scholarly journals Impact of socioeconomic development on inflation in South Asia: evidence from panel cointegration analysis

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Md. Saiful Islam
Keyword(s):  
Exchange Rate ◽  
South Asia ◽  
Money Supply ◽  
Foreign Exchange ◽  
Socioeconomic Development ◽  
Foreign Exchange Rate ◽  
Causality Test ◽  
Content Type ◽  
Inflationary Pressure ◽  
Practical Implications

Purpose This study aims to examine the influence of socioeconomic development on inflation in South Asia using the foreign exchange rate and money supply as control variables. Design/methodology/approach The study uses annual panel data for five South Asian economies, namely, Bangladesh, India, Nepal, Pakistan and Sri Lanka over the period 1990–2018, applies cointegrating regression techniques, namely, the panel dynamic ordinary least square (OLS) and fully modified OLS estimators to examine the long-run relations and conducts the Toda-Yamamoto Granger causality test to detect the direction of causality among variables. Findings The cointegrating regression estimations have documented that the socioeconomic development proxied by the human development index (HDI) has no significant impact on inflation. Although economic development represented by gross domestic product (GDP) growth causes inflation, socioeconomic development represented by HDI has no impact on inflation and has demonstrated as a better macroeconomic indicator, and thus creates no inflationary pressure in the economy. The foreign exchange rate has a positive impact on inflation. The broad money supply has the usual positive effect on domestic inflation that endorses the monetarist view about prices. The Toda-Yamamoto Granger causality test has confirmed several unidirectional causalities: inflation causes HDI, money supply causes both inflation and HDI and the foreign exchange rate causes HDI. Practical implications The study has practical implications for policymakers in South Asia, to improve HDI, particularly GDP per capita, education and health-care facilities to realize continuous socioeconomic development, which will take care of inflation. Moreover, these counties may follow a conservative monetary policy to control inflationary pressure in their economies. Originality/value The study is original and claims to be the first to examine the impact of socioeconomic development on inflation. The findings have socioeconomic values regarding controlling inflation in South Asia.

scholarly journals Relationship between Foreign Exchange Rate and Stock Price of Commercial Joint Stock Banks: Evidence from Vietnam

2016 ◽  
Vol 8 (7) ◽  
pp. 193 ◽  
Author(s):  
Tran Mong Uyen Ngan
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Stock Prices ◽  
Stock Price ◽  
Time Series Data ◽  
Foreign Exchange Rate ◽  
Series Data ◽  
Causality Test ◽  
Using Data ◽  
The Relationship

The relationship between foreign exchange rate and stock price is one popular topic that is interested by not only board managers of banks but also stock investors. By using data about foreign exchange rate between Vietnam Dong (VND) and United State Dollar (USD), stock prices data of nine commercial joint stock banks in Vietnam from the first day of 2013 to the last day of 2015, this paper try to answer the question “Does foreign exchange rate impact on stock price and vice verse?”. Applying Dickey Fuller test and Var Granger Causality test for the time series data, the results show that there is an impact of foreign exchange rate on stock price. Although the fluctuation in foreign exchange rate VND/USD causes the change in stock prices of commercial joint stock banks in Vietnam, however, the vector of this impact is not clearly. On the opposite way, the change in stock price does not cause the change in foreign exchange rate, this relation is one-way relation.

Post‐crisis South Asia: monetary management and macro‐prudential regulation

2012 ◽  
Vol 1 (2) ◽  
pp. 189-209 ◽  
Author(s):  
D.M. Nachane ◽  
M. Shahidul Islam
Keyword(s):  
Exchange Rate ◽  
South Asia ◽  
South Asian ◽  
Content Type ◽  
Policy Responses ◽  
Asian Region ◽  
Regulatory Systems ◽  
Crisis Recovery ◽  
The Us ◽  
Practical Implications

PurposeThe global crisis, originating in the US financial sector, affected the Asian region primarily through three channels – declining trade volumes, exchange rate pressure and asset deflation. The purpose of this paper is to focus on how the crisis impacted the four major economies of South Asia, viz. Bangladesh, India, Pakistan and Sri Lanka and how, by a combination of swift actions on the monetary, fiscal and exchange rate fronts, the worst consequences of the crisis were averted.Design/methodology/approachThe regulatory and supervisory systems in these four economies are then benchmarked against certain desirable norms, which have emerged out of post‐crisis international deliberations.FindingsIt is felt that the South Asian regulatory systems perform fairly well vis‐à‐vis these norms.Practical implicationsThe paper also touches upon the major highlights of the crisis impact, policy responses and post‐crisis recovery in the Southeast Asian region.Originality/valueThe several similarities and the few contrasts between the two regions on these aspects are also presented.

Modelling foreign exchange rate transaction exposure of UK insurance companies

2016 ◽  
Vol 32 (2) ◽  
pp. 120-136
Author(s):  
Islam Amer
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Cash Flow ◽  
Estimation Method ◽  
Foreign Exchange Rate ◽  
Insurance Companies ◽  
Content Type ◽  
Flow Estimation ◽  
Life Insurers ◽  
Short And Long Term

Purpose The purpose of this paper is to study the sensitivity of foreign exchange exposure through the cash flow estimation method using a sample of 59 UK insurance companies. This approach allows a decomposition of exposures into short- and long-term components. By revealing the nature of their cash flow exposures, companies can evaluate the effectiveness of their hedging programmes and focus their hedging efforts according to the nature of their exposures. Design/methodology/approach Martin and Mauer’s (2003, 2005) three-stage model is used to estimate foreign exchange rate transaction exposures for the sample of 65 UK insurance companies over the period 2004-2013. However, this paper has one important innovation to this method. Instead of the model used in previous papers, the paper uses a model from the actuarial field that was proposed by Blum et al. (2001) for modelling foreign exchange rates with their relevant constituents (inflation and interest rate). Findings The evidence shows that the currency transaction exposure for non-life insurers is greater than that of life insurers. Moreover, the author finds that large insurers exhibit lower frequencies of foreign exchange transaction exposure than small insurers. Originality/value The value of this paper comes from the fact that revealing the nature of cash flow exposures, companies can evaluate the effectiveness of their hedging programmes and focus their hedging efforts according to the nature of their exposures.

scholarly journals Influence of Exchange Rate on the Economic Growth in the Turkish Economy

2020 ◽  
Vol 11 (1) ◽  
pp. 21-34
Author(s):  
Özcan Karahan
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Inflation Targeting ◽  
Foreign Exchange Rate ◽  
Policy Implications ◽  
Causality Test ◽  
Input Structure ◽  
Johansen Cointegration Test

The traditional view asserts that there is a positive relationship between the foreign exchange rate and economic growth. So much so that an increase in foreign exchange rates enhances the net export volume and thus positively affects economic growth due to the increasing total demand. However, structural economists argue that there is an inverse relationship between the exchange rate and economic growth. Especially in developing countries, the input structure of production depends on imported capital and intermediate goods, so an increase in exchange rates makes import production inputs more expensive and thus negatively affects economic growth. Turkey, leaving foreign exchange rate free float since 2002, has implemented the Inflation Targeting (IT) regime as the monetary policy. Therefore, Turkey has a real experience to analyse the role of exchange rate changes on economic growth. Accordingly, in our study, using the quarterly data between 2002-Q1 and 2019-Q1, the relationship between exchange rate and economic growth was examined by employing Johansen cointegration test, Granger causality test and Innovation Accounting Techniques. Empirical findings suggest that there is a negative causal relationship between exchange rates and economic growth, as claimed by structuralist economists. In terms of policy implications, it can be argued that, even under the inflation targeting regime in Turkey, both price and exchange rate stability should be provided together.

scholarly journals Monetary Policy vs. Foreign Exchange Rate: A Statistical Analysis

2011 ◽  
Vol 5 (11) ◽  
Author(s):  
Tyler T. Yu ◽  
Miranda M. Zhang
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Money Supply ◽  
Foreign Exchange ◽  
Hypothesis Test ◽  
Time Lag ◽  
Correlation Coefficients ◽  
Foreign Exchange Rate ◽  
Exchange Rate Movements ◽  
The Impact

The purpose of this paper is to examine the economic impact of the Feds rate cuts on foreign exchange movements. Using secondary data, the paper estimates the lagged effects of the changes in money supply due to the rate cuts on the foreign exchange rates between the US dollar and the Japanese Yen ($/), British Pounds ($/), and the euro ($/), respectively. Since the impact of monetary policy tends to have a time lag, as suggested by Hall and Taylor, the study segments the measurements in six months intervals (6 months form the cut, 12 months from the cut, 18 months from the cut and 24 months from the cut). The relationship between the changes in money supply and potential impact on foreign exchange rate movements will be investigated using the Pearson Product-Moment Correlation coefficients (PPMCC) as well as Spearmans Rank Correlation coefficients (SRCC, the nonparametric alternative to the PPMCC). Then, a hypothesis test will be conducted to determine whether the correlation between the Federal Reserves stimulating monetary policy and foreign exchange rate movements is significant.

Assessing the impact of monetary fundamentals on exchange rate fluctuations a Bayesian network approach

2019 ◽  
Vol 15 (1) ◽  
pp. 166-181
Author(s):  
Sahar Charfi ◽  
Salah BenHamad ◽  
Afif Masmoudi
Keyword(s):  
Exchange Rate ◽  
Bayesian Network ◽  
Money Supply ◽  
Inflation Rate ◽  
Granger Causality Test ◽  
Causality Test ◽  
Content Type ◽  
Exchange Rate Fluctuations ◽  
Bayesian Network Modeling ◽  
Rate Behavior

Purpose The purpose of this paper is to analyze how monetary fundamentals affect exchange rate movements. Design/methodology/approach To develop this paper, a Bayesian Network modeling is applied to explore the causal interactions between monetary fundamentals and exchange rate fluctuations. Subsequently, a sensitivity analysis is performed to asses and estimate exchange rate behavior with uncertain monetary fundamentals. Furthermore, a Granger Causality test is used as suggested in the Econometric literature to determine the causality direction among factors. Findings The empirical findings show that money supply and interest rate have a significant positive effect on exchange rate, whereas inflation rate has a considerable negative effect on exchange rate. In addition, the authors deduce that real income has an indirect impact on exchange rate and a direct impact on inflation rate, interest rate and money supply. Furthermore, the sensitivity analysis shows that monetary uncertainty has a considerable effect on exchange rate fluctuations. Moreover, the Granger Causality test reveals that there is a unique unidirectional causality running from money supply to exchange rate. Practical implications The model can be considered as a vital management tool for international investors and financial analysts to explore the effect of monetary fundamentals on exchange rate behavior. It allows estimating exchange rate fluctuations with uncertain monetary factors. Originality/value This study is the first one which applied a Bayesian Network modeling to examine the exchange rate determination problem. Results of this research are presented under a clear graphical representation that can be easily useful by monetary policymakers and international traders to determine the influential monetary factors on exchange rate behavior. Also, the model will help them in estimating the effect of monetary uncertainty on exchange rate fluctuations.

scholarly journals THE EFFECT OF MACROECONOMIC FACTORS ON THE NUMBER OF CORPORATE SUKUK OFFERS IN INDONESIA

2020 ◽  
Vol 1 (4) ◽  
pp. 593-605
Author(s):  
Haerul Ependi ◽  
Hakiman Thamrin
Keyword(s):  
Exchange Rate ◽  
Money Supply ◽  
Foreign Exchange ◽  
Significant Influence ◽  
Foreign Exchange Rate ◽  
Short Term ◽  
Macroeconomic Factors ◽  
Short And Long Term ◽  
Independent Variable

This study aims to analyze the effect of macroeconomics factors on corporate sukuk in Indonesia in the short and long term. The independent variable is Inflation, Economics Growth, Total Money Supply, Foreign Exchange Rate and Bank Indonesia (BI) Rate. Whereas the dependent variable is the number of sukuk corporations offered. The results of this study indicate that the Inflation, Economics Growth, Total money supply, and BI Rate have no significant effect on the number of corporate sukuk offered. While Foreign Exchange Rate has significant effect on the amount of corporate sukuk that offered. In the short term period, the total money supply has significant influence on the number of sukuk corporations offered while the rest have no significant effect

Modelling foreign exchange rate exposure

2014 ◽  
Vol 30 (2) ◽  
pp. 96-120
Author(s):  
Islam Amer
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Foreign Exchange Rate ◽  
Insurance Companies ◽  
Future Research ◽  
Foreign Exchange Rates ◽  
Content Type ◽  
Operating Income ◽  
Exchange Rate Exposure

Purpose – The purpose of this paper is to fill a gap in the foreign exchange rate exposure management literature as the existing literature has focused only on developed economics, and also the current literature on foreign exchange rate exposure of cedant insurance companies is very limited. As Egyptian insurance companies deal directly with foreign exchange rates, they face exposure to exchange rates through their international reinsurance operations. Design/methodology/approach – Martin and Mauer (2003, 2005) three-stage model is used to estimate foreign exchange rate transaction exposure for the sample of 23 Egyptian insurance companies over the period 2002-2009. However, the author has two innovations to this method. The author's first innovation is that instead of looking at the unanticipated operating income for each cedant company (as in both previous papers), this paper looks at the unanticipated operating income on an aggregate level. The author's second innovation is that instead of the model used in previous papers the author uses a model from the actuarial field that was proposed by Blum et al. (2001) for modelling foreign exchange rates with their relevant constituents (inflation and interest rate). Findings – The central finding of the study is that the foreign exchange rate exposure across the Egyptian insurance industry is not significant (at the 10 per cent level) and investigates this result. Research limitations/implications – This study has made considerable contributions to the existing academic literature, but the findings also illustrate the limitations of the research undertaken. These limitations, however, provide important directions for future research. This thesis focused exclusively on the transaction exposure that Egyptian insurance companies experience to fluctuations in the US dollar exchange rate in relation to their international reinsurance operations. As a result, investigating both translation and economic exposure was beyond the scope and purpose of this study. Practical implications – The findings of this research provide meaningful implications for industry practitioners. As Egyptian insurance companies are not immune from exchange rate risks, efforts must be made by each insurer to approximate and quantify their individual foreign exchange rate transaction exposure. Additionally, as Egyptian insurance companies increasingly operate worldwide (through the international reinsurance industry), this research and its results are significant for practitioners not only in Egypt, but also further afield. Finally, it is believed that this research will highlight greater implications for international financial players active in Egyptian financial and non-financial sectors, including banks not exposed singularly to US dollars, but to multiple currencies. One recent Egyptian example is Egypt Air, which lost an estimated US$600 million in 2013 due to foreign exchange rate fluctuations. Originality/value – Since Egyptian insurance operates worldwide, the results of this paper are of significant not only for Egyptian insurance managers but also to practitioners beyond Egypt.

scholarly journals An Empirical Relationship between Foreign Exchange Rate, Inflation and Interest Rate in Nigeria

2018 ◽  
pp. 1-9
Author(s):  
David Adugh Kuhe
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Granger Causality ◽  
Foreign Exchange ◽  
Empirical Relationship ◽  
Granger Causality Test ◽  
Foreign Exchange Rate ◽  
Causality Test ◽  
Short Run

This paper investigates the empirical relationship between naira/US dollar exchange rate, inflation and interest rate in Nigeria. The study uses annual time series data from 1970-2017. Augmented Dickey-Fuller unit root test, Johansen cointegration, fully modified least squares; Error correction model and Granger causality test based on Toda-Yamamoto procedure were employed in this study as methods of analysis. The results reveal that all variables are integrated of order one and hence cointegrated. The study finds inflation as having negative and significant impact on exchange rate while interest rate was found to have positive and significant impact on the foreign exchange rate in Nigeria in the long-run. The economic impacts of inflation and interest rate on the exchange rate in the short-run are found to be low, temporal and not long lasting. The ECM model has identified a moderate speed of adjustment by 50.39% for correcting disequilibrium annually for achieving long-term equilibrium steady-state position. The Granger causality test result shows statistical evidence of unidirectional causality between exchange rate and inflation and between exchange rate and interest rate in the short-run. There is also a unidirectional causality that runs from interest rates to inflation meaning that inflation is Granger caused by interest rates in Nigeria. The study recommends that lowering the lending interest rate and targeting inflation to single digit is a better exchange policy strategy for Nigeria. 

An Empirical Analysis of Foreign Exchange Exposure of CNX 100 Companies

GIS Business ◽  
2017 ◽  
Vol 12 (5) ◽  
pp. 1-9 ◽  
Author(s):  
Sriram Mahadevan
Keyword(s):  
Exchange Rate ◽  
Stock Returns ◽  
Foreign Exchange ◽  
Foreign Exchange Rate ◽  
Future Research ◽  
Export Ratio ◽  
Exchange Rate Exposure ◽  
Ratio Size ◽  
Foreign Exchange Exposure ◽  
Exchange Rate Changes

The present study has empirically examined the level of foreign exchange exposure and its determinants of CNX 100 companies. For the purpose of study, the relationship between exchange rate changes and stock returns for a sample of 82 companies was determined for the period April 2011-March 2016. The study finds that 49% of the sample companies had significant positive foreign exchange rate exposure and the found that the companies could be exporters or net importers. To explore factors determining foreign exchange rate exposure, variables such as export ratio, import ratio, size of a company, hedging activities were regressed against the exchange exposure and the study found that none of the factors was influencing the exchange rate exposure. The study concludes that the reasons for insignificant influence of the variables could be the natural hedging practices of companies, offsetting of exports and imports and heterogeneous of the sample size. The study offers few directions for future research in this area.

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