The implications for an open economy of partisan political business cycles: Theory and evidence

This paper develops and tests the predictions of two open economy models in which partisan effects are present, a small-country-one-good model of exchange rate determination and a model that assumes the two countries each specialize in the production of one good. From these models, we can obtain predictions for the behaviour of the terms of trade, the current account, and real and nominal exchange rates. The predictions are tested empirically using panel data from 14 OECD countries and the results provide support for the theoretical predictions that systematic partisan effects are present in current accounts, real exchange rates, and the terms of trade.     

Real exchange rates,economic performance,and trade balances in the central european free trade association

The relationships between real exchange rates dynamics, domestic economic growth, and external economic positions are examined for four East European countries: Poland, Hungary, Slovakia, and the Czech Republic. Results show that in Poland the dynamic of the trade balance is independent of both the real exchange rate and industrial production. In both Hungary and Slovakia, trade balances appear to have strong autonomous components, albeit in circumstances where the influence of real exchange rates and industrial production dynamics cannot be entirely denied. The Czech Republic's situation is, however, substantially different from its Central European Free Trade Assocation partners. The growing trade balance deficit appears to be determined by both the continuing real appreciation of the Czech currency and a mildly accelerating industrial production growth. Both are the consequence of accelerating capital inflow.     

Offshoring and Trade Balance in Developed and Emerging Economies

This paper analyzes the effects of off‐shore outsourcing for international trade, especially for the emerging and poor economies, in a two‐sector specific factor model, with a nontraded good being one of the sectors. The phenomenon of offshoring is modeled by incorporating the reduced use of domestic labor in the production function. This is regarded as a characteristic feature of offshoring in the literature. We find that increased offshoring leads to an increase in the relative price of the nontraded good. Given that this relative price can be interpreted as the real exchange rate, increased offshoring leads to exchange rate appreciation. This suggests that offshoring actually makes the goods and services from the emerging economies more competitive in the world market, and thus can be a contributory factor in the positive trade balance experienced by many emerging economies since early 2000s.     

The long-run effects of the real exchange rate on employment and wages in Canadian manufacturing

ABSTRACT

The literature on real exchange rate effects on the labour market is dominated by short-run analysis showing that there is heterogeneity in the responses of firms or industries to a real exchange rate shock. Analysing data on Canadian manufacturing industries, I conclude that there is a common long-run equilibrium across all manufacturing industries controlling for their openness to trade after varying adjustments to a real exchange rate shock have taken place. This conclusion is important from the perspective of policy making because it helps to form expectations about the effects of a real exchange rate movement on the labour market. The results suggest that real appreciation leads to economically significant reductions in employment in manufacturing in the long run. Real wages decrease in industries that are highly engaged in international trade and somewhat increase in industries that are relatively closed to international trade. Both employment and real wages converge quickly to the long-run equilibrium.     

Exchange Rate Hysteresis: The Effects of Overshooting and Short-Termism

The present paper addresses two questions. First, how does exchange rate overshooting affect hysteresis in trade and competitiveness? Second, how does 'short-termism' alter the magnitude of such hysteresis effects? The paper models the dynamic processes of hysteresis in trade and competitiveness in terms of the presence of discrete, asymmetric lump-sum costs of entry, in response to unanticipated foreign policy shocks. The paper produces some important new insights into the role of short run adjustment processes in understanding persistence effects in key macroeconomic indicators.     

The Malaysian Real Trade Balance and the Real Exchange Rate

The cointegration technique is used to examine the long‐run and short‐run relationships between the real Malaysian trade balance with the real exchange rate, domestic and world incomes. The results suggest that a real ringgit exchange rate depreciation improves the trade balance in the long run. World and domestic incomes are also found to be important determinants of trade balance. The significance of world income on trade balance indicates that Malaysia is prone to external shocks. An error‐correction model is then estimated to study the short‐run dynamics of the effects of exchange rate. The impulse response analysis shows that the effect of exchange rate on the trade balance lasts for about three years. A devaluation of ringgit will initially improve the trade balance, albeit small, after which the trade balance starts to deteriorate, and then improves again suggesting that there exists a delayed J‐curve.     

关于加工贸易、实际汇率与经常账户的分析

考虑我国自然资源相对缺乏、加工贸易快速发展、实行固定汇率制度和强制结售汇制度等基本特征,建立了一个分析我国实际汇率和经常账户问题的计量模型,并对人民币实际汇率与经常账户的关系进行了实证研究。结果表明,我国经常账户持续顺差并非由汇率低估所致,人民币汇率调整难以根本解决经常账户持续顺差问题。资本管制放松、社会保障体系不健全和收入差距逐渐加大是我国1994年以来经常账户持续顺差的主要原因。在我国对外开放程度日益提高的情况下,妥善处理我国的经常账户持续顺差问题应从以下几个方面入手:稳定实际利率、名义汇率升值、加快社会保障体系建设和缩小居民收入差距。     

The effects of government spending shocks on the real exchange rate and trade balance in Turkey

The aim of this study is to investigate the effects of government spending shocks on the real exchange rate and foreign trade balance in Turkey for the period of 2002:01–2012:04 within a structural VAR framework. The analysis shows that a positive shock to the government spending tends to induce real exchange rate appreciation and deterioration in trade balance. We also find that the composition of the government spending matters. Although shocks to the government nonwage consumption generate an appreciation in the real exchange rate and worsening of the trade balance, the effects of government investment shocks remain insignificant. Furthermore, the analysis demonstrates that shocks to government spending are associated with a rise in taxes, which is indicative of a spending-driven tax adjustment process in Turkey.     

The Real Exchange Rate in Small, Open, Developed Economies: Evidence from Cointegration Analysis

We examine the effects of the terms of trade and the expected real interest rate differential on the real exchange rate in small, open, developed economies. We employ cointegration analysis to search for long-term linkages. We find that while both the terms of trade and the expected real interest rate differentials affect the real exchange rate in the long run, the role of the terms of trade generally proves more consistent. The speed of adjustment for the expected real interest rate differential in the error-correction model, however, is quantitatively larger than it is for the terms of trade.     

Comparing Capital- and Trade-weighted Measures of Australia's Effective Exchange Rate

Effective exchange-rate overvaluation is considered a leading indicator of currency crises. Yet, existing measures of nominal and real effective exchange rates focus on international trade in goods and neglect the importance of international trade in assets. This article develops a range of alternative effective exchange-rate indices for the Australian dollar, based mostly on international investment stocks and flows. Capital-weighted exchange-rate measures of the Australian dollar, in nominal and real terms, reveal a stronger exchange rate over recent decades than suggested by the standard measure. Similar measures for other currencies could improve understanding of exchange-rate behaviour.     

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.     

The effects of macroeconomic stability on foreign trade. An analysis for Spain, 1986–2000

Two main factors underlie the rebirth of interest in the study of the influence of the real exchange rate on trade, the reduction of its volatility and the current trend towards price stability. The objective of this study is to analyse the effects of the process of nominal convergence, required of the European member states for the fulfilment of monetary integration, on foreign trade flows. The case of Spain, which is especially interesting in this context, is studied for the period 1986 to 2000. The results of estimating the aggregate functions of the export and import of goods shows how macroeconomic stability has altered the behaviour of trade with respect to the two basic determinants – income and prices – how it has caused a significant structural change in the real exchange rate and, finally, how it has laid the explanatory bases for transactions in the twenty-first century with the single currency – the euro.     

Limited asset market participation and the consumption‐real exchange rate anomaly

Abstract Under efficient consumption risk sharing, as assumed in standard international business cycle models, a country's aggregate consumption rises relative to foreign consumption, when the country's real exchange rate depreciates. Yet empirically, relative consumption and the real exchange rate are essentially uncorrelated. This paper shows that this ‘consumption‐real exchange rate anomaly’ can be explained by a simple model in which a subset of households trade in complete financial markets, while the remaining households lead hand‐to‐mouth (HTM) lives. HTM behaviour also generates greater volatility of the real exchange rate and of net exports, which likewise brings the model closer to the data.     

Monetary Shocks and Real Exchange Rate Hysteresis: Evidence from the G-7 Countries

Long-run monetary neutrality specifies that nominal disturbances do not affect long-run real exchange rates. However, the "over depreciation" of the US dollar in the late 1980s, after its strong appreciation earlier in the decade, suggested to a number of observers that nominal disturbances alter long-run real exchange rates; that is, money supply shocks entail real exchange rate hysteresis. Using data from the G-7 countries and the post-1973 float, the paper measures the long-run effects of relative money supply disturbances on real US dollar exchange rates. Little evidence of hysteretic monetary policy effects is found.     

Workers’ remittances and the Dutch disease in South Asian countries

Workers’ remittances have become an important source of foreign exchange for some emerging economies even when compared to official development assistance, foreign direct investment or other types of capital flows. While some research suggests that a high inflow of remittances lowers poverty and stimulates economic growth and financial development, other studies suggest that remittances can appreciate the real exchange rate and thereby hurt the competitiveness of the tradeable sector. In this article, we examine the Dutch disease argument for Bangladesh, India, Pakistan and Sri Lanka using a fixed effects model. We are unable to reject the null that there is a statistically significant appreciating effect of remittances on real exchange rate. Since our estimation results show that trade openness causes a depreciation of the real exchange rate, the appreciation effect of the real exchange rate originating from remittance inflows can be made weaker by trade liberalization.     

Exchange rate policy and trade balance: a cointegration analysis of the Argentine experience since 1962

Using multivariate cointegration tests for nonstationary data and vector error correction models, this article examines the determinants of trade balance (TB) for Argentina over the last forty to fifty years taking into account that the short-run impacts of currency depreciation on the TB behaviour may differ from the long-run effects. Our investigation confirms the existence of long-run relationships among TB, real exchange rate (RER) and foreign and domestic incomes for Argentina during different RER management policies. Based on the estimations, the Marshall-Lerner condition is checked and, by means of impulse response functions, we trace the effect of a one-time shock to the RER on the TB not finding support for a J-curve pattern in the short-run.     

External wealth, the trade balance, and the real exchange rate

We examine the link between the net foreign asset position, the trade balance and the real exchange rate. In particular, we decompose the impact of a country's net foreign asset position (‘external wealth’) on its long-run real exchange rate into two mechanisms: the relation between external wealth and the trade balance; and, holding fixed other determinants, a negative relation between the trade balance and the real exchange rate. We also provide additional evidence that the relative price of nontradables is an important channel linking the trade balance and the real exchange rate.     

True protection and the real exchange rate in a capital-rich developing country: some evidence for Saudi Arabia

This paper investigates how alternative measures of the real exchange rate respond to trade policy and terms of trade changes. It employs a modelling framework which endogenises the price of non-tradeable goods, and applies the model to price and real exchange rate data for Saudi Arabia for the period 1982–92. The results show that the popular propositions about the response of the real exchange rate to terms of trade or trade policy changes do not necessary hold. This is a consequence of the measure of the real exchange rate utilized, rather than a product of Saudi Arabia's capital richness.     

Impact of exchange rate uncertainty on commodity trade between US and Sweden

Previous studies that investigated the effects of exchange rate uncertainty on the trade flows of Sweden employed aggregate trade data either between Sweden and the rest of the world or at bilateral level between Sweden and her major trading partners. In this article, we disaggregate the trade data and employ the import and export data from 87 industries that trade between Sweden and the US. We find that exchange rate volatility has significant short-run effects on the trade flows between the two countries in almost two-third of the industries. However, the short-run effects are translated into the long-run effects in one-third of the cases. Furthermore, the real depreciation of krona against the dollar was found to have favourable effects on the overall trade balance between the two countries.     

日本对华直接投资决定因素的实证研究

运用计量模型,以1986-2007年的统计数据为基础,选取中国国内生产总值、中日双边贸易量、人民币实际汇率和中日两国实际工资差异为解释变量,针对日本对华直接投资进行实证分析,结果显示:国内生产总值、中日双边贸易量和实际汇率与日本对华直接投资正相关,实际工资差异与之负相关,且各变量均影响显著.