EFFECT OF EXCHANGE RATE VOLATILITY ON UGANDA'S TRADE BALANCE

This study examines the long-run and the short-run relationship between the real exchange rate, GDP, FDI, inflation (INF), gross capital formation (GCF), Net official's development assistance (NODA), GNI, and trade balance in Uganda for the period 1994-2018. We used an Augmented Dickey-Fuller (ADF) test for the stationarity test, and we use the Johannsen cointegration approach to prove the existence of cointegration. The ADF tests show that the series was non-stationary in level but became stationary after the first difference. The Johannsen cointegration test indicates the long and short-run relationship between all the explanatory and trade balance in Uganda. Under such circumstances, a Vector Error Correction Model (VECM) is employed since the results offer more information than other data generation processes. Our findings are as follows: Real exchange rates, FDI, GCF and have a positive relationship with Trade balance. It means that Uganda can depreciate the Exchange rate to improve its Trade balance. The results proved the J-Curve effect's existence (i.e., the long-term impact of exchange rate on trade balance). The recommendations from this study are - Uganda's monetary policy management should emphasize more efforts on the stability and minimization of the volatility of exchange rates of the shillings since its movements affect international prices both negatively and positively, leading to either a decline or trade boost. Keywords: Trade balance; Real exchange rate; Net official's development assistances; GNI; VECM model; Uganda

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Appraisal of Determinants of Real Exchange Rate Alignment in Kenya

Account and Financial Management Journal ◽

10.47191/afmj/v5i10.04 ◽

2020 ◽

Vol 03 (10) ◽

Author(s):

Evans Kipchumba Kipyatich ◽

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Real Exchange Rate ◽

Public Debt ◽

Real Exchange Rates ◽

Government Expenditure ◽

Explanatory Variables ◽

Long Run ◽

Short Run ◽

Productivity Differentials

Real exchange rate is an important indicator of competitiveness in the foreign trade of a country. Any changes in real exchange rates would therefore lead to fluctuations in capital flows. It is therefore important to align real exchange rates within the equilibrium levels to avoid negative consequences on the economy. This study sought to understand the determinants of real exchange rate alignment in Kenya using annual data from 1988 to 2019 using Autoregressive Distribution Lag (ARDL) model. The study estimated the long run and short run dynamics of real exchange rate alignment in Kenya. The ARDL bounds test confirmed that a long run relationship exists between real exchange rate and the explanatory variables. Real exchange rate was the dependent variable while the explanatory variables were external public debt, government expenditure, interest rate differentials and productivity differentials. The results revealed that external public debt, government expenditure and productivity differentials are significant determinants of real exchange rate alignment. Interest rate differential was found to be not significant. The Error Correction Model was found to be significant and having the right (negative) sign. This shows that Kenya’s real exchange rate adjusts to the long run equilibrium as a response short run shocks of previous periods. The speed of adjustment was found to be 86 percent per year. Both the long run and error correction models were found to be stable as per the CUSUM and CUSUMQ tests. The models also passed all the diagnostic tests including serial correlation, normality, heteroscedasticity, and multicollinearity.

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THE RESPONSE OF ZIMBABWE TOBACCO EXPORTS TO REAL EXCHANGE RATES VOLATILITY

Journal of Agribusiness and Rural Development ◽

10.17306/j.jard.2020.01241 ◽

2020 ◽

Vol 56 (2) ◽

Author(s):

Knowledge Mutodi ◽

Tinashe Chuchu ◽

Eugine Tafadzwa Maziriri

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Real Exchange Rate ◽

Real Exchange Rates ◽

Exchange Rate Volatility ◽

Response Model ◽

The Real ◽

Long Run ◽

Exchange Rates Volatility ◽

Real Exchange Rate Volatility

The focus of this study was on investigating the response of tobacco exports to real exchange rates and real exchange rate volatility and other factors in Zimbabwe using secondary data spanning from 1980 to 2019. Bilateral nominal exchange rates and time-variant weights of Zimbabwe’s 10 major trading partners were calculated and used to compute the real exchange rate index. The time-dependent weighting system was used to better represent the evolution of trade patterns in the index. The arithmetic method was employed for computing the index. Generalized autoregressive conditional heteroskedasticity (GARCH) and autoregressive conditional heteroscedasticity (ARCH) models were used to generate the real exchange rate volatility index. The export response function was adopted as the tobacco exports response model. The variables in the tobacco exports response model were the realworld Gross Domestic Product (GDP), real exchange rate, terms of trade, real exchange rate volatility and dollarization. A vector error correction model (VECM) was used to estimate the response of tobacco exports to real exchange rate, real exchange rate volatility and other factors. The VECM results indicated that real world GDP was insignificant in both the short and long run. In the long run, the real exchange rate appreciation had a negative impact on tobacco exports. Conversely, in the short run, the depreciation of real exchange rate had a positive impact on tobacco exports. Hence, the government has to adopt other mechanisms that reduce uncertain movements of exchange rates.

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Oil revenue and agriculture value-added in oil-exporting countries: does the role of real exchange rate matter?

International Journal of Energy Sector Management ◽

10.1108/ijesm-11-2020-0006 ◽

2021 ◽

Vol ahead-of-print (ahead-of-print) ◽

Author(s):

Rizgar Abdlkarim Abdlaziz ◽

N.A.M. Naseem ◽

Ly Slesman

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Real Exchange Rate ◽

Real Exchange Rates ◽

Value Added ◽

Content Type ◽

Agriculture Sector ◽

Oil Revenue ◽

Long Run ◽

Short Run

Purpose This study aims to investigate the contingent roles real effective exchange rates (REERs) play in mediating the effects of oil revenue on the agriculture sector value-added in 25 major and minor oil-exporting (MIOEC) countries during the period of 1975–2014. Design/methodology/approach The panel autoregressive distributed lag (ARDL) estimator proposed by Pesaran et al. (1999) was relied upon to achieve the objectives of the study. This estimator involves a pool of small cross-sectional units over a long-time span that covers for 25 oil-exporting countries over 39 years (1975–2014). Findings This paper reveals the following findings. Firstly, oil revenue has a direct negative effect on agricultural value-added in the short- and long-term. This finding holds for full sample and subsamples of major oil-exporting (MAOEC) and MIOEC countries. Further assessment reveals that the magnitude of the impact is larger for MAOEC than that of the MIOEC. Secondly, the finding for the long-run effect shows that the contingent effect of real exchange rate on the nexus between oil revenue and agricultural value-added is negative and statistically significant at the conventional level for the full sample. This suggests that, in the long-run, the appreciation in real exchange rates exacerbate the negative marginal effects of oil revenue on agricultural value-added in all oil-exporting countries. However, when sub-samples of MAOEC and MIOEC are considered, the contingent effect disappeared (become insignificant) in MAOEC while it is positive and statistically significant in MIOEC. Thus, in the long-run, the appreciation in real exchange rates diminishes the negative marginal effects of oil revenue on agricultural value-added in MIOEC. While oil revenue has a direct negative effect, its effect is also moderated by the variations in REERs in MIOEC in the long-run. Finally, in the short-run, fluctuations in the real exchange rate do not matter for the nexus of oil revenue and agriculture sector in these countries whether minor or MAOEC countries. Originality/value This study contributes to the debate in the empirical literature on the Dutch disease effect and “oil curse”. Using the appropriate panel ARDL empirical framework, it provides evidence on how exchange rate variations in the oil-exporting countries influence the nature of the effects of the oil revenue on agricultural sectors in the long-run but not in the short-run. Contingent effects of REERs only appear to exist in MIOEC in the long-run.

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The Effect of Real Exchange Rate on Trade Balance in a Resource-Rich Economy: The Case of Mongolia

Foreign Trade Review ◽

10.1177/0015732518797184 ◽

2018 ◽

Vol 53 (4) ◽

pp. 211-224 ◽

Cited By ~ 2

Author(s):

Gan-Ochir Doojav

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Trade Balance ◽

Developing Economies ◽

Jel Classification ◽

Vector Error Correction ◽

Vector Error ◽

Long Run ◽

Short Run ◽

Exchange Rate Depreciation

For resource-rich developing economies, the effect of real exchange rate depreciation on trade balance may differ from the standard findings depending on country specific characteristics. This article employs vector error correction model to examine the effect of real exchange rate on trade balance in Mongolia, a resource-rich developing country. Empirical results show that exchange rate depreciation improves trade balance in both short and long run. In particular, the well-known Marshall–Lerner condition holds in the long run; however, there is no evidence of the classic J-curve effects in the short run. The results suggest that the exchange rate flexibility may help to deal effectively with current account deficits and exchange rate risk. JEL Classification: C32, C51, F14, F32

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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.

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Real Exchange Rate Behavior under Peg: Evidence from the Chinese RMB and Malaysian MYR

Review of Pacific Basin Financial Markets and Policies ◽

10.1142/s0219091509001587 ◽

2009 ◽

Vol 12 (01) ◽

pp. 141-158 ◽

Cited By ~ 2

Author(s):

Yongjian E ◽

Anthony Yanxiang Gu ◽

Chau-Chen Yang

Keyword(s):

Exchange Rate ◽

Exchange Rates ◽

Real Exchange Rate ◽

Real Exchange Rates ◽

Exchange Rate Volatility ◽

The Us ◽

Rate Behavior ◽

Japanese Yen ◽

Chinese Yuan ◽

Real Exchange Rate Volatility

The exchange-rate behavior of the Chinese yuan (RMB) and the Malaysian ringgit (MYR) indicates that the real exchange rate volatility of both the pegged currency/the anchor currency (the US dollar), and the pegged currency/the non-anchor currencies (Japanese yen and British pound) are lower under the pegged regime. The dynamic behavior of the pegged currencies' real exchange rates is consistent with the anchor currency as the speed of convergence of the Big Mac real exchange rates of the RMB, MYR, and the dollar against the floating currencies are almost identical during the pegged period. This may be due to similar inflation rate movements in the related economies. These results do not support the opinion that China has manipulated the value of its currency.

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Yuan-Dollar Real Exchange Rate and the U.S. Real Trade Balance with China: Long-Run Cointegration and Short-Run Dynamic Analysis

The International Trade Journal ◽

10.1080/08853908.2021.2008282 ◽

2021 ◽

pp. 1-24

Author(s):

Anisul M. Islam

Keyword(s):

Exchange Rate ◽

Dynamic Analysis ◽

Real Exchange Rate ◽

Trade Balance ◽

Long Run ◽

Short Run ◽

The U.S

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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.

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The Long-run Relationship between Real Exchange Rate and Real Interest Rate in Asian Countries: An Application of Panel Cointegration

The Pakistan Development Review ◽

10.30541/v40i4iipp.577-602 ◽

2001 ◽

Vol 40 (4II) ◽

pp. 577-602 ◽

Cited By ~ 1

Author(s):

Shaista Alam ◽

Muhammad Sabihuddin Butt ◽

Azhar Iqbal

Keyword(s):

Exchange Rate ◽

Interest Rate ◽

Exchange Rates ◽

Real Exchange Rate ◽

Real Interest Rate ◽

Real Exchange Rates ◽

Panel Cointegration ◽

The Real ◽

Long Run ◽

Interest Rate Differentials

The role of exchange rate policy in economic development has been the subject of much debate and controversy in the development literature. Interest rates and exchange rates are usually viewed as important in the transmission of monetary impulses to the real economy. In the short run the standard view of academics and policy-makers is that a monetary expansion lowers the interest rate and rises the exchange rate, with these price changes then affecting the level and composition of aggregate demand. Frequently, these influences are described as the liquidity effects of monetary expansion, viewed as the joint effect of providing larger quantities of money to the private sector. Popular theories of exchange-rate determination also predict a link between real exchange rates and real interest rate differentials. These theories combine the uncovered interest parity relationship with the assumption that the real exchange rate deviates from its long-run level only temporarily. Under these assumptions, shocks to the real exchange rate—which are often viewed as caused by shocks to monetary policy—are expected to reverse themselves over time. This study investigates the long-run relationship between real exchange rates and real interest rate differentials using recently developed panel cointegration technique. Although this kind of relationship has been studied by a number of researchers,1 very little evidence in support of the relationship has been reported in the case of developing countries. For example, Meese and Rogoff (1988) and Edison and Pauls (1993), among others, used the Engle-Granger cointegration method and fail to establish a clear long-run relationship in their analysis.

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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.

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