Exploring exchange rate based policy coordination in SADC

2016 ◽  
Vol 33 (4) ◽  
pp. 576-594 ◽  
Author(s):  
Mulatu Fekadu Zerihun ◽  
Martinus C. Breitenbach ◽  
Francis Kemegue
Keyword(s):  
Exchange Rate ◽  
Policy Coordination ◽  
Policy Implications ◽  
Real Effective Exchange Rate ◽  
Monetary Integration ◽  
Content Type ◽  
Structural Variables ◽  
Effective Exchange ◽  
The Exchange Rate ◽  
Effective Exchange Rate

Purpose This paper explores the possibilities for policy coordination in the Southern African Development Community (SADC) as well as real effective exchange rate (REER) stability as a prerequisite towards sensible monetary integration. The underlying hypothesis goes with the assertion that countries meeting optimum currency area conditions face more stable exchange rates. Design/methodology/approach The quantitative analysis encompasses 12 SADC member states over the period 1995-2012. Correlation matrixes, dynamic pooled mean group (PMG) and mean group (MG) estimators and real effective exchange rate (REER) and real exchange rate (RER) equilibrium and misalignment analysis are carried out to arrive at the conclusions. Findings The study finds that the structural variables used in the PMG model show that there are common fiscal and monetary policy variables that determine REER/RER in the region. However, the exchange rate equilibrium misalignment analysis reveals that SADC economies are characterised by persistent overvaluation at least in the short term. This calls for further sustained policy coordination in the region. Practical implications The findings in this paper have important policy implications for economic stability and for the attempt of policy coordination in SADC region for the proposed monetary integration to proceed. Originality/value This study is the first attempt that relates the exchange rate as a policy coordination instrument among SADC economies.

scholarly journals Impacts of the monetary policy on the exchange rate: case study of Vietnam

2019 ◽  
Vol 26 (2) ◽  
pp. 220-237
Author(s):  
Van Anh Pham
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Real Effective Exchange Rate ◽  
Content Type ◽  
Effective Exchange ◽  
Quantitative Results ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Effective Exchange Rate

Purpose The purpose of this paper is to evaluate and analyze impacts of the monetary policy (MP) – money aggregate and interest rate – on the exchange rate in Vietnam. Design/methodology/approach The study uses data over the period of 2008–2018 and applies the vector autoregression model, namely recursive restriction and sign restriction approaches. Findings The main empirical findings are as follows: a contraction of the money aggregate significantly leads to the real effective exchange rate (REER) depreciating and then appreciating; a tightening of the interest rate immediately causes the REER appreciating and then depreciating; and both the money aggregate and the interest rate strongly determine fluctuations of the REER. Originality/value The quantitative results imply that the MP affects the REER considerably.

The EMU-REER Spillovers on Southeastern European Economies: A G-VAR Model

2020 ◽  
Vol 66 (4) ◽  
pp. 259-290
Author(s):  
Petros Golitsis ◽  
Sotirios K. Bellos ◽  
Anastasios Alexandridis
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Policy Coordination ◽  
Policy Implications ◽  
Real Effective Exchange Rate ◽  
Vector Autoregressive ◽  
Effective Exchange ◽  
Monetary Policy Coordination ◽  
Global Vector ◽  
Effective Exchange Rate

In this paper, we empirically investigate the spillovers of Real Effective Exchange rate of European Monetary Union (EMU-REER) on Industrial Production, Real Effective Exchange rate, Foreign Reserves and interest rates for the South Eastern European (SEE) economies of Bulgaria, Croatia, Greece, North Macedonia, Romania, and Slovenia, using monthly data over 2002–2016. In a global vector autoregressive framework with EMU-REER as a global variable, we show that the EMU variable has a lasting impact on the SEE variables and economies. Specifically, we provide strong evidence that this impact of EMU-REER is not only of a greater importance compared to the importance of the domestic variables, but also that it negatively affects the competitive stance of the investigated SEE economies, which is partly compensated by the lower interest rates that certain SEE countries face in return. Our results offer potential policy implications with respect to monetary policy coordination and discretion.

scholarly journals Real Effective Exchange Rate and Trade Balance Adjustment

2019 ◽  
Vol 19 (131) ◽  
pp. 1 ◽  
Author(s):  
Plamen Iossifov ◽  
Xuan Fei
Keyword(s):  
Exchange Rate ◽  
Global Financial Crisis ◽  
Emerging Market ◽  
Trade Flows ◽  
Policy Implications ◽  
Real Effective Exchange Rate ◽  
The Real ◽  
Effective Exchange ◽  
Effective Exchange Rate ◽  
The Impact

There is an ongoing debate in the literature on whether global trade flows have become disconnected from the large real effective exchange rate movements in the wake of the global financial crisis. The question has important policy implications for the role of exchange rates in supporting growth and restoring external balance. In this paper, we use Turkey---a large and open emerging market economy that has experienced sizable swings of the real effective exchange rate---as a case study to test competing hypotheses. Our results lend support to the finding in existing cross-country studies that the real effective exchange rate remains an important determinant of trade flows. But, its effect is not symmetric in secular periods of appreciation and depreciation and is, oftentimes, dwarfed by the impact on trade flows of the income growth differential between trade partners.

scholarly journals THE IMPACT OF EXCHANGE RATE ON ECONOMIC GROWTH IN ALGERIA

2019 ◽  
Vol 7 ◽  
Author(s):  
Mohammed Touitou ◽  
Yacine Laib ◽  
Ahmed Boudeghdegh
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Real Effective Exchange Rate ◽  
Vector Autoregressive ◽  
The Real ◽  
Effective Exchange ◽  
The Exchange Rate ◽  
Effective Exchange Rate ◽  
The Impact ◽  
Growth Economic

The transmission of changes in the exchange rate to macroeconomic performance has led to debates about their impact, particularly on growth economic. Many economists consider the exchange rate as a transmission channel of economic policy for open economies. This article focuses to determining empirically the impact of the exchange rate on economic growth. For this, we will adopt an approach in terms of the vector autoregressive model (VAR) with four variables namely, the real effective exchange rate, economic growth, financial development with credit indicators and finally the money supply. The empirical results allow us to confirm our theoretical expectations that decline in the real effective exchange rate of the dinar increases the growth economy through public spending for consumption and is stimulated by oil taxation.

Some dynamic macroeconomic perspectives for India’s economic growth

2020 ◽  
Vol 12 (4) ◽  
pp. 641-658
Author(s):  
Matiur Rahman ◽  
Anisul Islam
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Crude Oil ◽  
Real Effective Exchange Rate ◽  
Crude Oil Price ◽  
Content Type ◽  
Long Run ◽  
Effective Exchange ◽  
Short Run ◽  
Effective Exchange Rate

Purpose The purpose of this paper is to study impacts of changes in crude oil price, money supply, fiscal deficit and effective exchange rate on India’s economic growth (expressing all variables in real term). Design/methodology/approach First, a simple macroeconomic model is formulated to this effect. Next, linear autoregressive distributed lag procedure and vector error-correction model are applied for growth empirics. Annual data are used from 1977 through 2015. Findings Rises in real crude oil price and monetized real fiscal deficits have negative short-run and long-run effects on real economic growth. Increase in real money supply and real effective exchange rate appreciation helps promote real economic growth in both short run and long run. In all cases, there is evidence of net interactive positive feedback effects among the variables in the short run. Real effective exchange rate appreciation dampens exports, but it is helpful to imports of capital goods and crude oil that contribute to economic growth. So, the net effect on the economy may be conjecturally positive. Originality/value To the best of the authors’ knowledge, this paper is unique because of the formulation of macro-economic model pertaining to the topic and its subsequent empirical verification. Moreover, this paper seems more comprehensive than some other studies, cited in the literature review.

Impact of exchange rate movement and macro-economic factors on exports of software and services from India

2016 ◽  
Vol 23 (5) ◽  
pp. 1193-1206 ◽  
Author(s):  
Parijat Upadhyay ◽  
Saikat Ghosh Roy
Keyword(s):  
Exchange Rate ◽  
Gross Domestic Product ◽  
Real Effective Exchange Rate ◽  
Domestic Product ◽  
Content Type ◽  
Indian Rupee ◽  
Effective Exchange ◽  
Effective Exchange Rate ◽  
The Impact ◽  
Software Services

Purpose – The information technology (IT) sector in India is the leading exporter from the service sector domain and also is a significant contributor to the overall export kitty of India. The IT sector’s contribution in total Indian exports (merchandise plus services) increased from less than 4 percent in FY1998-1999 to about 25 percent in FY2011-2012 as per IT industry nodal body National Association of Software and Services Companies and the central bank of the country, the Reserve Bank of India (RBI). As this industry earns most of its revenue in foreign currencies it is exposed to the foreign exchange risks. The purpose of this paper is to validate the macro-economic theory that depreciation in domestic currency boosts export as it makes domestic good and services cheaper and appreciation in domestic currency deters export as it makes domestic good and services costlier. The authors are validating this theory for Indian rupee and keeping software services export in the focus. Design/methodology/approach – In this study the authors have done the multiple regression analysis on the obtained time-series data. The research was totally based on the secondary data from Quarter1 (April-June) of FY 2000-2001 to Quarter4 (January-March) of FY 2011-2012. It comprises of data for 48 consecutive quarters. The authors have taken the growth rate, so the final data set consist of data of 47 quarters. The main source of data are published data by RBI. Data have been collected for export of software services, merchandise export, real effective exchange rate, US-dollar-Indian rupee exchange rate, gross domestic product of India and selected countries. Findings – Data analysis leads the authors to the following findings: real effective exchange rate has no significant impact on software services export; US-dollar-Indian rupee exchange rate has no significant impact on software services export; external gross domestic product growth has no significant impact on software services export; and gross domestic product growth of India has no significant impact on software services export. The results obtained from multiple regression analysis are also supported by the results obtained from Granger Causality test. It does not identify any single factor as a major cause of software export. Results shows that the external GDP is having the statistically significant impact on the software export but the low value of R2 denotes that the impact is very low. Originality/value – There are no published studies available which has attempted similar kind of an approach to study using aggregated export data and other macro-economic variables like real effective exchange rate (REER) and GDP growth rate. All previous literatures used REER to measure the impact of the exchange rate on export.

External shocks and output composition: evidence from Nigeria

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Titus Ayobami Ojeyinka ◽  
Dauda Olalekan Yinusa
Keyword(s):  
Exchange Rate ◽  
Open Economy ◽  
Real Effective Exchange Rate ◽  
External Shocks ◽  
Content Type ◽  
Trading Partners ◽  
Effective Exchange ◽  
Exchange Rate Shocks ◽  
Effective Exchange Rate ◽  
The Impact

PurposeThe study investigates the impact of external shocks on output composition (consumption and investment) in Nigeria for the period 1981:Q1– 2018:Q4. Trade-weighted variables from the country's five major trading partners are constructed to capture the impact.Design/methodology/approachThe study employs a block exogeneity open economy structural vector autoregressive (SVAR) analysis in studying the stated relationship.FindingsThe study reveals that external shocks significantly affect consumption and investment in Nigeria. Results from the structural impulse response function suggest that foreign output, real effective exchange rate and foreign interest rate have significant negative effects on consumption and investment. Specifically, results from error variance decomposition show that foreign inflation and real effective exchange rate shocks are major drivers of fluctuations in consumption and investment in Nigeria. Interestingly, the study finds that oil price shock accounts for minor variations in consumption and investment in Nigeria.Research limitations/implicationsThe findings suggest that consumption and investment in Nigeria are substantially and largely driven by external shocks.Practical implicationsThere is need for the monetary authority and the Nigerian government to design appropriate policies to stabilise the naira and salvage the country's exchange rate from unexpected large swings so as to reduce the vulnerability of the economy to external shocks.Originality/valuePrevious studies on external shocks have concentrated on the impact of external shocks on aggregate variables such as output and inflation, while few studies on external shocks in Nigeria capture external shocks through single-country data. This study differs from previous similar studies in Nigeria in two ways. First, the study examines the impact of external shocks on output composition such as consumption and investment. Second, the study captures the impact of external shocks on the two components of gross domestic product (GDP) by constructing trade-weighted variables from Nigeria's five major trading partners.

The volatility of tourism demand and real effective exchange rates: a disaggregated analysis

2020 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Laron Delano Alleyne ◽  
Onoh-Obasi Okey ◽  
Winston Moore
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Exchange Rate Volatility ◽  
Real Effective Exchange Rate ◽  
Tourism Demand ◽  
Content Type ◽  
Effective Exchange ◽  
The Usa ◽  
Effective Exchange Rate ◽  
The Impact

Purpose One of the main factors that can impact the cost of holidays to a particular destination is the exchange rate; exchange rate fluctuations impact the overall price of the holiday and should be expected to effect tourism demand. This paper aims to scrutinize the volatility of the real effective exchange rate between the source market relative to the holiday destination and tourism demand volatility, where the influence of disaggregated data is noted. Design/methodology/approach The study uses multivariate conditional volatility regressions to simulate the time-varying conditional variances of international visitor demand and exchange rates for the relatively mature Caribbean tourist destination of Barbados. Data on the country’s main source markets, the UK, the USA and Canada is used, where the decision to disaggregate the analysis by market allows the authors to contribute to policymaking, particularly the future of tourism marketing. Findings The volatility models used in the paper suggests that shocks to total arrivals, as well as the USA and UK markets tend to die out relatively quickly. Asymmetric effects were observed for total arrivals, mainly due to the combination of the different source markets and potential evidence of Butler’s (1980) concept of a tourist area’s cycle of growth. The results also highlight the significance of using disaggregated tourism demand models to simulate volatility, as aggregated models do not adequately capture source market specific shocks, due to the potential model misspecification. Exchange rate volatility is postulated to have resulted in the greater utilization of packaged tours in some markets, while the effects of the market’s online presence moderates the impact of exchange rate volatility on tourist arrivals. Markets should also explore the potential of attracting higher numbers of older tourist, as this group may have higher disposable incomes, thereby mitigating the influence of exchange rate volatility. Research limitations/implications Some of the explanatory variables were not available on a high enough frequency and proxies had to be used. However, the approach used was consistent with other papers in the literature. Practical implications The results from the paper suggest that the effects of exchange rate volatility in key source markets were offset by non-price factors in some markets and the existence of the exchange rate peg in others. In particular, the online presence of the destination was one of those non-price factors highlighted as being important. Originality/value In most theoretical models of tourism demand, disaggregation is not normally considered a significant aspect of the model. This paper contributes to the literature by investigating the impact real effective exchange rate volatility has on tourism demand at a disaggregated source country level. The approach highlights the importance of modeling tourism demand at a disaggregated level and provides important perspective from a mature small island destination.

Diagnosing the curse of natural resources in Kuwait

2018 ◽  
Vol 34 (2) ◽  
pp. 153-171
Author(s):  
Nayef Al-Shammari ◽  
Noura Al-Hossayan ◽  
Mariam Behbehani
Keyword(s):  
Exchange Rate ◽  
Natural Resource ◽  
Inflation Rate ◽  
Resource Curse ◽  
Dutch Disease ◽  
Real Effective Exchange Rate ◽  
Content Type ◽  
Effective Exchange ◽  
Effective Exchange Rate ◽  
The Impact

Purpose The purpose of this paper is to empirically examine the phenomenon of natural resource curse in an oil abundant economy of Kuwait. The study estimates a behavioral equilibrium exchange rate model for Kuwait during the period 1980-2014 to assess the impact of prices and productivity factors on real effective exchange rate. Design/methodology/approach It uses time series econometric techniques, such as unit root tests, Johansen cointegration test, Vector Error Correction Model, and Impulse Response Function, to estimate the model. Findings Unlike the results of the few other studies, the empirical results show a significant impact of the variables, such as balance of trade, economic growth, oil exports, interest rate, and inflation rate, on real effective exchange rate appreciation which indicates the existence of Dutch disease within the Kuwaiti economy. Similarly, the comparative analysis between changes in public expenditure and inflation rate shows the existence of Dutch disease in Kuwait during specific periods of time. Originality/value Natural resource curse or Dutch disease is a widely recognized phenomenon affecting the balance of economic activities in natural resource abundant countries. Symptoms of Dutch disease are perceived in several changes in the economy, particularly on price level, sectorial productivity, employment, and aggregate demand which in the long run worsen the country’s economic position and lower its international competitiveness. Dutch disease is not only a feature of natural resource abundant economies, but also can affect any economy with excessive revenue generating sector or high capital inflows which appreciates country’s exchange rate. However, the examination of Dutch disease in the economy is more important when investigating the impact on oil-producing countries (Apergis et al. 2014; Mohammadi and Jahan-Parvar, 2012; Jahan-Parvar and Mohammadi, 2011). Therefore, scholars studying Dutch disease phenomenon pay greater attention to cases of Dutch disease among oil-producing countries (i.e. Arezki and Ismail, 2013; Van der Ploeg and Venables, 2013; Jahan-Parvar, 2012; Cologni and Manera, 2013).

scholarly journals Exchange Rate Management and Economic Growth: A Brewing Crisis in Pakistan

2017 ◽  
Vol 22 (Special Edition) ◽  
pp. 73-110 ◽  
Author(s):  
Naved Hamid ◽  
Azka Sarosh Mir
Keyword(s):  
Exchange Rate ◽  
Nominal Exchange Rate ◽  
Real Effective Exchange Rate ◽  
Negative Consequences ◽  
The Real ◽  
Exchange Rate Management ◽  
Effective Exchange ◽  
The Exchange Rate ◽  
Effective Exchange Rate ◽  
Policy Target

In this article it is argued that Pakistan has had a consistently overvalued exchange rate and the policy with regards to management of the exchange rate has undergone a significant change in recent years. We show that prior to March 2013, the policy target of the exchange management was stability of the real effective exchange rate. However, during the tenure of the current government, the policy target for exchange rate management seems to have been stability of the nominal exchange rate against the US dollar. As the currencies of Pakistan’s major trading partners (UK, Europe and China) have depreciated against the dollar during this period, the real effective exchange rate has appreciated by over 20 percent since the time that the current policy makers took office. Overvaluation in general and the recent reversal in the exchange rate management policy in particular have had an adverse impact on exports and the manufacturing sector. This not only has serious negative consequences for the long term, growth of the economy, but has greatly increased the short-term risk of a balance of payments crisis.

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