Real Exchange Rate Depreciation Shock and Real Investment Growth: The Balance Sheet Channel

2017 ◽  
pp. 143-157
Author(s):  
Eliphas Ndou ◽  
Nombulelo Gumata ◽  
Mthuli Ncube
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Balance Sheet ◽  
Balance Sheet Channel ◽  
Investment Growth ◽  
Exchange Rate Depreciation ◽  
Real Investment

The Effect of Real Exchange Rate on Trade Balance in a Resource-Rich Economy: The Case of Mongolia

2018 ◽  
Vol 53 (4) ◽  
pp. 211-224 ◽  
Author(s):  
Gan-Ochir Doojav
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Balance ◽  
Developing Economies ◽  
Jel Classification ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Exchange Rate Depreciation

For resource-rich developing economies, the effect of real exchange rate depreciation on trade balance may differ from the standard findings depending on country specific characteristics. This article employs vector error correction model to examine the effect of real exchange rate on trade balance in Mongolia, a resource-rich developing country. Empirical results show that exchange rate depreciation improves trade balance in both short and long run. In particular, the well-known Marshall–Lerner condition holds in the long run; however, there is no evidence of the classic J-curve effects in the short run. The results suggest that the exchange rate flexibility may help to deal effectively with current account deficits and exchange rate risk. JEL Classification: C32, C51, F14, F32

scholarly journals Real Exchange Rate Overshooting in Large Depreciations

2020 ◽  
Vol 20 (60) ◽  
Author(s):  
Alexander Culiuc
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Openness ◽  
Balance Sheet ◽  
Relative Strength ◽  
Medium Term ◽  
Ex Post ◽  
Expenditure Switching ◽  
Output Losses ◽  
Exchange Rate Overshooting

The consequences of large depreciations on economic activity depend on the relative strength of the contractionary balance sheet and expansionary expenditure switching effects. However, the two operate over different time horizons: the balance sheet effect hits almost immediately, while expenditure switching is delayed by nominal rigidities and other frictions. The paper hypothesizes that the overshooting phase—observed early in the depreciation episode and driven by the balance sheet effect—is largely irrelevant for expenditure switching, which is more closely aligned with ex-post equilibrium depreciation. Given this, larger real exchange rate overshooting should signal a relatively stronger balance sheet effect. Empirical findings support this hypothesis: (i) overshooting is driven by factors associated with the balance sheet effect (high external debt, low reserves, low trade openness), (ii) overshooting-based measures of the balance sheet effect foreshadow post-depreciation output losses, and (iii) the balance sheet effect is strongest early on, while expenditure switching strengthens over the medium term.

scholarly journals The Effect of Trade Liberalization on Firm Entry and Exit in Punjab, Pakistan

2014 ◽  
Vol 19 (1) ◽  
pp. 67-89
Author(s):  
Marjan Nasir
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Liberalization ◽  
Manufacturing Sector ◽  
Firm Entry ◽  
Entry And Exit ◽  
Export Industries ◽  
The Impact ◽  
Firm Entry And Exit ◽  
Exchange Rate Depreciation

This study focuses on the impact of trade liberalization on firm entry and exit in Punjab’s export manufacturing sector over the decade 2001–10. As far as the province’s export industries are concerned, real exchange rate depreciation attracts new firms but also leads weaker firms to exit. A reduction in local or international tariffs, however, has no significant impact on firm entry or exit.

scholarly journals The Predominance of Balance Sheet Effect versus Competitiveness Effect of Exchange Rate on Brazilian Companies

2020 ◽  
Vol 12 (12) ◽  
pp. 107
Author(s):  
Maria Paula Vieira Cicogna ◽  
Rudinei Toneto Jr ◽  
Mauricio Ribeiro do Valle ◽  
Wilson Tarantin Junior
Keyword(s):  
Exchange Rate ◽  
Foreign Currency ◽  
Balance Sheet ◽  
International Market ◽  
Descriptive Statistics ◽  
Negative Effect ◽  
The Exchange Rate ◽  
Econometric Tests ◽  
Foreign Currency Debt ◽  
Exchange Rate Depreciation

The present research argues that the depreciation of the exchange rate has a negative effect on the balance sheet of Brazilian companies with debt in foreign currency. This effect is mainly on commodity exporters, since it is the class of companies with the highest indebtedness in the international market, as showed by the results. At the same time, companies with foreign currency debt showed a reduction in their investments in moments of depreciation of the exchange rate, which indicates the predominance of the balance sheet effect. The conclusions of the study were obtained through descriptive statistics and econometric tests (panel data) to analyze the effect of foreign currency debt and the exchange rate on investment rate. It was verified that the balance sheet effect generated by the exchange rate depreciation is predominant when compared to the competitiveness effect from 2003 to 2015.

Exchange Rate Dynamics, Endogenous Risk Premium and the Balance Sheet Effect: An Effective Demand Model

2018 ◽  
Vol 7 (2) ◽  
pp. 212-239
Author(s):  
Moumita Basu ◽  
Jonaki Sengupta ◽  
Ranjanendra Narayan Nag
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Risk Premium ◽  
Balance Sheet ◽  
Endogenous Risk ◽  
Exchange Rate Dynamics ◽  
Tariff Liberalization ◽  
Foreign Bonds ◽  
Exchange Rate Depreciation

This article describes a macroeconomic framework for analysing the interaction between output, domestic interest rate and exchange rate in the presence of the endogenous risk premium and balance sheet effect of exchange rate depreciation on investment demand. Output is demand determined. There are three assets: money, domestic bonds and foreign bonds. Domestic bonds and foreign bonds are not perfect substitutes due to the presence of risk premium. The endogenous risk premium depends on certain macroeconomic fundamentals, namely budget deficit and current account balance. Using this framework, we will examine implications of monetary policy, fiscal policy, tariff liberalization and global interest rate hike for exchange rate dynamics and output. The balance sheet effect and the risk premium together explain how an expansionary fiscal policy may generate recession, while tariff liberalization may produce favourable macroeconomic outcomes. Moreover, the model shows that an increase in world interest rate may have contractionary effect on the domestic output level due to the presence of the balance sheet effect of exchange rate depreciation. JEL Classification: E27, E63, F13, F32

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