US and China

In testing the short-run (J-curve effect) and the long-run effects of currency depreciation on the trade balance many researchers have used either trade data between one country and the rest of the world or between one country and another trading partner. Both groups are said to suffer from aggregation bias. To reduce the bias, in this article we consider trade data between one country (the US) and her trading partner (China) disaggregated by commodity. We use imports and exports of 88 industries (2-digit and 3-digit classifications) and cointegration analysis to show that the trade balance of at least 34 of the industries react favourably to real depreciation of the dollar. The J-curve effect is detected in 22 industries. Furthermore, most of these industries that are sensitive to currency depreciation are durable commodity groupings.     

The J-curve: evidence from commodity trade between UK and China

China is often accused of manipulating its currency to gain international competitiveness. Previous studies have tried to address this issue by investigating the impact of yuan depreciation on China’s trade balance. Not only have they failed to establish the link between the Chinese exchange rate and its trade balance with the rest of the world but also between China and her major trading partners. In this article, we consider the China–UK trade balance and disaggregate their trade flows by commodity. Out of the 47 industries considered, we show that the real depreciation has favourable short-run effects in most industries. However, the short-run effects last into the long run only in seven cases.     

Capital-enhanced equilibrium exchange rate: evidence from India

This article examines the validity of the capital-enhanced equilibrium exchange rate (CHEER) approach using quarterly data ranging from 1993Q1 to 2016Q2. Using unit root break test and structural break cointegration technique, our overall results indicated that the CHEER is invalidated once a structural break is accounted for in the cointegration relationship. The rejection of the validity could be attributed to the asymmetry in the capital flows and exchange rates being not fully flexible.     

The effects of exchange rate volatility on exports: evidence from Armenia

The article examines how the volatility of exchange rate affected Armenia’s export to its main trading partner, Russia, in the period from January 2007 to February 2016. Along with real foreign income and competitiveness, the exchange rate volatility is considered as a determinant of real export. The estimation results indicate that the exchange rate volatility has negative significant effects on real export both in the long run and in the short run.     

Real exchange rate volatility,financial crises and exchange rate regimes

This article examines real exchange rate (RER) volatility in 80 countries around the world, during the period 1970 to 2011. Two main questions are raised: are structural breaks in RER volatility related to changes in exchange rate regimes or financial crises? And do these two events affect the permanent and transitory components of RER volatility? To answer these, we employ two complementary procedures that consist in detecting structural breaks in the RER series and decomposing volatility into its permanent and transitory components. Our results suggest that structural breaks in RER volatility coincidence with financial crises and certain changes in nominal exchange rate regimes. Moreover, our findings confirm that RER volatility does increase with the global financial crises and detect that the more flexible the exchange rate regime, the higher the volatility of the RER using a de facto exchange rate classification.     

Asymmetric impacts of insurance premiums on the non-oil GDP: some new empirical evidence

ABSTRACT

In this paper, we study the influence of insurance premium on the non-oil gross domestic product in Saudi Arabia. We implement the nonlinear autoregressive distributed lags. The results show that the relationships between insurance premiums and non-oil gross domestic product manifest a nonlinear behaviour. In other words, insurance premiums via positive and negative shocks lead to an increase of growth in the non-oil sector in the long term, whereas the lagged level shocks negatively affect the non-oil GDP in the short run. In addition, the examination of the multiplier effect suggests that positive cumulative changes in insurance premiums and inflation can effect much larger changes in non-oil GDP, while shocks in government spending have a symmetric effect on non-oil GDP growth.     

Exchange rate volatility and US commodity trade with the rest of the world

Exchange rate volatility is argued to affect the trade flows negatively and positively. Indeed, empirical studies that have addressed the issue have supported both effects. These studies have used aggregate trade flows data either between one country and the rest of the world or between two countries at the bilateral level. Studies that have disaggregated trade data by industry are rare. Thus, we extend the literature by looking at the experiences of 66 American industries that trade with the rest of the world using monthly data. In most cases, trade flows are not affected by GARCH‐based volatility of the real effective exchange rate of the dollar.     

The role of savings rate in exchange rate and trade imbalance nexus: Cross-countries evidence

Will a higher savings rate improve a country's trade imbalance? Using data for 76 countries for the period 1975–2010, we examine the relationship between trade balance, savings rate, and real exchange rate. To address the potential non-linear effects of the savings rate, we use the panel smooth transition regression (PSTR) model with instrumental variables. Our results indicate that countries with a savings rate above the threshold of 14.8% can improve their trade balance by increasing the savings rate or depreciating their currency. Even though the sample is divided into two groups on the basis of income level, the empirical results vary little, suggesting that our findings are robust to the data separation.     

The interaction between capital controls and exchange rate regimes: evidence from developing countries

Abstract

This paper provides an empirical analysis of the interaction between capital controls and exchange rate policies in developing countries in the 1980s and 1990s. We estimate a simultaneous-equations panel mixed logit model for the joint determination of two decisions. We find strong influences from de jure exchange rate regimes on capital account policies but somewhat weaker feedback impacts. With de facto exchange rate regimes the influences in both directions are similar to each other.     

Asymmetric J-curve: evidence from industry trade between U.S. and U.K.

ABSTRACT

Previous research that assessed the impact of exchange rate changes on the trade balance between the U.S. and U.K. assumed the effects are symmetric. In this paper, we add to the literature on the asymmetric J-curve phenomenon by considering the trade balance of 68 two-digit industries that trade between the two countries. We find short-run asymmetric effects of the real dollar-pound rate in almost all industries. However, short-run asymmetric effects were translated into significant long-run asymmetric effects in 25 industries. Indeed, the asymmetric J-curve hypothesis was supported in 18 industries.     

Dynamic linkages between Asian stock prices and exchange rates: new evidence from causality in quantiles

This article applies the Granger causality test in quantiles to investigate causal relations between stock returns and exchange rate changes for nine Asian markets over the period 1 January 1997 to 16 August 2010. Our empirical results indicate that the quantile causal relations vary across different quantiles and different periods. Although the causal effects of exchange rate changes on stock returns (or stock returns on exchange rate changes) are heterogeneous across quantiles, the overall evidence suggests that most stock and foreign exchange markets are negatively correlated. The result shows that there are more bidirectional causal relations in accordance with this method than the conventional least square (LS) estimation. The symmetry of these quantile causal effects (the ‘averaging effect’) helps to explain why conventional LS method usually obtains an insignificant result of causality.