Oil prices and the real exchange rate in Iran: an ARDL bounds testing approach

This article examines the impact of oil prices on the real exchange rate in Iran during the 1961–2014 period using the autoregressive distributed lag approach to cointegration as the estimation method. We find that higher oil prices lead to appreciation of the real exchange rate. The results reveal that oil prices have both short-run and long-run effects on the real exchange rate.     

Real exchange rate misalignments

This paper investigates episodes of real exchange rate appreciations and depreciations for a sample of 85 countries from 1960 to 1998. A Markov Switching Model is used to characterize real exchange rate misalignment series as stochastic autoregressive processes governed by two states corresponding to different means and variances. Our main findings are: first, some countries present no evidence of distinct misalignment regimes; second, for some countries there is no RER misalignment in one of the regimes; and, third, for the countries with two misalignment regimes, the appreciated regime has higher persistence than the depreciated one.     

Capital accumulation and real exchange rate behavior in a small open economy with credit market frictions

Summary. We consider the nature of the relationship between the real exchange rate and capital formation. We present a model of a small open economy that produces and consumes two goods, one tradable and one not. Domestic residents can borrow and lend abroad, and costly state verification (CSV) is a source of frictions in domestic credit markets. The real exchange rate matters for capital accumulation because it affects the␣potential for investors to provide internal finance, which mitigates the CSV problem. We demonstrate that the real exchange rate must monotonically approach its steady state level. However, capital accumulation need not be monotonic and real exchange rate appreciation can be associated with either a rising or a falling capital stock. The relationship between world financial market conditions and the real exchange rate is also investigated. Received: October 3, 1997; revised version: October 23, 1997     

Managing real exchange rate for economic growth: Empirical evidences from developing countries

Abstract

This article analyses macroeconomic policies capable of influencing the long-run real exchange rate (RER). In this vein, it identifies economic policy tools that can devalue RER, covering a theoretical issue neglected by the economic literature, which argues that competitive exchange rate enhances growth. After discussing the “Trilemma,” we identify those variables that could affect RER without constraining monetary policy or exchange rate regime choice. In what follows, we model the probability of achieving an undervalued (small or large) RER for a sample of 14 developing countries from 1980 to 2010 (30?years) by applying econometric techniques for discrete choice and censored data. Afterwards, we compare the results for Latin American nations with Asian ones. They suggest that competitive exchange rate requires different approaches depending on the region. Moreover, Latin American countries need to take on additional policies so that interventions in the foreign exchange market become effective.     

China's economic growth and its real exchange rate

The shocks that underlie China's comparatively rapid growth include gains in productivity, factor accumulation and policy reforms that increase allocative efficiency. The well-known Balassa–Samuelson hypothesis links productivity growth in tradable industries with real appreciations. Yet it relies heavily on the law of one price applying for tradable goods, against which there is now considerable evidence. In its absence, other growth shocks also affect the real exchange rate by influencing relative supply or demand for home product varieties. This paper investigates the pre-conditions for the Balassa–Samuelson hypothesis to predict a real appreciation in the Chinese case. It then quantifies the links between all growth shocks and the Chinese real exchange rate using a dynamic model of the global economy with open capital accounts and full demographic underpinnings to labor supply. The results suggest that financial capital inflows most affect the real exchange rate in the short term, while differential productivity is strong in the medium term. Contrary to expectation, in the long term demographic forces prove to be weak relative to changes in the skill composition of the labor force, which enhances services sector performance and depreciates the real exchange rate.     

Real exchange rate and exchange rate policy in Hungary

Five real exchange rate indicators are computed to assess the international competitiveness of Hungarian industry. These indicators are explained in econometric equations by employment, unemployment, productivity, interest spread and real producer wage. Causality tests reveal that external performance has an impact on real exchange rates, and contributes to explaining real exchange rates. There is very limited scope for policy intervention to constrain the negative effects of capital inflows without incurring other costs.     

人民币实际有效汇率对地区经济增长差异的影响研究

本文基于凯恩斯宏观经济模型,对人民币实际有效汇率波动对我国各地区经济增长产生的影响进行了实证分析。结果表明:人民币实际有效汇率上升通过影响进出口、外商直接投资和原始货币供应量三个途径,对我国各地区经济增长普遍存在着抑制效应;但对不同地区的影响程度有所差异,其中东部地区最大,西部地区最小;这表明人民币实际有效汇率上升对于缩小近年来不断拉大的地区经济增长差距具有积极作用。虽然缩小地区经济发展差距是现阶段我国构建和谐社会的重要内容,但人民币汇率政策依然应该将实现内外均衡作为自己的核心目标,以避免目标多样化而弱化政策效应。     

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.     

Nominal and real volatility as determinants of FDI

This article examines the role of country-specific sources of output and interest rate or exchange rate volatility in driving Foreign Direct Investment (FDI) activities. Building on a dataset with bilateral FDI flows among 24 Organization for Economic Co-operation and Development (OECD) economies over the period 1985–2007, we find that nominal and real volatility strongly deter foreign investments. Output and exchange rate volatility matter in particular for the decision whether to invest in a foreign country in the first place. Interest rate volatility mainly influences the amount of foreign investments.     

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.     

人民币汇率、资产价格与短期国际资本流动——基于汇率弹性区间调整前后的实证研究

基于2005年7月至2012年12月的月度数据,分两阶段运用VAR模型实证分析人民币汇率、资产价格与我国短期国际资本流动之间的动态关系。研究表明:人民币汇率的升值及升值预期,会导致短期国际资本流入我国;同时在人民币兑美元交易浮动幅度扩大后,短期国际资本流动自身的解释能力占到82%。为了更好地应对短期国际资本流动的冲击,我国必须加强对短期资本流动的监督与审查,尽快完善人民币汇率形成机制。     

Nonlinearities in the real exchange rates: new evidence from developed and developing countries

This paper investigates nonlinearities in the dynamics of real exchange rates. We use Monte Carlo simulations to establish the size properties of the Teräsvirta-Anderson test, when the dynamics of the real exchange rate is influenced by an exogenous process. In addition, we show that a modified nonlinearity test, which includes additional right-hand-side variables, performs much better than the original in both Monte Carlo exercises and in the actual data on 1431 bilateral real exchange rate series. Finally, we investigate the dynamics of the real exchange rate for both developed and developing countries using the modified test for the recent floating period. In general, the results find a greater incidence of nonlinear dynamics for developing country real exchange rates.     

Limited asset markets participation, monetary policy and (inverted) aggregate demand logic

This paper incorporates limited asset markets participation in dynamic general equilibrium and develops a simple analytical framework for monetary policy analysis. Aggregate dynamics and stability properties of an otherwise standard business cycle model depend nonlinearly on the degree of asset market participation. While ‘moderate’ participation rates strengthen the role of monetary policy, low enough participation causes an inversion of results dictated by conventional wisdom. The slope of the ‘IS’ curve changes sign, the ‘Taylor principle’ is inverted, optimal welfare-maximizing discretionary monetary policy requires a passive policy rule and the effects and propagation of shocks are changed. However, a targeting rule implementing optimal policy under commitment delivers equilibrium determinacy regardless of the degree of asset market participation. Our results may justify Fed's behavior during the ‘Great Inflation’ period.     

Capital flows,real exchange rate,and growth constraints in Mexico

Besides its well‐known problem of slow economic growth, Mexico’s recent evolution features both a sharp rise in the import‐intensity of economic activity – which may have tightened an external constraint on growth – and a persistent real appreciation of the peso – which may have created a profitability constraint. Adopting the approach of gap models and growth diagnostics, the paper contrasts the relevance of the external and the profitability constraints in Mexico after trade liberalization in the mid‐1980s. Although the trade deficit was pro‐cyclical, the three recent episodes of GDP growth acceleration were not accompanied by pressures in the foreign exchange market. Moreover, error correction models show that investment was highly responsive to the real exchange rate but largely unresponsive to foreign capital flows. The evidence supports the conclusion that investment was deterred by the low profitability of an uncompetitive real exchange rate, rather than by the external constraint.     

The fallacy of composition and contractionary devaluations: output effects of real exchange rate shocks in semi-industrialised countries

This paper studies whether intra-developing country price competitionhas significant effects on the short-run growth of output indeveloping countries that are specialised in manufactured exports.Regression estimates using the generalised method of momentsapplied to annual panel data for 17 semi-industrialised countriesin 1983–2004 show that these countries exhibit a ‘fallacyof composition’, in the sense that a real depreciationrelative to competing developing country exporters increasesthe home country's growth rate at the expense of its competitors'growth. The results also suggest that real depreciations forthese developing countries relative to the industrialised countriesare contractionary.     

Dynamic linkages between exchange rates and stock prices: Evidence from East Asian markets

This study examines dynamic linkages between exchange rates and stock prices for seven East Asian countries, including Hong Kong, Japan, Korea, Malaysia, Singapore, Taiwan, and Thailand, for the period January 1988 to October 1998. Our empirical results show a significant causal relation from exchange rates to stock prices for Hong Kong, Japan, Malaysia, and Thailand before the 1997 Asian financial crisis. We also find a causal relation from the equity market to the foreign exchange market for Hong Kong, Korea, and Singapore. Further, while no country shows a significant causality from stock prices to exchange rates during the Asian crisis, a causal relation from exchange rates to stock prices is found for all countries except Malaysia. Our findings are robust with respect to various testing methods used, including Granger causality tests, a variance decomposition analysis, and an impulse response analysis. Our findings also indicate that the linkages vary across economies with respect to exchange rate regimes, the trade size, the degree of capital control, and the size of equity market.     

Stabilization and exchange rate policy in Romania*

This paper presents the major traits of the stabilization efforts underway, underlining the role of exchange rate policy. The surprisingly good response of the economy to the “policy shock” of 993–1994 is explained by the ubiquitous large X-inefficiencies and the impact of the foreign exchange market on information and transaction costs. It is argued that restructuring and the imposition of good corporate governance on a wide scale, which are essential for reducing further inflation, need much more capital inflows (foreign direct investment) and the latter can be encouraged by faster privatization. Since systemic strain makes “stop and go” measures almost unavoidable, the challenge for policy-makers is to avoid policy fluctuations of large amplitude and to enhance steadily their credibility.     

Foreign interest rate shocks and exchange rate regimes in East Asia

Using a theoretical dynamic stochastic general equilibrium model and an empirical panel vector autoregression, we assess the transmission of foreign real interest rate shocks on the volatility of various key macroeconomic variables in nine small open economies in East Asia taking into account the role of exchange rate regimes. Both the theoretical and empirical findings confirm the hypothesis that flexible exchange rate may work as a shock absorber when the economy is hit by foreign real interest rate shocks. The findings suggest a clear trade-off between the volatility of real exchange rate and real output to foreign interest rate shocks, both the US and G7 real interest rates, where the responses of real output are mitigated in countries that have more flexible exchange rate regime.     

Impact of oil price shocks on output,inflation and the real exchange rate: evidence from selected ASEAN countries

This article analyses the impact of oil price shocks on real output, inflation and the real exchange rate in Thailand, Malaysia, Singapore, the Philippines and Indonesia (ASEAN-5) using a Structural VAR model. The cointegration tests indicate that the macroeconomic variables of these countries are cointegrated and share common trends in the long run. The impulse response functions reveal that oil price fluctuations do not impact the ASEAN-5 economies in the long run and much of its effect is absorbed within five to six quarters. The variance decomposition results further assert that with a few exceptions oil price shocks do not explain a significant variation in any of the variables under consideration. We also identify a very unique pattern of response to oil price fluctuations between Malaysia and Singapore and between the Philippines and Thailand. The pairs exhibit a high degree of similarity in their responses; they do not share any commonalities across the group.     

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.