SOURCES OF MACROECONOMIC FLUCTUATIONS IN BRUNEI DARUSSALAM

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.

Download Full-text

The effects of real exchange rate volatility on sectoral export flows under intermediate and flexible exchange rate regimes: Empirical evidence from Turkey

New Trends and Issues Proceedings on Humanities and Social Sciences ◽

10.18844/prosoc.v4i10.3073 ◽

2018 ◽

Vol 4 (10) ◽

pp. 172-184

Author(s):

Bahar Erdal

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Exchange Rate Regime ◽

Exchange Rate Regimes ◽

Exchange Rate Volatility ◽

Flexible Exchange Rate ◽

Long Run ◽

Short Run ◽

The Impact ◽

Real Exchange Rate Volatility

The aim of this paper is to analyse empirically the effects of real exchange rate volatility on sectoral exports in Turkey under intermediate and flexible exchange rate regimes. The cointegration test and error correction models are used to test the long-run relationship and short-run effects, respectively. The estimation results show that the real exchange rate volatility has negative and significant effects on sectoral exports in both intermediate and flexible exchange rate regimes. These empirical results are consistent with the theory. However, the impact of real exchange rate and foreign income appeared to be quite different for the two exchange rate regimes. Further, research is required to analyse the impacts of real exchange rate and foreign income on sectoral exports. Keywords: Real exchange rate volatility, real exchange rate, intermediate exchange rate regime, flexible exchange rate regime, sectoral export.

Download Full-text

INVESTMENT AND REAL EXCHANGE RATES IN STICKY PRICE MODELS

Macroeconomic Dynamics ◽

10.1017/s1365100511000095 ◽

2012 ◽

Vol 17 (2) ◽

pp. 195-234 ◽

Cited By ~ 7

Author(s):

Enrique Martínez-García ◽

Jens Søndergaard

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Real Exchange Rate ◽

Open Economy ◽

Capital Accumulation ◽

Real Exchange Rates ◽

Exchange Rate Volatility ◽

Monetary Shocks ◽

Productivity Shocks ◽

Exogenous Shocks

This paper investigates how the inclusion of capital in the workhorse new open economy macro model affects its ability to generate volatile and persistent real exchange rates. We show that capital accumulation facilitates intertemporal consumption smoothing and significantly reduces the volatility of the real exchange rate. Nonetheless, monetary and investment-specific technology (IST) shocks still induce more real exchange rate volatility and less consumption comovement than productivity shocks (with or without capital). We find that endogenous persistence is particularly sensitive to the inertia of the monetary policy rule even with persistent exogenous shocks. However, irrespective of whether capital is present, productivity and IST shocks trigger highly persistent real exchange rates, whereas monetary shocks do not. Moreover, we point out that IST shocks tend to generate countercyclical real exchange rates—unlike productivity or monetary shocks—but have the counterfactual effect of also producing excessive investment volatility and countercyclical consumption.

Download Full-text

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

Acta Oeconomica ◽

10.1556/aoecon.52.2002.1.3 ◽

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.

Download Full-text

Open Door System and Endogenous Growth in Indian Economy: An Empirical Analysis on the Role of Human Capital and R&D in Explaining Industrial Productivity

Management and Labour Studies ◽

10.1177/0258042x20976948 ◽

2021 ◽

Vol 46 (1) ◽

pp. 24-37

Author(s):

Arjun K. ◽

Sanjay Kumar ◽

A. Sankaran ◽

Mousumi Das

Keyword(s):

Human Capital ◽

Exchange Rate ◽

Real Exchange Rate ◽

Endogenous Growth ◽

Value Added ◽

Capital Formation ◽

Knowledge Capital ◽

Test Technique ◽

Long Run ◽

The Impact

The present study investigates the impact of human capital, knowledge capital which is a function of human capital, and real exchange rate scenario in explaining long-run industrial total factor productivity (TFP) from 1980 to 2015 on the theoretical basis of the open endogenous growth model. The variables employed in the contemporary study include manufacturing value added (MNVA) as industrial output measure, gross fixed capital formation (GFCF) as a measure of capital and labour input which is measured using employment data. Gross enrolment ratio (GER) is taken as a measure for human capital formation, expenditure on research and development (R&D) as a proxy for knowledge capital, and real exchange rate indicates global economic shocks. The study involves estimating TFP for Industrial Sector during the post-liberalization period by employing Cobb-Douglas production function. The ARDL bounds test technique for cointegration revealed long-run relation among the varying factors studied. The Toda-Yamamoto causality test concluded bi-directional causality running between, R&D expenditure and Industrial TFP which sends a strong signal to the policymakers for a well-framed long-term integrated approach for human & knowledge capital formation which will act as a strong impetus for manufacturing firms to come up in terms of augmenting production and productivity and expanding foreign market horizon. JEL Classification: D24, E2, J24

Download Full-text

Research On Monetary Neutrality: Evidence From Exchange Rate And Trade Balance Of G-7 Countries

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v24i2.1351 ◽

2011 ◽

Vol 24 (2) ◽

Cited By ~ 1

Author(s):

Doh-Khul Kim

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Trade Balance ◽

Monetary Shocks ◽

Font Size ◽

Long Run ◽

Short Period ◽

Short Run ◽

Monetary Neutrality ◽

Nominal Shocks

According to a recent paper by Fisher and Huh (2002), in contrast to a long-run neutrality hypothesis, nominal shocks have long-run effects on a country’s real exchange rate and trade balance. However employing a similar method (VAR) with identical restrictions (long-run neutrality and short-run recursive hypotheses), this paper shows that the effects on the real exchange rate are much shorter in this G-7 country study than what Fisher and Huh (2002) contend. Further, the trade balance improves for a short period of time, from which it can conclude there is a shorter existence of the depreciation effect in response to expansionary monetary shocks, which supports the long-run neutrality hypothesis in an open macroeconomic framework.

Download Full-text

The long-run relationship between import flows and real exchange-rate volatility: The experience of eight European economies

International Review of Economics & Finance ◽

10.1016/s1059-0560(98)90030-2 ◽

1998 ◽

Vol 7 (4) ◽

pp. 417-435 ◽

Cited By ~ 18

Author(s):

Augustine C. Arize

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Exchange Rate Volatility ◽

Long Run ◽

European Economies ◽

Real Exchange Rate Volatility

Download Full-text

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

The Macroeconomics of Developing Countries ◽

10.1093/oso/9780198856672.003.0015 ◽

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.

Download Full-text

Testing the Harrod Balassa Sameulson Hypothesis: The Case of Pakistan.

The Pakistan Development Review ◽

10.30541/v50i4iipp.379-399 ◽

2011 ◽

Vol 50 (4II) ◽

pp. 379-399 ◽

Cited By ~ 1

Author(s):

Sunila Jabeen ◽

Waseem Shahid Malik ◽

Azad Haider

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Open Economy ◽

Purchasing Power Parity ◽

Control Variable ◽

Policy Implications ◽

Purchasing Power ◽

Power Parity ◽

Long Run ◽

Tradable Sector

For a small open economy of Pakistan, exchange rate is determined through the two alternative theories; the nominal theory of exchange rate named by Purchasing Power Parity (PPP) and the real theory known as Harrod Balassa Sameulson (HBS). According to the requirements of theories, two kinds of real exchange rate have been employed for the yearly data of 1972-2008. As, both of the theories are disputed at the ground of their long run relationship with real exchange rate, therefore, the VAR based Johenson Co-integration approach has been utilised to see the long run relationships. PPP has shown less satisfactory results either in its form of absolute version or relative version. Because, real exchange rate in Pakistan is a non-stationary process by Augmented Dickey Fuller unit-root test, predicting some pushing force behind the non-tradable sector. While favouring the PPP in tradable sector, the ADF and KPSS are indicating the presence of the HBS in Pakistan. On the other hand, the analysis of the HBS through co-integration is showing that relative productivity difference has an opposite relationship with relative non-tradable sector prices and with RER. However, the relationship between relative non-tradable sector prices and RER is much stronger and according to the theory. So, there have been incorporated some demand side and external factors to reduce the mis-specification of the simple HBS model. Therefore, in the extended HBS model, productivity difference, government consumption expenditure, terms of trade and world oil prices are appreciating the RER and money supply (a control variable) is pursuing depreciation in RER. So, these results yield some policy implications for Pakistan which can be useful for developing countries as well. JEL classification: E0, E31, E44 Keywords: Harrod-Balassa-Samuelson, Exchange Rate, Purchasing Power Parity, Pakistan

Download Full-text

Exchange Rate Volatility and Trade Flows: Evidence from China, Pakistan and India

International Journal of Economics and Finance ◽

10.5539/ijef.v7n11p121 ◽

2015 ◽

Vol 7 (11) ◽

pp. 121 ◽

Cited By ~ 2

Author(s):

Sarfaraz Ahmed Shaikh ◽

Ouyang Hongbing

Keyword(s):

Exchange Rate ◽

Exchange Rate Volatility ◽

Trade Flows ◽

Series Data ◽

General Level ◽

Negatively Associated ◽

Long Run ◽

Short Run ◽

The Exchange Rate ◽

The Impact

This study examines the impact of exchange rate fluctuations on trade flows in case of China, Pakistan and India by using the time series data from 1980 to 2013. Most of the researchers have advocated that exchange rate volatility is negatively associated with general level of trade. In this study we have used the standard deviation of the moving average of the logarithm of the exchange rate as a proxy for volatility. And to investigate this relationship, we have applied the Autoregressive Distributive Lag (ARDL) approach for co-integration which estimates the short and long run relationship among the variables for the said period. The results of this empirical work have suggested that exchange rate volatility is negatively associated with Chinese exports in short run while positively associated in long run. However, in the case of Pakistan and India both in the short run and long run, the exchange rate volatility is negatively associated with total volume of trade.

Download Full-text

Does exchange rate volatility influence import commodities of India-US? Evidence from ARDL approach

South Asian Journal of Business Studies ◽

10.1108/sajbs-02-2021-0056 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Mohini Gupta ◽

Sakshi Varshney

Keyword(s):

Exchange Rate ◽

Financial Crisis ◽

Real Exchange Rate ◽

Global Financial Crisis ◽

Exchange Rate Volatility ◽

Content Type ◽

Long Run ◽

Short Run ◽

The Empirical Analysis ◽

Real Exchange Rate Volatility

PurposeThe aim the study is to explore the impact of real exchange rate volatility and other macroeconomic variable such as price of import, industrial production and real exchange rate on 45 import commodities, considering global financial crisis period on India's import from the US. The empirical analysis at disaggregate level of import indicates the existence of both short-run and long-run effect in one-third importing commodities. The results show both positive and negative effect and causality among variables.Design/methodology/approachThe study uses E-GARCH model to gage the real exchange rate volatility, an autoregressive distributive lag (ARDL) bound test technique to discover the adequate short- and long-run relationships and Toda-Yamamoto causality method to analyze the causality among variables. The study uses the time period from 2002:M09 to 2019:M06.FindingsThe empirical analysis at disaggregate level of import indicates the existence of both short-run and long-run effect in one-third importing commodities. The results show both positive and negative effects and causality among variables.Practical implicationsThe finding of the study suggests that macroeconomic variables have significant role and could be important to undertake the small and medium scale industries in policymaking. Government may need to make decision for micro, small and medium enterprises (MSMEs) as their performance can bring change in the trade to compete globally by increasing and controlling the price of the import and defending the domestic competitiveness.Originality/valueThe study uses additional variable namely price of import and includes the global financial crisis period to measure dampening effect on each commodity by using robust econometric technique in context of emerging nation like India.

Download Full-text