scholarly journals Dynamic Relationship between RMB Exchange Rate and Interest Rate Based on VAR-DCC-GARCH Model

2020 ◽  
Vol 214 ◽  
pp. 03018
Author(s):  
Xuhang Zhao
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rate Volatility ◽  
Garch Model ◽  
Nominal Exchange Rate ◽  
Practical Significance ◽  
Causality Test ◽  
Dynamic Relationship ◽  
Interest Rate Volatility

Based on the daily data of Shibor and nominal exchange rate from 2006 to 2019, this paper constructs VAR model and uses Granger causality test and impulse response model to analyze the dynamic relationship between exchange rate and interest rate. Based on the DCC-GARCH model, this paper analyzes the correlation between exchange rate volatility and interest rate volatility, and concludes that there is a weak negative correlation between exchange rate and interest rate. Both exchange rate and monetary policy will have an important impact on China’s economic environment, so it is of great practical significance to study the joint impact of exchange rate and monetary policy.

scholarly journals Difference in intensity of exchange rate factors in countries with targeting inflation regime

2021 ◽  
Vol 51 (3) ◽  
pp. 125-143
Author(s):  
A.M. Grebenkina ◽  
◽  
A.A. Khandruev ◽  
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Emerging Market ◽  
Exchange Rate Volatility ◽  
Developed Countries ◽  
Exchange Rate Policy ◽  
Nominal Exchange Rate ◽  
Vector Autoregressive ◽  
Market Factors

The paper analyzes features of prime factors of nominal exchange rate in countries with inflation targeting regime and high cross-border financial openness. The paper aims to test the hypothesis about different strength of these factors in developed countries and emerging market economies (EMEs). Using a panel vector autoregressive model and panel data for 2010 — 1st half-year 2020 period for 9 developed countries and 10 EMEs, the paper estimates significance of factors from the side of global commodity and financial markets, as well as the side of national monetary policy. The paper finds some evidence of greater sensitivity of EMEs’ nominal exchange rate to global commodity and financial market factors and a greater sensitivity of developed countries’ nominal exchange rate to national monetary policy. The paper regards this result as an argument for EMEs’ exchange rate policy specification, considering the necessity to cope with heightened exchange rate volatility in these countries under the influence of external factors.

scholarly journals MONETARY TRANSMISSION OF PERSISTENT SHOCK TO THE RISK PREMIUM: THE CASE OF INDONESIA

2011 ◽  
Vol 13 (4) ◽  
pp. 435-468
Author(s):  
Akhis R. Hutabarat
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Risk Premium ◽  
Nominal Exchange Rate ◽  
Monetary Transmission ◽  
Cost Channel ◽  
Long Run ◽  
Pass Through ◽  
Exchange Rate Pass Through

This paper investigates the relative importance of monetary transmission channel to inflation of passing persistent shock to the risk premium. The findings show that nominal exchange rate depreciation, triggered by a more persistent shock to interest risk premium, worsens the state of the economy in the short- and long-run. Such distinctive shocks effect is transmitted through the economy that typifies lack of response of consumer price disinflation to interest rate tightening caused by high real rigidity, strong cost channel of interest rate, strong cost channel of exchange rate pass-through and weak demand-side channel of exchange rate pass-through. This study suggests a proper monetary policy response, which is the smallest interest rate increases within the feasible set of monetary policy responses that the model recommends, to minimize the adverse effects of the shocks.Keywords: Exchange rate, Balance of Payment, Monetary transmission and policy, Dynamic General Equilibrium.JEL Classification: F41; E52; D58

scholarly journals ANALISIS KEBIJAKAN MONETER DALAM MENGENDALIKAN INFLASI DI INDONESIA

2012 ◽  
Vol 1 (2) ◽  
pp. 103
Author(s):  
Suriani Suriani
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Granger Causality ◽  
Unit Root Test ◽  
Good Choice ◽  
Causality Test ◽  
Long Run ◽  
Short Run

The objective of this research is to analize the effects of the variables interest rate, and exchange as one of monetary mecanisme for controlling inflation. The correlation among those variables is cointgration in the long run and short run equilibrium analyzed. In Indonesia, the monetary policy is run by monetary instruments (i.e. interest rates or monetary aggregates) to achieve price stability. This research used Unit Root Test , Cointegration Test, Granger causality and VECM (Vector Error Correction Model) Test. The results of estimation showed that have cointegration among interest rate, exchange rate and inflation in the long run. Granger causality test showed that between inflation and interest rate have no causality relationship, but for inflation and exchange rate have two directions relationship of causality. It’s means, monetary of mecanisme transmition through exchange rate channel can be good choice in making monetary policy to control inflation in Indonesia.

scholarly journals Interest Rate and Exchange Rate Volatility Spillovers: Multiscale Perspective of Monetary Policy Transmission in Ghana

2020 ◽  
Vol 9 (1) ◽  
pp. 135-167
Author(s):  
Nana Kwame Akosah ◽  
Paul Alagidede ◽  
Eric Schaling
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rate Volatility ◽  
Output Gap ◽  
Monetary Policy Transmission ◽  
Volatility Spillovers ◽  
Policy Transmission ◽  
The Exchange Rate ◽  
Macro Variables

AbstractGhana’s economy is characterised by acute exchange rate volatility alongside persistent and high consumer inflation. This places the economy among the sub-Saharan African countries with the highest inflation over the years. Therefore, we explore in-sample and out-of-sample macro-volatility spillovers to determine the effectiveness of monetary policy and also ascertain the relevance of the exchange rate in Ghana’s interest rate setting at both time and multiscale domains. The study reveals scale-dependent interconnectedness among the macro-variables as their causal linkages broadly intensify at the longer time-scale. We find the real policy rate and the exchange rate to be net transmitters of shocks, while inflation and output gaps are net receivers of shocks from the system. Output gap, however, is the largest net receiver of shocks from the system. The empirical findings generally buttress the prerequisite to uphold exchange rate stability in order to inure general macroeconomic stability in Ghana. In addition, the extent of spillover dynamics from policy interest rate to and from the targeted macro-variables (particularly output gap and inflation) appears to be moderate even in the long run, surmising less effective monetary policy transmission in Ghana.

scholarly journals The Effect of Foreign Debt on The Exchange Rate and Its Impact on Monetary Policy in Indonesia

Media Trend ◽  
2019 ◽  
Vol 14 (1) ◽  
pp. 128-135
Author(s):  
Diah Wahyuningsih ◽  
Uun Primangesti Ningsih
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Granger Causality ◽  
Impulse Response ◽  
Foreign Debt ◽  
Granger Causality Test ◽  
Causality Test ◽  
The Exchange Rate ◽  
The Interest Rate

The objectives of this study are to analyze the effect of foreign debt on the exchange rate that seen from the foreign debt and the exchange rate, and add the variable of inflationary monetary policy and the interest rate of BI Rate to test its impact on monetary policy in Indonesia. The approach in this study is quantitative approach. Data that used are Time Series data from Asian Development Bank and Indonesian World Bank in 1986-2013. Variables that used are exchange rate, foreign debt, inflation and the interest rate of BI Rate. Method that used in this study is Vector Auto Regression (VAR) analysis. The stages that used in this study testing are stationary test, optimal lag test, Granger causality test, impulse response test, and variance decomposite test in Eviews 6 program. The results of Granger causality test of all variables in this study are unlikely to have a relationship and there are only two variables that give an effect.Based on the results of Granger causality, it shows that there is bidirectional between foreign debt variable that has an effect on the exchange rate in Indonesia and the exchange rate has an effect on the foreign debt in Indonesia. While the foreign debt has an effect on the interest rate of BI Rate. For the results of impulse response test show that the exchange rate variable gives the biggest respond to the shock of foreign debt variable, compared to inflation and the interest rate of BI Rate variables. The results of Variance decomposite show that the contribution which given by foreign debt variable on the exchange rate is relatively bigger compared to the contribution that given by inflation and the interest rate of BI Rate variables.

scholarly journals MONETARY TRANSMISSION OF PERSISTENT SHOCK TO THE RISK PREMIUM: THE CASE OF INDONESIA

2011 ◽  
Vol 13 (4) ◽  
Author(s):  
Akhis R. Hutabarat
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Risk Premium ◽  
Nominal Exchange Rate ◽  
Monetary Transmission ◽  
Cost Channel ◽  
Long Run ◽  
Pass Through ◽  
Exchange Rate Pass Through

This paper investigates the relative importance of monetary transmission channel to inflation of passing persistent shock to the risk premium. The findings show that nominal exchange rate depreciation, triggered by a more persistent shock to interest risk premium, worsens the state of the economy in the short- and long-run. Such distinctive shocks effect is transmitted through the economy that typifies lack of response of consumer price disinflation to interest rate tightening caused by high real rigidity, strong cost channel of interest rate, strong cost channel of exchange rate pass-through and weak demand-side channel of exchange rate pass-through. This study suggests a proper monetary policy response, which is the smallest interest rate increases within the feasible set of monetary policy responses that the model recommends, to minimize the adverse effects of the shocks.Keywords: Exchange rate, Balance of Payment, Monetary transmission and policy, Dynamic General Equilibrium.JEL Classification: F41; E52; D58

Does Fiscal Deficit Affect Current Account Deficit in India? An Econometric Analysis

2017 ◽  
Vol 9 (3) ◽  
pp. 155-174
Author(s):  
Umer J. Banday ◽  
Ranjan Aneja
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Current Account ◽  
Current Account Deficit ◽  
Exchange Rate Volatility ◽  
Empirical Literature ◽  
Chain Model ◽  
Causality Test ◽  
Long Run ◽  
Deficit Financing

The aim of this article is to examine the validity of the Keynesian proposition and Ricardian equivalence (RE) theorem for the developing country India over the period 1990–2015. The Mundell–Fleming model and Feldstein chain model which revolve around the Keynesian proposition argues it is budget deficit (BD) which influences current account deficit (CAD), with the increase in interest rate. While as RE theorem states that there is no relationship between BD and CAD, the decrease in tax rates will not increase the consumption because rational agents consider today’s deficit financing as tomorrow’s liabilities. The article initially investigates the theoretical foundation, followed by empirical literature, and uses various methods of econometrics to testify its validity. A co-integration and vector error correction model (VECM) model validates the existence of long-run relationship. The results of Granger causality test reveal the existence of bi-directional causality between BD and CAD and validates Keynesian proposition in India. Our results conclude that instability in macro variables such as inflation, exchange rate, interest rate and money supply (MS) causes CAD and BD which further have been proved by Cholesky decomposition method. However, it has been said in the global economic world that no one can escape the windfall effect of exchange rate volatility and rising prices, and such effects can be minimised but not eliminated. JEL: E12, E31, E52, E62, E63, E41

The Role of Different Channels in Transmitting Monetary Policy into Output and Price in Vietnam

2015 ◽  
pp. 20-40
Author(s):  
Vinh Nguyen Thi Thuy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Interest Rate Channel

The paper investigates the mechanism of monetary transmission in Vietnam through different channels - namely the interest rate channel, the exchange rate channel, the asset channel and the credit channel for the period January 1995 - October 2009. This study applies VAR analysis to evaluate the monetary transmission mechanisms to output and price level. To compare the relative importance of different channels for transmitting monetary policy, the paper estimates the impulse response functions and variance decompositions of variables. The empirical results show that the changes in money supply have a significant impact on output rather than price in the short run. The impacts of money supply on price and output are stronger through the exchange rate and credit channels, but however, are weaker through the interest rate channel. The impacts of monetary policy on output and inflation may be erroneous through the equity price channel because of the lack of an established and well-functioning stock market.

scholarly journals Exchange Rate Volatility and Foreign Direct Investment

2020 ◽  
Vol 12 (3) ◽  
pp. 38
Author(s):  
Samuel Erasmus Alnaa ◽  
Ferdinand Ahiakpor
Keyword(s):  
Foreign Direct Investment ◽  
Exchange Rate ◽  
Interest Rate ◽  
Gross Domestic Product ◽  
Real Exchange Rate ◽  
Direct Investment ◽  
Exchange Rate Volatility ◽  
External Factors ◽  
Conditional Heteroskedasticity ◽  
Data Set

The paper seeks to determine the effect of exchange rate volatility on foreign direct investment in Ghana from 1986 to 2017. The study adopted the Generalized Autoregressive Conditional Heteroskedasticity model to fit the data set from 1986-2017. The results indicate that, previous quarter information can influence current quarter volatility in Foreign Direct Investment. Real exchange rate, gross domestic product and treasure bill rate considered as external factors, are all found to be significant. This shows that, volatility from these factors can spillover to volatility in foreign direct investment.  To ensure stable inflow of foreign direct investment, we recommend that policies should gear towards stability in the forex market and interest rate among others.

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