Determinants of foreign exchange reserve accumulation: empirical evidence from foreign exchange constrained economy

PurposeThe main purpose of this study is to investigate the determinants of foreign exchange reserve accumulation in a foreign exchange constrained economy, namely Ethiopia, over the period of 1981 up to 2017.Design/methodology/approachIn this study, autoregressive distributed lag (ARDL) model is used. Besides, standard unit-root tests such as augmented Dickey Fuller (ADF) and Phillips–Perron (PP) tests are employed to check for the stationarity of the series.FindingsAccording to the results of unit-root tests, our variables are found to be a mixture of I(0) and I(1), and none of our series is I(2). The results of our ARDL model indicates, in the short run, foreign exchange reserve accumulation of Ethiopia is negatively and significantly affected by inflation rate and exchange rate. But, in the long run, inflation rate affects foreign exchange reserve positively and significantly. Additionally, in the long run, external debt affects foreign exchange reserve positively. Similar to its effect in the short run, exchange rate also affects foreign exchange reserve negatively in the long run.Originality/valueThis paper has its originality as it contributes in reasoning out the factors determining, both in the short-run and long-run, foreign exchange deficiency in any developing country with foreign exchange deficiency, taking Ethiopian economy as a case study, and fills the scarce literature on the determinants of foreign exchange reserve accumulation in a developing country.

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Impact of Macroeconomic Indicators on the Yuan-SDR Exchange Rate

Asian Journal of Empirical Research ◽

10.18488/journal.1007.2021.117.59.71 ◽

2021 ◽

Vol 11 (7) ◽

pp. 59-71

Author(s):

Debesh Bhowmik

Keyword(s):

Exchange Rate ◽

Foreign Exchange ◽

Inflation Rate ◽

Impulse Response Function ◽

Cyclical Fluctuations ◽

Long Run ◽

Macroeconomic Indicators ◽

Macroeconomic Impact ◽

Short Run ◽

The Impact

The paper endeavours to explore the macroeconomic impact on the Yuan SDR exchange rate of China during 2017m1-2021m6 to justify the internationalization of RMB which had entered into the SDR basket of IMF in October 2016.To evaluate the impact ,the paper used the methodology of Johansen (1988) cointegration and vector error correction model considering monthly Yuan per SDR as dependent variable and monthly GDP, inflation rate, foreign exchange reserves, export and import as the independent macro-economic variables. The pattern of trendline of Yuan per SDR is found nonlinear having cyclical fluctuations and seasonal variations according to Hamilton (2018). The paper also found that Yuan per SDR has significant long run causalities with export, import, inflation rate, GDP and foreign exchange rate of China during the specified period. Even, Yuan per SDR has significant short run causality with export only. The cointegrating equation converged towards the equilibrium with the speed of adjustment 11.83% per month significantly. The impulse response function of import to Yuan per SDR showed significantly convergent. The VECM contains autocorrelation problem and unit root for which it is non-stationary.

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Exploring the relationship between macroeconomic indicators and sovereign credit default swap in Pakistan

The Journal of Risk Finance ◽

10.1108/jrf-03-2017-0049 ◽

2017 ◽

Vol 18 (4) ◽

pp. 368-380

Author(s):

Abdul Rashid ◽

Farooq Ahmad ◽

Ammara Yasmin

Keyword(s):

Exchange Rate ◽

Credit Default Swap ◽

Content Type ◽

Macroeconomic Variables ◽

Long Run ◽

Credit Default ◽

Macroeconomic Indicators ◽

Short Run ◽

The Exchange Rate ◽

The Interest Rate

Purpose This paper aims to empirically examine the long- and short-run relationship between macroeconomic indicators (exchange rates, interest rates, exports, imports, foreign reserves and the rate of inflation) and sovereign credit default swap (SCDS) spreads for Pakistan. Design/methodology/approach The authors apply the autoregressive distributed lag (ARDL) model to explore the level relationship between the macroeconomic variables and SCDS spreads. The error correction model is estimated to examine the short-run effects of the underlying macroeconomic variables on SCDS spreads. Finally, the long-run estimates are obtained in the ARDL framework. The study uses monthly data covering the period January 2001-February 2015. Findings The results indicate that there is a significant long-run relationship between the macroeconomic indicators and SCDS spreads. The estimated long-run coefficients reveal that both the interest rate and foreign exchange reserves are significantly and negatively, whereas imports and the rate of inflation are positively related to SCDS spreads. Yet, the results suggest that the exchange rate and exports do not have any significant long-run impact on SCDS spreads. The findings regarding the short-run relationship indicate that the exchange rate, imports and the rate of inflation are positively, whereas the interest rate and exports are negatively related to SCDS spreads. Practical implications The results suggest that State Bank of Pakistan should design monetary and foreign exchange rate polices to minimize unwanted variations in the exchange rate to reduce SCDS spreads. The results also suggest that it is incumbent to Pakistan Government to improve the balance of payments to reduce SCDS spreads. The findings also suggest that the inflation targeting policy can also help in reducing SCDS spreads. Originality/value This is the first study to examine the empirical determinants of SCDS spreads for Pakistan. Second, it estimates the short- and long-run effects in the ARDL framework. Third, it considers both internal and external empirical determinants of SCDS spreads.

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Impact of Exchange Rate Management on the Nigerian Economic Growth: Empirical Validation

American International Journal of Economics and Finance Research ◽

10.46545/aijefr.v1i2.68 ◽

2019 ◽

Vol 1 (2) ◽

pp. 28-35

Author(s):

Friday Osaru Ovenseri Ogbomo ◽

Precious Imuwahen Ajoonu

Keyword(s):

Economic Growth ◽

Exchange Rate ◽

Inflation Rate ◽

Government Expenditure ◽

Least Square ◽

Ordinary Least Square ◽

Exchange Rate Management ◽

Long Run ◽

Short Run ◽

The Impact

This paper examined the impact of Exchange Rate Management on economic growth in Nigeria between 1980 and 2015. The study was set to gauge how the management of exchange rate in Nigeria has impacted the economy. The study employed the Ordinary Least Square (OLS) method in its analysis. Co-integration and Error Correction Techniques were used to establish the Short-run and Long-run relationships between economic growth and other relevant economic indicators. The result revealed that exchange rate management proxy by various exchange rates regimes in Nigeria was not germane to economic growth. Rather, government expenditure, inflation rate, money supply and foreign direct investment significantly impact on economic growth in Nigeria. It is against this backdrop that the Nigerian economy must diversify her export base to create room for more inflow of foreign exchange.

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Effects of Exchange Rate and Inflation Rate on Stock Market Returns Volatility in India.

10.21203/rs.3.rs-55417/v1 ◽

2020 ◽

Author(s):

Nenavath Sre ◽

Suresh Naik

Keyword(s):

Exchange Rate ◽

Stock Market ◽

Error Correction ◽

Inflation Rate ◽

Market Returns ◽

Stock Market Returns ◽

Positive Effects ◽

Distributed Lag ◽

Long Run ◽

Short Run

Abstract The paper investigates the effect of exchange and inflation rate on stock market returns in India. The study uses monthly, quarterly and annual inflation and exchange rate data obtained from the RBI and market returns computed from the Indian share market index from January, 2000 to June, 2020.The paper uses the autoregressive distributed lag (ARDL) co-integration technique and the error correction parametization of the ARDL model for investigating the effect on Indian Stock markets. The GARCH and its corresponding Error Correction Model (ECM) were used to explore the long- and short-run relationship between the India Stock market returns, inflation, and exchange rate. The paper shows that there exists a long term relationship but there is no short-run relationship between Indian market returns and inflation. But, there is periodicity of inflation monthly considerable long run and short-run relationship between them existed. The outcome also illustrates a significant short-run relationship between NSE market returns and exchange rate. The variables were tested for short run and it was significantly shown the positive effects on the stock market returns and making it a desirable attribute of which investors can take advantage of. This is due to the establishment of long-run effect of inflation and exchange rate on stock market returns.

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Are the Responses of Sectoral Energy Imports Asymmetric to Exchange Rate Volatilities in Pakistan? Evidence From Recent Foreign Exchange Regime

Frontiers in Energy Research ◽

10.3389/fenrg.2021.614463 ◽

2021 ◽

Vol 9 ◽

Author(s):

Abdul Saqib ◽

Tze-Haw Chan ◽

Alexey Mikhaylov ◽

Hooi Hooi Lean

Keyword(s):

Exchange Rate ◽

Crude Oil ◽

Foreign Exchange ◽

Exchange Rate Volatility ◽

Asymmetric Effects ◽

Unit Root Testing ◽

Long Run ◽

Short Run ◽

Bound Test

Growing energy demand but stagnant production followed by volatile exchange rate leads Pakistan to energy imbalances and potential economic contraction. Yet, studies on sectoral energy imports are limited and inconclusive without accessing the asymmetric effect of currency fluctuations. We examine the impacts of Pakistani rupee volatility on monthly energy imports based on the nonlinear autoregressive distributed lag (NARDL) estimations. Augmented Dickey–Fuller and Phillips–Perron tests were used to conduct unit root testing, and the bound testing approach was used to examine the long-term cointegration. The long-run asymmetry was tested with the Wald test, and using the NARDL model, we examined both short-run and long-run asymmetric effects of exchange rate volatility on energy imports. The bound test was established and supported through ECMt−1 (t-test), cointegrating the relationship between exchange rate volatility and energy imports in a long term. Among others, both short-run and long-run asymmetric effects were found for crude oil, coal, electricity, and petroleum products. Rupee depreciation increased crude oil and electricity imports, while the appreciation effects were insignificant. Overall, the empirical assessment reveals that the foreign exchange volatility effect is sectoral specific and asymmetric in Pakistan. It offers new insights into re-strategizing the energy policy and refining the import substitution plan.

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The long-run effects of geopolitical risk on foreign exchange markets: evidence from some ASEAN countries

International Journal of Emerging Markets ◽

10.1108/ijoem-08-2020-1001 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Hon Chung Hui

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Foreign Exchange ◽

Risk Index ◽

Foreign Exchange Markets ◽

Content Type ◽

Long Run ◽

Exchange Markets ◽

Exchange Rate Models ◽

Asean Countries

PurposeThe purpose of this paper is to analyse the long-run relationship between geopolitical risk and exchange rates in four ASEAN countries.Design/methodology/approachWe augment theoretical nominal exchange rate models available in the literature with the geopolitical risk index developed by Caldara and Iacoviello (2019), and then estimate these models using the ARDL approach to Cointegration.FindingsOur analysis uncovers evidence of Cointegration in the exchange rate models when the MYR-USD, IDR-USD, THB-USD and PHP-USD exchange rates are used as dependent variable. Next, geopolitical risk is a significant long-run driver for these exchange rates. Third, in all countries higher geopolitical risk leads to a depreciation of domestic currency.Research limitations/implicationsThere are implications for entrepreneurs, central banks, portfolio managers and arbitrageurs who actively trade in financial markets. Financial market players can benefit from a better understanding of how geopolitical events affect the portfolio of financial assets across various countries, while entrepreneurs can work out hedging strategies.Originality/valueThis is a contribution to the study of interlinkages between political risk and foreign exchange markets. It is the first study to adopt the geopolitical risk index of Caldara and Iacoviello (2019) to the study the foreign exchange markets of ASEAN countries.

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Analysis of Indonesian Tax Revenue

AFEBI Economic and Finance Review ◽

10.47312/aefr.v1i01.15 ◽

2017 ◽

Vol 1 (01) ◽

pp. 71

Author(s):

Amalia Wijayanti ◽

Firmansyah Firmansyah

Keyword(s):

Exchange Rate ◽

Error Correction ◽

Government Spending ◽

Inflation Rate ◽

Correction Term ◽

Error Correction Model ◽

Tax Revenue ◽

Correction Model ◽

Long Run ◽

Short Run

This study analyzes the long-run and short-run effect of macroeconomic factors, such as real Gross Domestic Product (GDP), inflation rate, exchange rate and government spending on Indonesia’s tax revenue during 1976-2013, by utilizing the Error Correction Model (ECM). The finding of the study demontrates that in the long-run; the real GDP, exchange rate, and government spending affect Indonesia’s tax revenue, except the inflation rate. In short-run, Indonesia’s tax revenue statisically affected by government spending, while others variable do not influence Indonesia’s tax revenue. Error Correction Term (ECT) coefficient is 0.221, explains incompatibility tax revenue occur in long-run is corrected of 22 percent in one period. JEL Classification: E01, E20, H20 Keywords: Error Correction Model, Macroeconomic, Tax revenue

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Determinants of Inflation in the Local Economy

ETIKONOMI ◽

10.15408/etk.v17i1.7146 ◽

2018 ◽

Vol 17 (1) ◽

pp. 1-10

Author(s):

Jaka Sriyana

Keyword(s):

Exchange Rate ◽

Minimum Wage ◽

Inflation Rate ◽

Local Level ◽

Price Change ◽

Local Economy ◽

Price Changes ◽

Vector Error Correction ◽

Long Run ◽

Short Run

This research analyzes the determinants of inflation rate in the local economy. It uses co-integration and vector error correction to capture the long and short run relationship between inflation rate and other economic variables. We find that the determinants of inflation rate in Yogyakarta are minimum wage, economic growth, and monetary variables indicated by BI-rate. More finding, exchange rate also contributes to the price change. This research finds evidence of long-run causality between minimum wage and inflation and unidirectional relationship from wage to inflation in the short run. This finding confirms the proposition of non-neutrality wage on price changes. The inflation rate in the local economy depends not only on the regional indicator but also depends on international changes reflected in the exchange rate. Monetary variable indicated by BI- rate also partially contributes to the price changes at the local level. Overall, the local government has successfully managed the price changes.DOI: 10.15408/etk.v17i1.7146

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Re-estimation of Keynesian Model by Considering Critical Events and Multiple Cointegrating Vectors

The Pakistan Development Review ◽

10.30541/v54i2pp.123-145 ◽

2015 ◽

Vol 54 (2) ◽

pp. 123-145

Author(s):

Hafsa Hina ◽

Abdul Qayyum

Keyword(s):

Exchange Rate ◽

Random Walk ◽

Error Correction ◽

Unit Root ◽

Dynamic Error ◽

Correction Model ◽

Keynesian Model ◽

Long Run ◽

Out Of Sample ◽

Short Run

This study employs the Mundell (1963) and Fleming (1962) traditional flow model of exchange rate to examine the long run behaviour of rupee/US $ exchange rate for Pakistan economy over the period 1982:Q1 to 2010:Q2. This study investigates the effect of output levels, interest rates and prices and different shocks on exchange rate. Hylleberg, Engle, Granger, and Yoo (HEGY) (1990) unit root test confirms the presence of non-seasonal unit root and finds no evidence of biannual and annual frequency unit root in the level of series. Johansen and Juselious (1988, 1992) likelihood ratio test indicates three long-run cointegrating vectors. Cointegrating vectors are uniquely identified by imposing structural economic restrictions on purchasing power parity (PPP), uncovered interest parity (UIP) and current account balance. Finally, the short-run dynamic error correction model is estimated on the basis of identified cointegrated vectors. The speed of adjustment coefficient indicates that 17 percent of divergence from long-run equilibrium exchange rate path is being corrected in each quarter. US war with Afghanistan has significant impact on rupee in short run because of high inflows of US aid to Pakistan after 9/11. Finally, the parsimonious short run dynamic error correction model is able to beat the naïve random walk model at out of sample forecasting horizons. JEL Classification: F31, F37, F47 Keywords: Exchange Rate Determination, Keynesian Model, Cointegration, Out of Sample Forecasting, Random Walk Model

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Assessing the influence of exchange rate on agricultural commodity export price: evidence from Vietnamese coffee

Journal of Economics and Development ◽

10.1108/jed-02-2020-0014 ◽

2020 ◽

Vol 22 (2) ◽

pp. 297-309

Author(s):

Trung Tuyen Dang ◽

Caihong Zhang ◽

Thi Hong Nguyen ◽

Ngoc Trung Nguyen

Keyword(s):

Exchange Rate ◽

Granger Causality ◽

Export Price ◽

Agricultural Commodity ◽

Causality Test ◽

Content Type ◽

Long Run ◽

Commodity Export ◽

Short Run ◽

The Impact

PurposeThe purpose of this paper is to evaluate the influence of VND/USD exchange rate on Vietnamese coffee export price (PVN).Design/methodology/approachThe study uses cointegration test, Granger causality test and vector autoregression (VAR) model.FindingsThe results reveal that there is no co-integrating equation between two variables. It means the exchange rate does not have an effect on PVN in the long run. Furthermore, there is one Granger causality relationship between VND/USD exchange rate and PVN in the short run, but not vice versa. The study suggests that the first previous period of PVN is the most closely related variable which has the greatest impact on the variation of PVN among the selected variables, meanwhile the effect of VND/USD exchange rate on it, contrarily, is positive and very trivial.Originality/valueIn overall, the impact of VND/USD exchange rate on Vietnamese coffee export price (PVN) has been analyzed deeply in this research by applying new approaches.

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