The Volatility of Real Exchange Rates: The Australian Case

This paper presents an empirical investigation into factors underlying the real U.S.-Australian dollar exchange rate. We find that the random walk model of the real exchange rate can be improved by various GARCH specifications. In particular, we find that the estimated risk premium from a GARCH-M model is not robust to model specification. When the model is extended to include the $US/Yen real exchange rate and an index of commodity prices the GARCH-in-mean term is no longer significant. The additional variables seem to account for the increased volatility of the real exchange rate in the post-1983 period. Somewhat surprisingly, we find that changes in the Australian term spread and US-Australian interest rate differential have little or no explanatory power for the real exchange rate.     

汇率、利率、税率：名义和实际

当前我国经济运行情况以及面临的问题 过去的一年里，我国经济保持了稳定增长的态势，在全球经济特别是关、日和欧三大经济体同时陷入衰退的情况下，2001年我国国内生产总值达到95800多亿元，同比增长率为7．3％。更令人感到鼓舞的是，中国在2001年加入WTO，正式成为世界贸易组织的一员，中国的对外开放进入了一个新的阶段。 但在成功数字的外表下，我们还应该看到中国经济的一些问题以及在2002年可能遇到或者已经遇到的一些难题。2001年中国经济增长前高后低，四个季度的经济增长一路滑坡，前3个季度的增长速度分别是8．1％、7．8％和7％，第4季度GDP增长也很难达到7％，11月份居民消费价格总水平比去年同月下降3％，又面临通货紧缩的威胁。2001年的经济增长，主要是由国内投资和消费需求的增长拉动的。由于国际经济严重衰退，一方面，我国出口增速下降，大约在6％左右，净出口减少，对经济增长的贡献度为负值；另一方面，促使外资流入加快，实际利用外资增长近20％，减弱了出口下降的影响。……     

The Hysteretic Effects on the Real Exchange Rates

In this paper we investigate the dynamics developed from the exchange rate relative price relationship using a hysteresis framework. The rationale for such hysteretic effects is in terms of firms' unresponsiveness to the exchange rate changes due to pricing to market-type arguments.The empirical support of these ideas is derived by applying a linear approximation of the hysteretic effects.We conclude that the hysteretic effects are a source of non-linearity, strongly affecting the long-run relationship of exchange rate and prices.     

Democratization and Real Exchange Rates,

In this article, we combine two so far separate strands of the economic literature and argue that democratization leads to a real exchange rate appreciation. We test this hypothesis empirically for a sample of countries observed from 1980 to 2007 by combining a difference‐in‐difference approach with propensity score matching estimators. Our empirical results reveal a strong and significant finding: democratization causes real exchange rates to appreciate. Consequently, the ongoing process of democratization observed in many parts of the world is likely to reduce exchange rate distortions.     

Product Variety and Real Exchange Rates: The Balassa-Samuelson Model Reconsidered

This paper introduces product variety into the Balassa-Samuelson model in order to extend the model of real exchange rate determination. With product differentiation, real exchange rates depend not only on the relative price of nontradables to tradables but also on relative prices among tradables. This paper identifies a new factor that determines the extent of variety, termed Infrastructural Technology, and that affects real exchange rates not through the relative price of nontradables but through relative prices among tradables. This paper also conducts empirical tests, and the results of these tests support the model. Received May 31, 2001; revised version received March 20, 2002 Published online: April 30, 2003     

What Determines Real Exchange Rates? The Nordic Countries

The model derived in this paper yields testable implications concerning the long‐run co‐movements of real exchange rates, relative labor productivity, the trade balance and terms of trade. Countries with relatively higher output growth, trade deficits or improved terms of trade are found to have more appreciated real exchange rates, with the main channel of transmission working through the relative price of nontraded goods. Exogenous terms‐of‐trade shocks are found to be the most important determinant of long‐run movements in the real exchange rate for Denmark and Norway, while demand shocks account for most of the long‐run variance in the real exchange rate for Finland and Sweden.     

Productivity Shocks and Real Effective Exchange Rates

This paper provides new insights into the relationship between exchange rates and productivity developments for European Economies. We focus on the question whether productivity changes have a long‐run impact on real effective exchange rates for a large number of European economies. Focusing on a sample period running from 1995 until 2013, we adopt a cointegrated vector autoregressive approach and distinguish between long‐run equilibrium, short‐run dynamics and long‐run impact of shocks. Our findings show that for several industrialized economies, real effective exchange rates and labor productivity are not related over the long‐run. A possible explanation for this result is that wage developments do not reflect increases in labor productivity to a large degree, which prevents a transmission to the real effective exchange rate through the price channel. The results for Central and Eastern European Countries are more encouraging since a positive impact of labor productivity on real effective exchange rate is frequently observed.     

Asymmetric Exchange Rates and Unofficial Exchange Rate Interventions: The Case of South Korea

Applying Milton Friedman's ‘plucking’ model of output fluctuations, we investigate the behavior of the Korean won/dollar exchange rate using a state-space model with Markov switching, which incorporates both symmetric and asymmetric shocks. We find that the Korean won/US dollar exchange rate rarely falls below its trend, but is plucked upward from time to time by transitory shocks. This asymmetry suggests that the monetary authority unofficially intervenes in the foreign exchange market to support its own target level from below. Further evidence from changes in reserve assets indirectly supports our finding.     

Productivity Trends in Europe: Implications for Real Exchange Rates, Real Interest Rates, and Inflation

The paper examines a long–run (neoclassical) framework in which differences in productivity growth across sectors and countries lead to inflation differentials. In a currency union, these inflation differentials imply cross–country differentials in real interest rates. The authors estimate the likely size of these differentials for European Union countries, discuss the potential costs of persistent inflation differentials, and comment on the conflicts they may cause within Economic and Monetary Union (EMU). The analytical framework is a variant of the Balassa–Samuelson "productivity hypotheisis," which relates sectoral productivity trends to trends in the relative price of home goods.     

The Behaviour of the Real Exchange Rate: Evidence from an Alternative Price Index

Although the long–run purchasing power parity (PPP) hypothesis is expected to hold across tradable goods, all price indices available to researchers for testing the validity of PPP contain some proportion of non–tradable goods prices, which may generate substantial persistence in the real exchange rate. We construct time series for quarterly price indices that minimize the presence of non–tradable goods for six major economies. Applying recently developed nonlinear econometric techniques to the resulting five US dollar real exchange rate series for the recent floating exchange rate regime, we provide evidence that the nonlinear mean reverting properties of these real exchange rate series are stronger than the mean reverting properties of real exchange rate time series constructed using the consumer price index (CPI). In turn, these results have a natural economic interpretation.
(J.E.L.: F31).     

Industry‐specific Real Effective Exchange Rates and Export Price Competitiveness: The Cases of Japan,China, and Korea

This paper constructs a new dataset of the industry‐specific real effective exchange rate, based on the producer price indices, for Japan, China, and Korea on a monthly basis from January 2001 to February 2013 in order to provide a better indicator for export price competitiveness. By conducting simulation analysis, we found that Korean electrical machinery firms substantially improved their cost competitiveness by lowering their production costs during the Korean won appreciation period, while Japanese firms' large plant investment caused by management misjudgments led to excessive production capacity, which resulted in the deterioration of Japanese export competitiveness. A structural vector autoregression analysis also reveals that industry differences of cost competitiveness as well as nominal exchange rate changes have significant impact on export performances of Japan and Korea.     

A Case for Managed Exchange Rates*

The incorporation of adaptive expectations by Dornbusch in a Mundell-Fleming model modifies significantly the traditional results of policy effectiveness in a small, open economy. While monetary policy is still able to influence aggregate demand when flexible exchange rates prevail, the effects of this policy on other important variables in the economy during the adjustment process to a new equilibrium may be considered sufficiently ‘disruptive’ so that the authorities will be hesitant to use their only fully-effective policy instrument for income-stabilization purposes. However, by adding a target level for the exchange rate to their list of goal variables and by using an appropriate mix of monetary and fiscal policies, it appears to be possible for the government to avoid these disruptive side effects.     

Productivity Trends and the Sterling Real Exchange Rates*

This paper provides favorable econometric evidence for a productivity‐based model of the pound/euro real exchange rate. We find that a 1% increase in UK productivity is consistent with a 3.5% real depreciation of sterling. Likewise, a 1% increase in euro area productivity is compatible with a 5.16% real appreciation of sterling. The asymmetric response of UK and foreign productivity shocks corresponds well with our model if UK labor supply is more elastic than euro area labor supply. Estimates of equilibrium exchange rates suggest that sterling was not overvalued at its 2004Q3 level vis‐à‐vis the euro.     

The Enlargement of the European Union and the Behavior of Real Exchange Rates

The authors further investigate the conditional variance and the persistence of real exchange rate (RER) shocks between Germany and some core European Union (EU) members from January, 1973 through 2004. Using data for all EU15 countries, they test whether the enlargement of the Union has reduced the variability and the persistence of RER shocks between Germany and the rest of the members during the 1990s. They also examine the impact of the introduction of the euro on the variance and persistence of real exchange rate shocks. Finally, the authors extend the analysis to the new members who joined in May, 2004. The results have implications for the economic cost of joining the Union, as well as assessing the timing of the newest members to enter the eurozone.     

An Australian Model: Nontraded Goods, Real Exchange Rates and Unemployment

A popular model for considering many international trade and macroeconomic questions is the 'Australian model' of Wilson, Swan and Salter. This paper develops a general equilibrium trade version of the 'Australian model' where unemployment comes from a specified factor market distortion, and considers the effects of immigration, transfers, changes in wage fixing arrangements, terms of trade shocks, tariffs and devaluations. Debates over policies for external and internal balance are revisited, with the advantage that the general equilibrium specification allows welfare consequences of various alternatives to be explicitly considered. In the model external balance is achieved through a flexible exchange rate and the most attractive policies for achieving internal balance are encouraging skilled immigration and skill augmenting technical change, training, and unskilled wage cuts (accompanied by redistribution to affected workers). Foreign borrowing, import tariffs and currency devaluation are problematic policies from a welfare point of view.     

Monetary Integration in East Asia: Evidence from Real Effective Exchange Rates

This paper investigates the feasibility of forming a monetary union in East Asia by examining the cointegration and causality of the real effective exchange rates of local currencies. A “pentagon” group of five countries is found—South Korea, the Philippines, Thailand, Indonesia, and Malaysia—which may have potential for success for further monetary integration. Singapore is loosely tied to this group. The Greater China area—China, Hong Kong and Taiwan—does not show any significant degree of integration either internally or externally. Neither a yen bloc nor a US dollar bloc is forming in East Asia.     

The Real Exchange Rate and Growth in Emerging Markets: The Case of Zimbabwe

Zimbabwe has been facing growth and external competitiveness challenges, as shown by declining shares in global exports, high current account deficits, external debt and a widening productivity gap with South Africa. Estimates of the real equilibrium exchange rate reveal periods of sizeable misalignment, both prior to 2008 and under the current multicurrency regime. Misalignment has an asymmetric impact on growth. While overvaluation hampers growth, we have not found robust evidence that undervaluation would raise it. Replacing the multicurrency regime anchored in the US dollar by the South African rand would help reduce overvaluation and stimulate exports and growth. Under any currency regime, Zimbabwe needs to implement sound macroeconomic policies and an environment conducive to investment.     

“富人社区效应”还是巴拉萨-萨缪尔森效应?——一个基于外生收入的实际汇率理论

作为对国际价格水平差异的标准解释,巴拉萨—萨缪尔森(BS)效应依赖于国内劳动力同质假设和跨部门工资套利行为。本文提出了一个与之相对的"富人社区效应",可以在一国劳动力异质的条件下解释为什么富国的非贸易品价格较高。其直观解释是,如果一个国家拥有一个"富有居民"群体(比如高生产率的贸易品部门劳动者,或者全球贸易资源的所有者),而这个群体通过国际市场获得的硬通货总收入相对于该国总人口而言较高的话,其需求将抬高该国非贸易品价格。本文进而指出,关于BS效应的实证文献所广泛采用的两种基本统计检验,实际上无法区分BS效应与富人社区效应,这就对该领域相当一部分实证文献的正确性提出了质疑。此外,富人社区效应也有别于林德效应。     

Equilibrium Exchange Rates in New EU Members: External Imbalances versus Real Convergence

In new EU members, the accumulation of net foreign liabilities has gone hand-in-hand with real exchange rate appreciations, contrary to intuition. This may be due to the induced effect that capital inflows on productivity and competitiveness (Balassa-Samuelson effect). An extended empirical model comprising relative productivity and net foreign assets is well-suited to capture this indirect, opposite effect of liabilities accumulation on the equilibrium exchange rates for the three largest economies: Poland, Hungary and Czech Republic. The model makes it possible to estimate equilibrium exchange rates and misalignments. Going forward, sustaining high productivity growth will be essential to ensure a smooth transition towards euro membership.     

Breaking Trend Functions in Real Exchange Rates: Evidence from Seventeen OECD Countries

This paper tests for unit roots in dollar-based and DM-based real exchange rates using quarterly data (from 1957:i to 1995:iv) for seventeen OECD countries. The results show that the unit root hypothesis cannot be rejected even if allowance is made for the possibility of a one-time change in the mean of the series at an unknown point in time. This is evidence against the hypothesis of absolute long-run purchasing power parity over this period.