Exchange rate volatility–economic growth nexus in Uganda

The global financial crisis has disrupted trade and capital flows in most developing economies, resulting in an increased volatility of exchange rates. We develop an autoregressive distributed lag model to investigate the effect of exchange rate volatility on economic growth in Uganda. Using data spanning the period 1960–2011, we find that exchange rate volatility positively affects economic growth in Uganda in both the short run and the long run. However, in the short run, political instability negatively moderates the exchange rate volatility–economic growth nexus. These results are robust to alternative specifications of the economic growth model.     

Does exchange-rate uncertainty matter in the Malaysia–E.U. bilateral trade? An industry level investigation

Due to ambiguity in the past literature, researchers have examined exchange rate volatility effect on trade using disaggregated data in recent years. Previous research has focused more on aggregated data having aggregation bias which has led to unnecessarily over-generalized findings. This study investigates the impact of exchange rate volatility on the Malaysian bilateral trade flows with European Union using industry level data. Our empirical findings, based on auto-regressive distributed lag framework, suggest that many import and export industries experience exchange rate volatility influence in the short run, while a very small number of industries show this effect in the long run. Moreover, the adverse impact of financial crisis (2007–2008) is more prevalent on import industries compared to export industries.     

Trade and Investment Linkages and Stock Market Long‐Run Relationship

This paper aims to examine whether the intensity of trade and investment linkages among the countries matter for their stock market long‐run relationship. To achieve this, we classify Australia's bilateral trade and investment partners into major, medium and minor. Empirical findings of an asymmetric generalised dynamic conditional correlation generalised autoregressive conditional heteroskedasticity model show that correlations are time varying and increased significantly during the global financial crisis (GFC). Results of multivariate cointegration test confirm the long‐run equilibrium relationship between the stock markets of Australia and its major partners in the pre‐GFC and during GFC. Based on the full‐sample results, it indicates that the GFC has segmented the stock markets from the long‐run equilibrium relationship. Granger non‐causality test results on full sample show that Australian stock market causes only the New Zealand market while the USA, the UK, Germany, Canada, Switzerland and Italy drives the Australian market. Our results therefore suggest that the intensity of bilateral trade and investment linkages among the countries matter for their stock markets' long‐term relationship.     

The real peso–dollar rate and US–Mexico industry trade: an asymmetric analysis

In an attempt to improve upon previous analyses and find further evidence for exchange rate theories such as the ‘J‐curve', numerous studies have introduced novel econometric approaches that might help uncover significant results through disaggregation and nonlinearity. This study applies the nonlinear cointegration method of Shin et al . ( 2014 ) to US–Mexican trade balances in 91 individual industries. While the linear model yields support for the ‘J‐curve' effect in 16 industries, the nonlinear model raises this number to 29 which includes the two largest industries that engage in 35% of the trade between two countries. Furthermore, while the short‐run asymmetric effects of exchange rate changes were discovered in almost all industries, short‐run effects translated to significant long‐run asymmetric effects in 52 industries.     

Evidence for Financial Contagion in Endogenous Volatile Periods

The objective of this study is to analyze cross‐border contagious dynamics in both foreign exchange markets and stock exchange markets. Propagation is analyzed with respect to the transmission of excessive volatility that is endogenously determined. The contagion process is discussed in the context of financial systems, foreign direct investments and trade. Implementing a vector autoregressive‐multivariate generalized autoregressive conditional heteroskedasticity (VAR‐MGARCH) model, we show that country‐specific turbulence in financial markets is able to create unanticipated financial contagion across countries. Diversified trade and financial relations decrease the risk of exposure to contagion from external markets. The world's largest economies, however, play a price‐setter role, and diversification is of secondary importance. Asymmetric transmission of the empirically predicted contagion prevails in the latter case.     

The Threshold Effect of Exchange Rate Volatility on Trade Volume: Evidence from G-7 Countries

Abstract

This paper uses a threshold model to examine a possible threshold effect in the impact of exchange rate volatility on trade volume for the bilateral trade volumes between the US and other G-7 countries. A grid-searching method is used to obtain the threshold points, and time-series econometric techniques are applied to estimate the long run stable relationships as well as short-run dynamics. The results support the existence of nonlinearity in the effect of exchange rate volatility, and indicate that trade volume tends to increase when exchange rate volatility surpasses a certain threshold point.     

Exchange rate volatility and export growth in Nigeria

This article examines the impact of exchange rate volatility on Nigeria's exports to its most important trading-partner–the United States over the quarterly period January 1980 to April 2001. Using cointegration and vector error correction (VECM) framework, empirical tests indicate the presence of a unique cointegrating vector linking real exports, real foreign income, relative export prices and real exchange rate volatility in the long run. Furthermore, the results show that increases in the volatility of the real exchange rate raise uncertainty about profits to be made which exert significant negative effects on exports both in the short- and long-run. Our results also show that improvements in the terms of trade (represented by declines in the real exchange rate) and real foreign income exert positive effects on export activity. Most importantly, we found that the trade liberalization and economic reform policies implemented in the post-1986 structural adjustment period contributed to Nigeria's export performance. Overall, our findings suggest that Nigeria's exporting activities can be further boosted by policies aimed at achieving and maintaining a stable competitive real exchange rate.     

A nonlinear approach to the U.S.–Australia commodity trade and the J‐curve: Evidence from 123 industries

The application of nonlinear models and asymmetric analysis have recently proven to yield results that are superior to those of the linear and symmetric analysis. However, the new approaches in testing the J‐curve between Australia and the rest of the world or between Australia and her trading partners such as the United States did not yield any significant outcomes. Suspecting that those results suffer from aggregation bias, we apply new methods to the trade flows of 123 industries that trade between the United States and Australia and give evidence of an asymmetric J‐curve in 28 industries. Furthermore, we find short‐run asymmetric effects of exchange rate changes on the trade balance of almost all studies, short‐run impact asymmetric effects in 27 industries and significant long‐run asymmetric effects in 56 industries. Our findings are industry‐specific.     

Asymmetric Effects of Exchange Rate Changes and the J‐curve: New Evidence from 61 Malaysia–Thailand Industries

Research on the impact of currency depreciation on the trade balance is now moving in a new direction by incorporating nonlinear dynamic adjustment of the exchange rate and by using a nonlinear approach to error‐correction modeling and cointegration. Using these advances, researchers find not only more evidence of the J‐curve effect, but also new evidence of asymmetric effects of exchange rate changes on the trade balance. We contribute to this line of research by using monthly trade flow data from 61 two‐digit industries that trade between Malaysia and Thailand, and show that not only does currency depreciation have favorable effects on the trade balance of more industries, but the long‐run effects are asymmetric in 26 out of 61 cases. In line with current literature, our nonlinear model performs much better than the linear model when industry level data are used.     

An investigation of the effects of exchange rate volatility on exports in East Asia

This study investigates the effects of the exchange rate volatility on the export flows of Indonesia, Malaysia, Republic of Korea, Singapore, Thailand, and the Philippines during 1974–2011. Towards this goal a trade weighted real effective (rather than the bilateral) exchange rate and three different measures of volatility, i.e. obtained from an ARCH model, a GARCH model and a moving-average standard deviation measure are used in this study. Specifically, the export flows between six Asian countries and the rest of the world are investigated rather than focusing on trade with only one country. Our findings reveal that the exchange rate volatility has a significant impact on export flows in the short run as well as in the long run for all the countries in the sample. The impact in the long run is predominantly negative with the exception of Singapore, but in the short run the impact varies across countries. Moreover, our results are robust to the alternative measures of volatility used and most of the findings in the long run and short run are also robust to the crisis period.     

Real and Financial Integration in East Asia

This paper examines the real and financial integration of East Asian economies, by comparing the degree of real vs financial and global vs regional integration, before vs after the Asian crisis. First, price and quantity measures such as the size of intra‐ and inter‐regional trade, cross‐border financial assets, stock return correlation, and interest rate differentials are investigated. Second, the structural panel vector autoregression (VAR) model is constructed to analyze macroeconomic consequences of real and financial integration such as cross‐country output and consumption relation. The results suggest that (i) the degree of real integration significantly increased after the crisis, both regionally and globally; (iii) quantity and price measures showed an increased financial integration after the crisis, but the consumption relation did not; (iv) the degree of regional financial integration is smaller than that of global financial integration, based on the consumption relation; and (v) financial integration lags real integration, especially for regional integration.     

THE DYNAMIC RELATION BETWEEN RETURNS,TRADING VOLUME,AND VOLATILITY: LESSONS FROM SPILLOVERS BETWEEN ASIA AND THE UNITED STATES

This paper investigates the dynamic relationship between index returns, return volatility, and trading volume for eight Asian markets and the US. We find cross‐border spillovers in returns to be non‐existent, spillovers in absolute returns between Asia and the US to be strong in both directions, and spillovers in volatility to run from Asia to the US. Trading volume, especially on the Asian markets, depends on shocks in domestic and foreign returns as well as on volatility, especially those shocks originating in the US. However, only weak evidence is found for trading volume influencing other variables. In the light of the theoretical models, these results suggest sequential information arrivals, with investors being overconfident and applying positive feedback strategy. Furthermore, new information causes price volatility to rise due to differences in its interpretation among traders, but the subsequent market reaction takes the form of adjustment in price level, not volatility. Lastly, the intensity of cross‐border spillovers seems to have increased following the 1997 crisis, which we interpret as evidence of increased noisiness in prices and diversity in opinions about news originating abroad. Our findings might also help to understand the nature of financial crises, to predict their further developments and consequences.     

基于自回归移动平均模型的国际金融危机对四川经济的影响分析研究

2008年发生的美国次贷危机引发的全球金融危机给世界各国的经济特别是金融行业带来了强烈的冲击.金融危机主要通过投资渠道、贸易渠道、汇率渠道以及预期渠道直接或间接影响四川经济.为估算这种影响,文章基于自回归移动平均模型(ARIMA)的特殊性,选取了2000～2008年的样本数据,运用时间序列建模技术,从直接影响和间接影响两个维度7项指标所描述的经济发展指标上,详尽分析研究了国际金融危机对四川经济的影响.文章克服了实际工作部门在测算该种影响时,不考虑经济序列长期发展趋势的不足,并就其对我国经济和四川经济发展的影响作了探讨,在此基础上,提出四川省市应对经济危机的措施,以供相关部门决策时参考.     

Exchange rate volatility and capital inflows: role of financial development

There is vast literature examining the impact of exchange rate volatility on various macroeconomic aggregates such as economic growth, trade flows, domestic investment, and more recently capital flows. However, these studies have ignored the role of financial development while examining the impact of exchange rate volatility on capital flows. This study aims to analyze the impact of exchange rate volatility on capital inflows towards developing countries by incorporating the role of financial development over the time period 1980–2013. In this regard, the behavior of two types of capital flows is examined: physical capital inflows measured as foreign direct investment, and financial inflows quantified through remittance inflows. The empirical investigation comprises the direct as well as indirect effect of exchange rate volatility on capital inflows. The study employs dynamic system GMM estimation technique to empirically estimate the effect of exchange rate volatility on capital inflows. The empirical results of the study identify that exchange rate volatility dampens both physical and financial inflows towards developing countries. The indirect impact of exchange rate volatility through financial development, however, turns out positive and statistically significant. This finding reflects that financial development helps in reducing the harmful impact of exchange rate volatility on capital inflows. Hence, the study concludes that a developed financial system is an important channel through which developing countries may improve capital inflows in the long run.     

Financial Integration Among the ASEAN 5 ＋ 3 Stock Markets： A Preliminary Look at the First 10 Years of the New Millenium

The purpose of this study is to investigate the financial integration of the stock markets of the ASEAN 5 ＋ 3 countries. These countries include Indonesia, Malaysia, Philippines, Singapore, Thailand, China, Japan, and South Korea. The research determined the stock return volatility for each country＇s index during the first decade of the new millennium. The findings showed that there is the presence of integration and co-integration with Philippine index＇s return with the index＇s returns of the following countries： Indonesia, Singapore, and Thailand. Furthermore, there is evidence of volatility clustering in these stock markets. The study concluded with the policy implications of greater integration in light of the planned cross trading among four ASEAN bourses, namely, Philippines, Singapore, Thailand, and Malaysia by 2012.     

IMPACT OF EXCHANGE RATE UNCERTAINTY ON COMMODITY TRADE BETWEEN THE US AND AUSTRALIA*

Exchange rate volatility is said to have negative or positive effect on trade flows. Previous studies that considered the impact of exchange rate uncertainty on the trade flows of Australia employed trade data either between Australia and rest of the world or between Australia and her few major trading partners. They were unable to discover any significant impact. In this paper when we disaggregate trade data by commodity between Australia and one of her major trading partners, the US, we find exchange rate volatility to have short‐run effects on trade flows of most industries. However, the short‐run effects last into long run, only in limited cases, though more in export commodities than import ones.     

On the asymmetric effects of exchange-rate volatility on trade flows: Evidence from US–UK Commodity Trade

We consider the response of each of the 67 industries that trade between the United States and United Kingdom to the volatility of the real dollar–pound exchange rate. When we follow previous research and estimate a linear ARDL model for each industry, we find short-run effects of volatility in 22 US exporting industries to the United Kingdom that last into the long run only in nine industries. As for the UK exports to the United States, we find short-run effects in 18 industries that last into the long run in 15 industries. However, when we estimate a nonlinear model for each industry, we find short-run effects of volatility on 41 US exporting industries and on 43 UK exporting industries, all in an asymmetric manner. Short-run asymmetric effects lasted into long-run asymmetric effects in 24 US exporting industries to the United Kingdom and in 33 UK exporting industries to the United States. While total trade shares of industries from the linear models were negligible, those of the industries from the nonlinear models were significant in size, in the tune of one-third of the trade.     

Information Transmission between Mature and Emerging Equity Markets During Normal and Crisis Periods: An Empirical Examination

In this paper, we examine the price discovery and volatility spillovers between eight mature market economies (MMEs) and eight emerging market economies (EMEs) from January 2003 to July 2014, covering three sub-periods—prior to the 2007–09 global financial crisis (GFC), during the crisis, and post-crisis. The results of price discovery indicate that MMEs lead EMEs in the pre-crisis and post-crisis periods. All MMEs are cointegrated with China in the pre-crisis period but not in the post-crisis period. Dynamic cointegration results reconfirm our findings from Johansen’s co-integration test. The asymmetric dynamic conditional correlation (ADCC-GARCH) coefficients suggest a regional pattern among MMEs and EMEs, except in the case of European MMEs with South Africa. Employing BEKK-GARCH model, we find that volatility spillovers of MMEs with China and of Italy with EMEs weakened in the post-crisis period as compared to the pre-crisis period implying that the GFC damaged the information transmission process, particularly for China and Italy. While China is a large economy with strong trade linkages with the rest of the world, Italy is one of the larger European economies which was in relatively greater distress during the EDC. The findings have implications for policy makers and investors.

     

Crisis and recovery: Role of the exchange rate regime in emerging market economies

Following the recent global financial crisis, questions about the mechanisms that can help countries cope with large shocks have resurfaced. This paper examines the role of the exchange rate regime in explaining how emerging market economies fared in the recent global financial crisis, particularly in terms of output losses and output rebound. After controlling for regime switches during the crisis, using alternative definitions for pegs, and taking account of other likely determinants, we find that the growth performance for pegs was not different from that of floats during the crisis. The picture is different for the recovery period 2010–2011, as pegs appear to be faring worse, with growth recovering more slowly than floats. These results suggest an asymmetric effect of the regime during and recovering from the crisis. We also find that proxies of the trade and financial channels are important determinants of growth performance during the crisis, while only the trade channel appears important for the recovery thus far.     

AGGREGATION,HETEROGENEOUS AUTOREGRESSION AND VOLATILITY OF DAILY INTERNATIONAL TOURIST ARRIVALS AND EXCHANGE RATES*

Tourism is a major source of service receipts for many countries, including Taiwan. The two leading tourism countries for Taiwan are Japan and the USA, which are sources of short‐ and long‐haul tourism, respectively. As a strong domestic currency can have adverse effects on international tourist arrivals through the price effect, daily data from 1 January 1990 to 31 December 2008 are used to model the world price, exchange rates, and tourist arrivals from the world, the USA and Japan to Taiwan, and their associated volatility. Inclusion of the exchange rate and its volatility captures approximate daily and weekly price and price volatility effects on world, US and Japanese tourist arrivals to Taiwan. The heterogeneous autoregressive model is used to approximate the slowly decaying correlations associated with the long‐memory properties in daily and weekly exchange rates and international tourist arrivals, to test whether alternative short‐ and long‐run estimates of conditional volatility are sensitive to the long‐memory in the conditional mean, to examine asymmetry and leverage in volatility, and to examine the effects of temporal and spatial aggregation. The approximate price and price volatility effects tend to be different, with the exchange rate typically having the expected negative impact on tourist arrivals to Taiwan, whereas exchange rate volatility can have positive or negative effects on tourist arrivals to Taiwan. For policy purposes, the empirical results suggest that an arbitrary choice of data frequency or spatial aggregation will not lead to robust findings as they are generally not independent of the level of aggregation used.