Modelling the Open Economy, Devaluation, and the Exchange Rate in Developing Countries

2020 ◽  
pp. 277-306
Author(s):  
Giovanni Andrea Cornia
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Open Economy ◽  
Exchange Rate Volatility ◽  
Empirical Literature ◽  
Economy Model ◽  
Poor Countries ◽  
Pros And Cons ◽  
External Sector ◽  
The Impact

The chapter first examines the limitations of conventional open-economy macro models, such as the Mundell–Fleming model, when they are applied to developing countries. It discusses the Swan–Salter model and the three-sector dependent-economy model that better capture the reality of the external sector in poor countries. It then discusses the impact of devaluation under conditions of closed and open capital accounts and shows the limitation of a devaluation unaccompanied by structural measures in little diversified poor economies and in economies with large dollar liabilities. In this regard, it examines the results of the empirical literature on the contractionary or expansionary effect of devaluation in developing countries. Finally, it reviews the pros and cons of alternative exchange rate regimes, the impossible trinity theorem, and measures to control exchange rate volatility through capital controls.

scholarly journals Coping with the Exceptional Economic Problems in Turkey: A Field Survey on SMES

2019 ◽  
Vol 12 (2) ◽  
pp. 109-126 ◽  
Author(s):  
Ercan Özen
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Exchange Rate ◽  
Exchange Rate Volatility ◽  
Developed Countries ◽  
Business Owners ◽  
Important Place ◽  
Exchange Rate Fluctuations ◽  
The Exchange Rate ◽  
The Impact

Abstract Developing countries need higher economic growth to reach the level of developed countries. When developing countries exceed the potential economic growth, problems, such as, high external debt and high current deficit emerge. Such situations increase the financial risk of the country; in addition, international political risks, fluctuations in capital inflows and some manipulative movements have subjected countries to extreme exchange rate fluctuations. Purposes of this research: (1) to uncover the impact of high exchange rate volatility on small business activities and (2) to determine whether the level of exposure of the exchange rate shock on business owners varies by age. The methodology of the study involved a survey administered to 390 small and medium-sized enterprises (SMEs). The findings of the study show that after a period of significant exchange rate fluctuations, business activities were negatively affected, sales decreased, and job cuts increased. On the other hand, the exchange rate effect was mostly felt by all business owners of different ages. According to the study, it can be concluded that small enterprises are vulnerable to rising exchange rate volatility. The effect on SMEs with more work experience is not different. In order to alleviate the effects of adverse exchange rate movements, enterprises should be more cautious in their activities. Two suggestions can be made at this point: (i) Governments should follow optimal growth policies and (ii) Small businesses that have an important place in the economy should be made aware of the exchange rate risk and crisis management.

SOURCES OF MACROECONOMIC FLUCTUATIONS IN BRUNEI DARUSSALAM

2018 ◽  
Vol 63 (05) ◽  
pp. 1285-1306
Author(s):  
WEE CHIAN KOH
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Capital Investment ◽  
Exchange Rate Volatility ◽  
Macroeconomic Fluctuations ◽  
Monetary Shocks ◽  
Brunei Darussalam ◽  
Long Run ◽  
The Impact

This paper investigates the sources of macroeconomic fluctuations in Brunei Darussalam from 2003Q1 to 2014Q3 using a structural vector autoregression (SVAR) model. Shocks are identified by imposing block exogeneity and long-run restrictions motivated by an open economy model that includes oil prices. The results show that oil price shocks account for only a small proportion of output fluctuations while productivity shocks have the largest share. Real exchange rate movements are largely driven by demand shocks while monetary shocks explain most of the variability in prices. Economic policies should focus on productivity improvement and capital investment to increase output in the long run, and the conduct of fiscal policy should take into account the impact on real exchange rate volatility.

The influence of inflation targeting on the pass-through effect of the exchange rate

2018 ◽  
pp. 70-84
Author(s):  
Ph. S. Kartaev ◽  
Yu. I. Yakimova
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Policy Regime ◽  
Short And Long Term ◽  
The Exchange Rate ◽  
Pass Through ◽  
The Impact

The paper studies the impact of the transition to the inflation targeting regime on the magnitude of the pass-through effect of the exchange rate to prices. We analyze cross-country panel data on developed and developing countries. It is shown that the transition to this regime of monetary policy contributes to a significant reduction in both the short- and long-term pass-through effects. This decline is stronger in developing countries. We identify the main channels that ensure the influence of the monetary policy regime on the pass-through effect, and examine their performance. In addition, we analyze the data of time series for Russia. It was concluded that even there the transition to inflation targeting led to a decrease in the dependence of the level of inflation on fluctuations in the ruble exchange rate.

The long-run stability of a small, open economy under crawling peg regime

2002 ◽  
Vol 52 (1) ◽  
pp. 57-78
Author(s):  
S. Çiftçioğlu
Keyword(s):  
Exchange Rate ◽  
Open Economy ◽  
Risk Premium ◽  
Small Open Economy ◽  
Exchange Rate Policy ◽  
Price Stability ◽  
Output Stability ◽  
Long Run ◽  
The Exchange Rate ◽  
The Impact

The paper analyses the long-run (steady-state) output and price stability of a small, open economy which adopts a “crawling-peg” type of exchange-rate regime in the presence of various kinds of random shocks. Analytical and simulation results suggest that with the exception of money demand shocks, an exchange rate policy which involves a relatively higher rate of indexation of the exchange rate to price level is likely to lead to the worsening of price stability for all types of shocks. On the other hand, the impact of adopting such a policy on output stability depends on the type of the shock; for policy shocks to the exchange rate and shocks to output demand, output stability is worsened whereas for the shocks to risk premium of domestic assets, supply price of domestic output and the wage rate, better output stability is achieved in the long run.

Impact of trade facilitation reforms on tax revenue

2017 ◽  
Vol 44 (5) ◽  
pp. 765-780 ◽  
Author(s):  
Sena Kimm Gnangnon
Keyword(s):  
Developing Countries ◽  
Fixed Effects ◽  
Data Availability ◽  
Empirical Literature ◽  
Future Research ◽  
Tax Revenue ◽  
Trade Facilitation ◽  
Content Type ◽  
The World ◽  
The Impact

Purpose The purpose of this paper is to contribute to the empirical literature of the macroeconomic effect of trade facilitation reforms by examining the impact of the latter on tax revenue in both developed and developing countries. The relevance of the topic lies on the fact that at the Bali Ministerial Conference of the World Trade Organization (WTO) in 2013, Trade Ministers agreed for the first time since the creation of the WTO (in 1995) on an Agreement to facilitate trade around the world, dubbed Trade Facilitation Agreement (TFA). The study considers both at-the-border and behind-the border measures of Trade Facilitation. Design/methodology/approach To conduct this study, the authors rely on the literature related to the structural factors that explain tax revenue mobilization. The authors mainly use within fixed effects estimator. The analysis relies on 102 countries (of which 23 industrial countries) over the period 2004-2007 (based on data availability). A focus has also been made on African countries, within the sample of developing countries. Findings The empirical analysis suggests evidence of a positive and significant effect of trade facilitation reforms on non-resources tax revenue, irrespective of the sample of countries considered in the analysis. Research limitations/implications This finding should contribute to dampening the fear of policymakers in developing countries, including Africa that the implementation of the TFA would entail higher costs, without necessarily being associated with higher benefits. An avenue for future research would be to extend the period of the study when data would be available. Originality/value To the best of the authors knowledge, this study had not been performed in the literature of the determinants of tax revenue mobilization, although fact-based analysis was performed.

scholarly journals Cointegration Analysis of Exchange Rate Volatility and Agricultural Exports in Turkey: an Ardl Approch

2021 ◽  
Vol 9 (6) ◽  
pp. 1180-1185
Author(s):  
Turgut Orman ◽  
İlkay Dellal
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Volatility ◽  
Cointegration Analysis ◽  
Real Effective Exchange Rate ◽  
Series Data ◽  
Producer Price ◽  
Agricultural Exports ◽  
Effective Exchange ◽  
Effective Exchange Rate ◽  
The Impact

This study aims to reveal the impact of exchange rate volatility on agricultural exports of Turkey by using the Autoregressive Distributed Lag Model. While quarterly time series data covering period of 2001: Q1 to 2018: Q4 were used to carry out analyses, Exponential Generalized Autoregressive Conditional Heteroscedasticity (1.1) is used to acquire exchange rate volatility series. The research findings showed that agricultural export is cointegrated with exchange rate volatility, producer price index and real effective exchange rate. Furthermore, our findings indicate that increases in real effective exchange rate have a statistically significant positive influence on the export volume whereas exchange rate volatility has negative impact on it.

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