Granger-causes of the Ringgit-US dollar exchange rate after 2005

2019 ◽  
Vol 12 (1) ◽  
pp. 77-96
Author(s):  
Yoke Yue Kan ◽  
Markus Leibrecht
Keyword(s):  
Exchange Rate ◽  
Composite Index ◽  
Empirical Literature ◽  
Impulse Response Functions ◽  
Content Type ◽  
Macroeconomic Conditions ◽  
Financial Conditions ◽  
The Usa ◽  
Short Run ◽  
Prior Literature

Purpose This study aims to investigate Granger-causal relations between the Ringgit-USD exchange rate and selected domestic and international economic variables after the flotation of the Ringgit beginning with 25 July 2005. Design/methodology/approach The study uses lag-augmented vector autoregression (LA-VAR) developed by Toda and Yamamoto (1995) to test for Granger-causality. To visualize short-run dynamics in the Malaysian Ringgit (RM)-USD exchange rate to shocks in predictor variables, generalized impulse-response functions (Pesaran and Shin, 1998) are derived from the estimated LA-VAR models. Findings Results based on LA-VAR generalized impulse responses and data measured in daily frequency indicate strong Granger-causal relationships with the Dow Jones Industrial Average and oil prices. Evidence is also indicative for a causal relationship with the Shanghai Composite Index. Positive shocks in these three variables lead an appreciation of the Ringgit. Practical implications These results provide insights for policymakers in East Asia in their attempt to manage the floating of their currency. Originality/value The paper adds to existing empirical literature in three ways. First, it investigates the RM-USD exchange rate after its managed flotation beginning with 25 July 2005. Second, the study provides results for exchange rates measured in two frequencies, namely, daily and monthly. Third, the empirical LA-VAR model applied includes variables capturing economic and financial conditions in China. Prior literature puts a focus on macroeconomic conditions in the USA. Yet, since 2009, China has been the largest trading partner of Malaysia.

Purchasing power parity as a long-term memory process

2015 ◽  
Vol 10 (4) ◽  
pp. 711-725 ◽  
Author(s):  
Mohamed Bilel Triki ◽  
Samir Maktouf
Keyword(s):  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Empirical Literature ◽  
Long Term Memory ◽  
Purchasing Power ◽  
Power Parity ◽  
Fractional Cointegration ◽  
Content Type ◽  
Long Run ◽  
The Usa

Purpose – The purpose of this paper is to focus on whether the deviations from the cointegrating relationship possess long memory and the fractional cointegration analyses may capture a wider range of mean-reversion behaviour than standard cointegration analyses. Design/methodology/approach – This paper uses a fractional cointegration technique to test the purchasing power parity (PPP). Findings – The authors found that PPP held, but very weakly, in the long run between the Argentine, Brazil, Chile, Colombia, Indonesia, Korea, Mexico, Thailand and Venezuela and US exchange rate during our floating exchange rate period but that the deviations from it did not follow a stationary process. Nevertheless, it is also found that the deviations from PPP exists and can be characterized by a fractionally integrated process in nine out of 13 countries studied. Originality/value – The findings are consistent with the consensus of the empirical literature, reviewed earlier in this paper, on PPP between Argentine, Brazil, Chile, Colombia, Indonesia, Korea, Mexico, Thailand and Venezuela and the USA.

The effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Naser Yenus Nuru ◽  
Hayelom Yrgaw Gereziher
Keyword(s):  
Exchange Rate ◽  
Design Methodology ◽  
Manufacturing Sector ◽  
Empirical Literature ◽  
Impulse Response Functions ◽  
Response Functions ◽  
Exchange Rate Uncertainty ◽  
Content Type ◽  
Local Projection ◽  
Asymmetric Effects

PurposeThe main purpose of this study is to investigate the symmetric and asymmetric effects of exchange rate uncertainty on employment in South Africa’s manufacturing sector over the period 1985Q1–2019Q2.Design/methodology/approachJorda’s (2005) local projection method is employed and following Koop et al. (1996); generalized impulse response functions are generated to see the effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector.FindingsThe results show that exchange rate uncertainty affects negatively and significantly employment in South Africa’s manufacturing sector. Employment also responds negatively and significantly to export shock. Inflation and output shocks, however, positively and significantly affect employment on impact. Asymmetric responses of employment to exchange rate uncertainty are also found in this study. While high exchange rate uncertainty leads to a reduction in employment, low exchange rate uncertainty brings an increase in employment in South Africa’s manufacturing sector.Originality/valueThis research adds to the scarce empirical literature on the effect of exchange rate uncertainty on employment in South Africa’s manufacturing sector by incorporating mainly non-linearities into the model.

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.

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

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.

Macroeconomic conditions are only an illusion, not the solution, to firm sustainability: unveiling the new dimension of stakeholder well-being

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Zahid Irshad Younas ◽  
Mahvesh Khan ◽  
Mamdouh Abdulaziz Saleh Al-Faryan
Keyword(s):  
Well Being ◽  
Developed Countries ◽  
Macroeconomic Performance ◽  
Content Type ◽  
Macroeconomic Conditions ◽  
Us Economy ◽  
The Us ◽  
The Usa ◽  
Negative Impacts ◽  
The One

Purpose The purpose of the study is to explore the misconception that in developed countries, macroeconomic performance lead to sustainable firms or improves stakeholder well-being. The results may be the opposite or even worse. Design/methodology/approach This study examined this misconception using balanced panel data from 1,122 firms from different sectors of the US economy and data on macroeconomic performance from the World Bank. Findings The results of the one-step generalised method of moments indicate that most macroeconomic performance indicators had significant and negative impacts on firm sustainability and stakeholder well-being. Practical implications From a societal perspective, the results illustrate that the fruits of macroeconomic performance of the US economy do not reach stakeholders through firms’ sustainability. Thus, linking the economy’s macroeconomic performance with firm sustainability is vital for sustainably uplifting society and for stakeholder well-being. Originality/value From a policy perspective, this study reveals that the greater focus on macroeconomic performance in the USA over the past decades has resulted in lower firm sustainability because of the malfunctioning of social, economic, environmental and governance factors. This has negatively influenced stakeholder well-being in the country.

scholarly journals The dynamic effect of exchange-rate volatility on Turkish exports: Parsimonious error-correction model approach

2015 ◽  
Vol 62 (4) ◽  
pp. 429-451 ◽  
Author(s):  
Erdal Demirhan ◽  
Banu Demirhan
Keyword(s):  
Exchange Rate ◽  
Error Correction ◽  
Exchange Rate Volatility ◽  
Dynamic Effect ◽  
Error Correction Model ◽  
Impulse Response Functions ◽  
Correction Model ◽  
Long Run ◽  
Export Volume ◽  
Short Run

This paper aims to investigate the effect of exchange-rate stability on real export volume in Turkey, using monthly data for the period February 2001 to January 2010. The Johansen multivariate cointegration method and the parsimonious error-correction model are applied to determine long-run and short-run relationships between real export volume and its determinants. In this study, the conditional variance of the GARCH (1, 1) model is taken as a proxy for exchange-rate stability, and generalized impulse-response functions and variance-decomposition analyses are applied to analyze the dynamic effects of variables on real export volume. The empirical findings suggest that exchangerate stability has a significant positive effect on real export volume, both in the short and the long run.

scholarly journals Exchange rate pass-through to inflation in Egypt: a structural VAR approach

2018 ◽  
Vol 3 (2) ◽  
pp. 2-19 ◽  
Author(s):  
Omneia Helmy ◽  
Mona Fayed ◽  
Kholoud Hussien
Keyword(s):  
Exchange Rate ◽  
Price Index ◽  
Structural Var ◽  
Empirical Literature ◽  
Content Type ◽  
The Exchange Rate ◽  
Exchange Rate Shocks ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
The Impact

Purpose The theoretical and empirical literature stipulated that exchange rate shocks do influence the domestic price of imports. Hence, this paper aims to investigate the underlying relationship between the exchange rate and prices known as the exchange rate pass-through. Design/methodology/approach The paper uses a structural vector auto-regression (SVAR) model, drawing on Bernanke (1986) and Sims (1986), to empirically examine and analyze the pass-through of exchange rate fluctuations to domestic prices in Egypt. Findings The empirical results of the monthly data between 2003 and 2015 revealed that the exchange rate pass-through in Egypt is fairly substantial but incomplete and slow in the three price indices [IMP, producer price index and consumer price index (CPI)]. However, the impact is more prominent for consumer prices than for any other price index. This finding could be attributed to the fact that the CPI in Egypt is composed of a relatively large number of subsidized commodities and goods with administered prices as well as the authorities’ behavior in manipulating prices (i.e. export ban). This is expected to weaken the transmission of exchange rate shocks. Practical implications The result has interesting implications for Egypt’s ability to attain an effective inflation targeting regime. Originality/value The study contributes to the literature by assessing the effect of changes in the exchange rate (the Egyptian £ vis-à-vis the US$) on prices using an updated time series from 2003 to 2015. It addresses the limitations of the study of Nafie et al. (2004), which found no strong relationship between the exchange rate and inflation rate in the Egyptian context. One of these limitations was using the CPI, as the only price index.

Does the exchange rate overshoot in an emerging economy?

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Muhammad Aftab ◽  
Amir Rafique ◽  
Evan Lau
Keyword(s):  
Exchange Rate ◽  
Money Supply ◽  
Structural Breaks ◽  
Content Type ◽  
Extant Literature ◽  
Nonlinear Ardl ◽  
Short Run ◽  
The Exchange Rate ◽  
Substantial Decline

Purpose The sticky-price monetary model of exchange rate states the overshooting hypothesis as, exchange rate depreciation beyond its long-term value in response to an increase in money supply owing to the sticky nature of prices. Because of interest and relevance to policy, there is a huge extant literature on it but with mixed findings that suggest the need for further studies to refine the findings. Pakistan’s rupee exchange rate against the US dollar depreciated 128.44% over the period May 2007–December 2018. Considering this substantial decline in rupee's value, this study aims to examine either the rupee short-run value is over-shot of its long-term value. Design/methodology/approach This study uses a linear ARDL approach that segregates the short-run and long-run effects thus clarifying the premise of exchange rate overshooting. Furthermore, this study also uses nonlinear ARDL as a robustness check incorporating structural breaks. Findings Findings based on a linear model show evidence of exchange rate undershooting that means a positive money shock causes the exchange rate to appreciate. A nonlinear analysis also provides support to these findings. However, the increase in relative money supply has more such effect than that of a decrease in the relative money supply. Moreover, the authorities’ inclination to stabilize the exchange rate appreciates its short-run value. Originality/value This study substantiates the overshooting hypothesis literature by considering the role of asymmetric effects of exchange rate determinants and structural breaks that is a rare attempt in the extant literature.

Revisiting the tourism-economic growth nexus: evidence from the United States

2019 ◽  
Vol 31 (9) ◽  
pp. 3779-3798 ◽  
Author(s):  
David N. Aratuo ◽  
Xiaoli L. Etienne ◽  
Tesfa Gebremedhin ◽  
David M. Fryson
Keyword(s):  
Economic Growth ◽  
Exchange Rates ◽  
The United States ◽  
Impulse Response Functions ◽  
Causality Test ◽  
Content Type ◽  
Long Run ◽  
The Usa ◽  
State And Local ◽  
Exchange Rate Shocks

Purpose The purpose of this study is to investigate the causal linkages between tourism and economic growth in the USA and determine how they respond to shocks in the system. Design/methodology/approach The study uses a variety of time series procedures, including the bounds test, Granger causality test, impulse response functions and generalized variance decomposition to analyze the relationship between monthly tourist arrivals (TA) to the USA, real gross domestic product (GDP) and real effective exchange rates. Findings Results suggest that GDP Granger causes TA in the USA in the long run, indicating the economy-driven tourism growth hypothesis. Additionally, a shock to GDP generates a positive and significant effect on TA that persists in the long-run, while exchange rate shocks only have a significant effect in the first six months. Research limitations/implications Different tourism sectors may exert different degrees of influence on the economy. The use of aggregate data on TA in the analysis assumes homogeneity in the industry, thus, only represents the average relationship between tourism and GDP. Practical implications This study provides insight that shapes the investment, marketing, sustainability decisions of the public and private sectors aim at increasing tourist flows to drive economic development at the national, state and local levels. Originality/value Though several studies have examined the factors influencing the international tourist demand of the USA, this is the first to investigate the causal relationships between tourism, GDP and exchange rates for the USA. It is also the first in the US tourism literature to account for the nature of interactions between the three variables because of innovations in the system.

The effectiveness of government expenditure on economic growth in Botswana

2019 ◽  
Vol 10 (3) ◽  
pp. 368-384 ◽  
Author(s):  
Kafayat Amusa ◽  
Mutiu Abimbola Oyinlola
Keyword(s):  
Economic Growth ◽  
Government Spending ◽  
Negative Impact ◽  
Positive Impact ◽  
Government Expenditure ◽  
Public Spending ◽  
Empirical Literature ◽  
Content Type ◽  
Long Run ◽  
Short Run

Purpose The purpose of this paper is to examine the relationship between government expenditure and economic growth in Botswana over the period 1985‒2016. The study employed the auto-regressive distributed lag (ARDL) bounds testing approach in investigating the nexus. The study makes the argument that the effectiveness of public spending should be assessed not only against the amount of the expenditure but also by the type of the expenditure. The empirical findings showed that aggregate expenditure has a negative short-run and positive long-run effect on economic growth. When expenditure is disaggregated, both forms of expenditures have a positive short-run effect on economic growth, whereas only a long-run positive impact of recurrent expenditure is observed. The study suggests the need to prioritize scarce resources in productive recurrent and development spending that enables increased productivity. Design/methodology/approach This study examined the effectiveness of government spending in Botswana, within an ARDL framework from 1985 to 2016. To achieve this, the analysis is carried out on both an aggregate and disaggregated level. Government spending is divided into recurrent and development expenditures. Findings This study examined the effectiveness of government spending in Botswana, within an ARDL framework from 1985 to 2016. To achieve this, the analysis hinged on both the aggregate and disaggregated levels. The results of the aggregate analysis suggest that total public expenditure has a negative impact on economic growth in the short run; however, its impact becomes positive over the long run. On disaggregating government spending, the results show that both recurrent and development expenditures have a significant positive short-run impact on growth; however, in the long run, the significant positive impact is only observed for recurrent expenditure. Practical implications The results provide evidence of the diverse effects of government expenditure in the country. In the period under investigation, 73 percent of total government expenditure in Botswana was recurrent in nature, whereas 23 percent was related to development. From the results, it can be observed that although the recurrent expenditure has contributed to increased growth and must be encouraged, it is also pertinent for the Botswana Government to endeavor to place more emphasis on productive development expenditure in order to enhance short- and long-term growth. Further, there is a need to strengthen the growth-enhancing structures and to prioritize the scarce economic resources toward productive spending and ensuring continued proper governance over such expenditures. Originality/value The study provides empirical evidence on the effectiveness of government spending in a small open, resource-reliant middle-income SSA economy and argues that the effectiveness of public spending must be assessed not only against the amount of the expenditure but also on the type or composition of the expenditure. The study contributes to the scant empirical literature on Botswana by employing the ARDL approach to cointegration technique in estimating the long- and short-run impact of government expenditure on economic growth between 1985 and 2016.

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