scholarly journals Versailles Redux? Eurozone Competitiveness in a Dynamic Balassa-Samuelson-Penn Framework

2014 ◽  
Vol 5 (2) ◽  
Author(s):  
Kevin Stahler ◽  
Arvind Subramanian
Keyword(s):  
Exchange Rate ◽  
International Comparison ◽  
Labor Cost ◽  
Prima Facie ◽  
Nominal Exchange Rate ◽  
Strongly Correlated ◽  
Unit Labor Cost ◽  
Advanced Economies ◽  
Exchange Rate Changes ◽  
Special Circumstances

AbstractPrima facie, competitiveness adjustments in the eurozone, based on unit labor cost developments, appear sensible and in line with what the economic analyst might have predicted and the economic doctor might have ordered. But a broader and arguably better – Balassa-Samuelson-Penn (BSP) – framework for analyzing these adjustments paints a very different picture. Taking advantage of the newly released PPP-based estimates of the International Comparison Program (2011), we identify a causal BSP relationship. We apply this framework to computing more appropriate measures of real competitiveness changes in Europe and other advanced economies in the aftermath of the recent global crises. There has been a deterioration, not improvement, in competitiveness in the periphery countries between 2007 and 2013. Second, the pattern of adjustment within the eurozone has been dramatically perverse, with Germany having improved competitiveness by 9% and with Greece’s having deteriorated by 9%. Third, real competitiveness changes are strongly correlated with nominal exchange rate changes, which suggests the importance of having a flexible (and preferably independent) currency for effecting external adjustments. Fourth, internal devaluation – defined as real competitiveness improvements in excess of nominal exchange rate changes – is possible but seems limited in scope and magnitude. Our results are robust to adjusting the BSP framework to take account of the special circumstances of countries experiencing unemployment. Even if we ignore the BSP effect, the broad pattern of limited and lopsided adjustment in the eurozone remains.

China's Exchange Rate and Monetary Policies: Structural and Institutional Constraints and Reform Options

2008 ◽  
Vol 7 (3) ◽  
pp. 31-49 ◽  
Author(s):  
Geng Xiao
Keyword(s):  
Exchange Rate ◽  
The United States ◽  
Nominal Exchange Rate ◽  
Institutional Constraints ◽  
Institutional Barriers ◽  
Monetary Policies ◽  
Surplus Labor ◽  
Regulatory Systems ◽  
Advanced Economies ◽  
The One

This paper argues that declining transaction costs in exporting on the one hand and the structural and institutional barriers to importing and consumption on the other hand are the main causes for China's rising current account surplus. Reforms in China's planning, financial, and regulatory systems are more important than adjustment in nominal exchange rate for balancing China's trade and for China's surplus capital to hire more of its surplus labor. Although structural inflation and currency appreciation are necessary for China's price level to catch up step-by-step with those in the advanced economies, the pace of inflation and appreciation need to be compatible with China's underlying productivity growth. An “inflation first and appreciation second” approach would help China avoid the risks of both deflation and runaway inflation. The United States and China can have win–win results if both focus on the real constraints behind their external imbalances.

scholarly journals Mehanizam uticaja promene deviznog kursa na inflaciju

2003 ◽  
Vol 44 (158) ◽  
pp. 149-167 ◽  
Author(s):  
Dejan Miljkovic
Keyword(s):  
Exchange Rate ◽  
Nominal Exchange Rate ◽  
Rate System ◽  
Export Prices ◽  
Fixed Exchange Rate ◽  
Starting Point ◽  
Exchange Rate System ◽  
The Exchange Rate ◽  
Pass Through ◽  
Exchange Rate Changes

The implementation of an adequate exchange rate policy inevitably leads us to the pass-through of exchange rate changes on export prices and inflation. During the last decade of 20th century, there was a lot of research done on the pass-through of exchange rate changes from the microeconomic aspect. This approach, known as New Open Economy Macroeconomics, is theoretically grounded mainly on producers' ability to price discriminate in markets for export goods. Consistent with the established theoretical framework, the focus of this research has been directed towards studying the pass-through of exchange rate changes to export prices. Relatively few research papers, also based on theoretical grounds of basically macroeconomic character, have dealt with the pass-through of exchange rate changes to inflation. This paper observes the pass-through of exchange rate changes to inflation from the macroeconomic aspect. The starting point of our theoretical consideration of the pass-through of exchange rate changes to inflation is the well-known Dornbusch's overshooting model. The observation of the pass-through of exchange rate changes to inflation within the overshooting model allows us to observe two dimensions through which changes in the exchange rate pass through to inflation. The first dimension observes the pass-through of nominal exchange rate changes to inflation, whereas the second one observes the deviations of the nominal exchange rate from the equilibrium nominal exchange rate, having simultaneous internal and external equilibrium. The final pass-through of exchange rate changes to inflation will depend on the joint influence of both dimensions. Also, the pass-through of exchange rate changes to inflation will be observed in the countries with a fixed exchange rate system, which so far has not been a common situation in practice. We believe that exchange rate changes pass through to inflation even in a fixed exchange rate system, when a change in the exchange rate is equal to zero, which is manifested in deviations of the nominal exchange rate from the equilibrium exchange rate.

scholarly journals Econometric Analysis of Croatia’s Proclaimed Foreign Exchange Rate

2015 ◽  
Vol 10 (1) ◽  
pp. 7-17
Author(s):  
Davor Mance ◽  
Saša Žiković ◽  
Diana Mance
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Nominal Exchange Rate ◽  
Impulse Response Functions ◽  
National Bank ◽  
Exchange Policy ◽  
Pass Through ◽  
Exchange Rate Changes ◽  
The Stability ◽  
Fx Market

Abstract The officially proclaimed foreign exchange policy of the Croatian National Bank (CNB) is a managed float with a discretionary right of intervention on the Croatian kuna/euro foreign exchange (FX) market in order to maintain price stability. This paper examines the validity of three monetary policy hypotheses: the stability of the nominal exchange rate, the stability of exchange rate changes, and the exchange rate to inflation pass-through effect. The CNB claims a direct FX to inflation rate pass-through channel for which we find no evidence, but we find a strong link between FX rate changes and changes in M4, as well as between M4 changes and inflation. Changes in foreign investment Granger cause changes in monetary aggregates that further Granger cause inflation. Changes in FX rate Granger cause a reaction in M4 that indirectly Granger causes a further rise in inflation. Vector Autoregression Impulse Response Functions of changes in FX rate, M1, M4, and CPI confirm the Granger causalities in the established order.

An Empirical Analysis of Foreign Exchange Exposure of CNX 100 Companies

GIS Business ◽  
2017 ◽  
Vol 12 (5) ◽  
pp. 1-9 ◽  
Author(s):  
Sriram Mahadevan
Keyword(s):  
Exchange Rate ◽  
Stock Returns ◽  
Foreign Exchange ◽  
Foreign Exchange Rate ◽  
Future Research ◽  
Export Ratio ◽  
Exchange Rate Exposure ◽  
Ratio Size ◽  
Foreign Exchange Exposure ◽  
Exchange Rate Changes

The present study has empirically examined the level of foreign exchange exposure and its determinants of CNX 100 companies. For the purpose of study, the relationship between exchange rate changes and stock returns for a sample of 82 companies was determined for the period April 2011-March 2016. The study finds that 49% of the sample companies had significant positive foreign exchange rate exposure and the found that the companies could be exporters or net importers. To explore factors determining foreign exchange rate exposure, variables such as export ratio, import ratio, size of a company, hedging activities were regressed against the exchange exposure and the study found that none of the factors was influencing the exchange rate exposure. The study concludes that the reasons for insignificant influence of the variables could be the natural hedging practices of companies, offsetting of exports and imports and heterogeneous of the sample size. The study offers few directions for future research in this area.

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