Investment and the real exchange rate’s profitability channel in Mexico

The paper estimates different versions of an equation for private investment in Mexico during the post-liberalization period 1988–2013, with the aim of studying the operation of the recently discussed real exchange rate’s profitability channel. During this period, the real exchange rate (RER) was broadly positively correlated with the Mexican price/wage ratio and the Mexican/US relative profit margin in the manufacturing sector, particularly so when the RER experienced large fluctuations, before the end of disinflation in the early 2000s. In the estimations, the effect of the profit margin appears to be ‘deeper’, wiping out the effect of the RER when the two variables are included together in the investment equation. From this, the paper argues that the positive effect of the RER on investment, observed in previous studies that omitted the profit margin, reflects indirectly the positive link of the RER with the profit margin, supporting the existence of a profitability channel in Mexico.     

The importance of composition of fiscal policy: evidence from different exchange rate regimes

We study the macroeconomic effects of fiscal policies in an open economy. We emphasize two transmission mechanisms: the cost channel, by which wage government spending and labor taxes raise the real wage firms must pay, and the exchange rate channel, by which the nominal exchange rate shifts induced by fiscal policy have real effects if (some) prices and wages are sticky. The latter channel implies that changes in wage government spending or in labor taxation should have different effects under flexible than under fixed exchange rates. In a 1964–93 panel of OECD countries we find significant evidence for both channels. Moreover, we find that the real product wage and profitability are more responsive than quantities (employment and output) to fiscal policy innovations.     

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.     

Reserve Requirements and Real Exchange Rate Misalignments in Emerging Market Economies

A popular policy target in emerging markets is the real exchange rate as an undervalued real exchange rate is seen to enhance international competitiveness. Within an augmented Dornbusch model it is shown that the implicit tax of low remunerated reserve requirements represents an efficient tool to depreciate the real exchange rate. The model is empirically tested for a panel of Latin American, East Asian and Eastern European countries. Controlling for the impact of fiscal policies and direct capital controls, the reserve requirement tax significantly explains real exchange rate misalignments.     

Real Exchange Rate Variability: An Empirical Analysis of the Developing Countries Case

The purpose of this paper is to investigate the potential role of monetary and real factors in explaining real exchange rate variability in developing countries. For this purpose two indexes of real effective exchange rate variability that measure short-term and long-term variability were constructed for 30 countries. The results obtained, using a generalized least squares procedures on cross section data, indicate that real exchange rate variability has been affected both by real and monetary factors. In particular it was found that more unstable nominal exchange rate policies were reflected in higher real exchange rate instability in the short-run; more unstable domestic credit policies resulted in higher short-term real exchange rate variability; and more unstable external terms of trade also affected positively the degree of real exchange rate instability. [420]     

Is good news for Donald Trump bad news for the Peso?

We study the relationship between Mr. Trump’s election prospects and the US dollar-peso exchange rate, controlling for other factors that determine overall exchange rates. Increases in Mr. Trump’s probability of winning generate short-run, but statistically significant economically meaningful, disturbances in the US dollar-peso exchange rate. We also provide evidence on Mr. Trump’s effects on Mexican equity markets, premia for Mexican sovereign default risks, exchange rate volatility.     

Long-run determinants of the Irish real exchange rate

Smooth adjustment to real exchange rate shifts is one of the major challenges facing the Irish economy under EMU. Rather than assume purchasing power parity, the long-run real exchange rate is modelled as time-varying, being determined by relative output levels, the terms of trade and the net foreign asset position. It is shown that these factors account for a large proportion of the long-run movement in the Irish real exchange rate.     

Multi‐product exporters,variable markups and exchange rate fluctuations

In this paper we investigate how firms adjust markups across products in response to fluctuations in the real exchange rate. We estimate markups at the market–product–plant level using detailed panel production and cost data from Mexican manufacturing between 1994 and 2007. Exploiting variation in the real exchange rate in the aftermath of the peso crisis in December 1994, we provide robust empirical evidence that plants increase their markups and producer prices in response to a real depreciation and that this increase is greater for products with higher productivity. Thus, we provide direct evidence for the theoretical mechanism of variable markup response behind incomplete and heterogeneous exchange rate pass‐through on producer prices. Our empirical methodology allows us to decompose the producer price response to exchange rate shocks into a markup and a marginal cost component using our markup estimates. Using these estimates, we establish that marginal cost at the product–plant level increases more in response to real exchange rate depreciation if the plant has higher share of imported inputs.     

Sudden stops,sectoral reallocations,and the real exchange rate

A sudden stop of capital flows into a developing country tends to be followed by a rapid switch from trade deficits to surpluses, a depreciation of the real exchange rate, and decreases in output and total factor productivity. Substantial reallocation takes place from the nontraded sector to the traded sector. We construct a multisector growth model, calibrate it to the Mexican economy, and use it to analyze Mexico's 1994–95 crisis. When subjected to a sudden stop, the model accounts for the trade balance reversal and the real exchange rate depreciation, but it cannot account for the decreases in GDP and TFP. Extending the model to include labor frictions and variable capital utilization, we still find that it cannot quantitatively account for the dynamics of output and productivity without losing the ability to account for the movements of other variables.     

Financial structure and exchange rate experience: Mexico 1954–1977

This paper discusses the Mexican experience regarding exchange rate policy and the development of the financial market since the 1950's. The unique structure of Mexican financial institutions is described, with emphasis on how they have conditioned possibilities for monetary and exchange rate policy intervention.     

Crawling peg and the variability of the real exchange rate

This paper assesses the extent to which exchange rate policies of crawling?galloping peg in Argentina, Brazil, Chile and Uruguay did contribute to the overall variability of their real exchange rates in the 1970's.     

The Tale of Three Amigos: Remittances, Exchange Rates, and Money Demand in Mexico

The author analyzes the relationship between remittances, exchange rates, and money demand in Mexico. He finds that shocks to remittances have a positive impact on domestic money demand. The results also suggest the existence of a bi-directional relationship between remittances and the exchange rate. Furthermore, positive shocks to remittances are found to have a negative impact on Mexico's real exchange rate. This indicates that remittances appreciate the Mexican peso and therefore may impact on the competitiveness of the tradable sector negatively.     

Industrial structure,competitiveness, and trade

This paper examines the effect of sector-specific growth on real exchange rates, competitiveness, and the trade balance. Growth and accumulation in export- and import-competing industries exert their primary effect on the trade balance, while the direct effect of accumulation in non-tradables is on the real exchange rate. Thus, exchange-rate policies that are incompatible with non-tradables equilibrium are bound to fail. Furthermore, growth policies with strong biases toward tradables are often inferior to more balanced strategies, due to their adverse implications for real-exchange- rate movements and the trade balance.     

Prices and output in the Mexican economy Emperical testing of alternative hypotheses

This paper derives and compares alternative formulations of price and output formation for the Mexican economy over the period 1961–1981. A structuralist type model with working capital is found to dominate its monetarist and keynesian counterparts. A breakdown of the causes of inflation is offered, and some simulations are carried out to highlight some trade-offs among real wages, the real exchange rate, real interest rates and output.     

The Real Yen Exchange Rate and Japanese Productivity Growth

This study investigates the time-series properties of five real yen exchange rates by testing for stationarity in the context of a single structural shift. It finds that all but one of the series are stationary in conjunction with a trend- or mean-break in the late 1950s or early 1970s. By comparison, most real rates for five other industrialized countries are stationary around a constant mean. These findings suggest that the behavior of the real yen exchange rate is unique among the six currencies in the sample, a difference that may originate in the exceptional productivity performance of the Japanese traded-goods sector.     

The persistence in real exchange rate: Evidence from East Asian countries

In this article, we examine the degree of persistence in monthly real exchange rate of six East Asian countries in relation to their two major trading partners, the United States and Japan, to study the validity of PPP for the 1976:01–2009:03 period. To investigate the persistency in real exchange rate series, we use sum of the autoregressive (AR) coefficients and the confidence interval for it using grid-bootstrap procedure recently developed by Hansen (1999). We have two findings: first, we find evidence for high persistency in real exchange rate in terms of the Japanese yen for five countries and for four countries in terms of the US dollar the for the full and pre-crisis sample periods. Second, for the post-crisis period, the presence of low persistency in real exchange rate supports PPP for three countries in terms of the Japanese yen and five countries in terms of the US dollar. These findings indicate that real exchange rate series of five East Asian countries are mean-revert based on their exchange rate policies and East Asian countries can form a currency union.     

Mexican real wages and the U.S. economy

This article examines real wage determinants from 1996 to 2014 across Mexican states. Real wages are determined in equilibrium by combining labor supply (years of education and population growth) and labor demand (mostly external factors) forces. Panel data models provide two main results. First, years of education and U.S. real GDP appear to be reliable predictors of wages in fixed effects models, with very marked changes after the U.S. 2008–2009 financial crisis and stronger effects on northern Mexican states. Second, dynamic panels confirm the role of foreign forces: positive from the U.S. economy and negative from the real exchange rate.     

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).     

人民币汇率波动对宏观经济运行影响的实证分析

笔者采用SVAR方法实证1995年1月至2011年2月人民币汇率波动对宏观经济运行的影响,并论证了汇率冲击的动态传导机制,得出了如下结论:人民币升值总体上不利于净出口和实际产出的增长,并导致在近期和将来货币供应量的不断增长,人民币的升值总体上有利于控制通货膨胀。     

Macroeconomic Fundamentals and Exchange Rate Credibility. Further Evidence on the Italian Experience from a Regime‐switching Approach

This paper explores the links between exchange rate credibility and macroeconomic fundamentals with reference to the Italian experience during the first half of the 90's. The analysis relies on a nonlinear framework emphasizing shifts between credible and not credible states, and assuming a significant degree of persistence in the above regimes. We detect a significant influence of a cumulative loss in external competitiveness and of real output dynamics on devaluation expectations. While supporting the cautious monetary policy stance taken by monetary authorities during the transition phase following Italy's re‐entry in the EMS, our evidence suggests that structural supply‐side policies will become crucial, in the years ahead, to ensure a credible and lasting permanence of Italy inside the EMU.