scholarly journals WAGE FLEXIBILITY, EXCHANGE-RATE COMPETITIVENESS AND FULL EMPLOYMENT: THE FIRST HERETICS

2020 ◽  
Vol 24 (2) ◽  
Author(s):  
Julio López G.
Keyword(s):  
Economic Policy ◽  
Exchange Rate ◽  
Latin American ◽  
Full Employment ◽  
Aggregate Demand ◽  
Currency Devaluation ◽  
Currency Depreciation ◽  
Wage Flexibility ◽  
Long Run ◽  
American Contribution

ABSTRACT This paper discusses Keynes’ and Kalecki’s rejection of the notion that downward wage flexibility would ensure full employment, recollecting also Steindl’s stagnation theory, which extends to the long-run Kalecki’s ideas. It then considers the association between wage fall and currency depreciation and examines the Latin American contribution to the arguments of why currency devaluation may depress aggregate demand. Afterwards, it briefly reflects on the economic policy consequences that the authors studied here inferred from their analysis. It finally adds a succinct remark on the author’s empirical findings on this issue.

Asymmetric impact of exchange rate changes on stock returns: evidence of two de facto regimes

2019 ◽  
Vol 19 (2) ◽  
pp. 147-173
Author(s):  
Walid M.A. Ahmed
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Stock Market ◽  
Stock Returns ◽  
Stock Prices ◽  
Spillover Effects ◽  
Content Type ◽  
Currency Depreciation ◽  
Long Run ◽  
Exchange Rate Changes

Purpose This study focuses on Egypt’s recent experience with exchange rate policies, examining the existence of spillover effects of exchange rate variations on stock prices across two different de facto regimes and whether these effects, if any, are asymmetric. Design/methodology/approach The empirical analysis is carried out using a nonlinear autoregressive distributed lag modeling framework, which permits testing for the presence of short- and long-run asymmetries. Relevant local and global factors are also included in the analysis as control variables. The authors divide the entire sample into a soft peg period and a free float one. Findings Over the soft peg regime period, both positive and negative changes in EGP/USD exchange rates seem to have a significant impact on stock returns, whether in the short or long run. Short-term asymmetric effects vanish in the free float period, while long-term asymmetries continue to exist. By and large, the authors find that currency depreciation tends to exercise a stronger influence on stock returns than does currency appreciation. Practical implications The results offer important insights for investors, regulators and policymakers. With the domestic currency depreciation having a negative impact on stock prices, investors should contemplate implementing appropriate currency hedging strategies to abate depreciation risks and, hence, preserve their expected rate of return on the Egyptian pound-denominated investments. In the current post-flotation era, the government could pursue a flexible inflation targeting monetary policy framework, with a view to both lowering the soaring inflation toward an announced target rate and stabilizing economic growth. The Central Bank of Egypt (CBE) could adopt indirect monetary policy instruments to secure tightened liquidity conditions. Besides, the CBE could raise policy rates to incentivize people to keep their money in local currency-denominated instruments, instead of dollarizing their savings, thereby relieving banks of foreign currency demand pressures. Nevertheless, while being beneficial to the country’s real economy on several aspects, such contractionary monetary measures may temporarily impinge on stock market performance. Accordingly, policymakers should consider precautionary measures that reduce the potential for price distortions and unnecessary volatility in the stock market. Originality/value To the best of the authors’ knowledge, the current study represents the first attempt to explore the potential impact of exchange rate changes under different regimes on Egypt’s stock market, thus contributing to the relevant research in this area.

scholarly journals An artificial Wicksell–Keynes economy integrating short-run business cycle and long-term cumulative trend

2020 ◽  
Vol 15 (4) ◽  
pp. 953-998 ◽  
Author(s):  
Ichiro Takahashi ◽  
Isamu Okada
Keyword(s):  
Banking Sector ◽  
Full Employment ◽  
Aggregate Demand ◽  
Real Wages ◽  
Fractional Reserve Banking ◽  
Investment Funds ◽  
Wage Stickiness ◽  
Long Run ◽  
Short Run ◽  
Reserve Banking

Abstract Economists have investigated how price–wage rigidity influences macroeconomic stability. A widely accepted view asserts that increased rigidity destabilizes an economy by requiring a larger quantity adjustment. In contrast, the Old Keynesian view regards nominal rigidity as a stabilizing factor, because it reduces fluctuations in income and thus aggregate demand. To examine whether price–wage stickiness is stabilizing or destabilizing, we build an agent-based Wicksell–Keynes macroeconomic model, which is completely closed and absolutely free from any external shocks, including policy interventions. In the model, firms setting prices and wages make both employment and investment decisions under demand constraints, while a fractional-reserve banking sector sets the interest rate and provides the firms with investment funds. As investment involves a gestation period, it is conducive to overproduction, thereby causing alternate seller’s and buyer’s markets. In the baseline simulation, a stable economy emerges with short-run business cycles and long-run fluctuations. One unique feature of the economy is its remarkable resilience: When afflicted by persistent deflation, it often manages to reverse the deflationary spiral and get back on a growth track, ultimately achieving full or nearly full employment. The virtual experiments demonstrate that prices and wages must both be moderately rigid to ensure long-run stability. The key stabilizing mechanism is a recurring demand-sufficient economy, in which firms are allowed to increase employment while simultaneously cutting real wages.

scholarly journals In Search of Exchange Rate Undershooting in Pakistan

2021 ◽  
Vol 2 (2) ◽  
pp. 141-160
Author(s):  
Wajiha Haq Haq ◽  
Iftikhar Hussain Adil
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Full Employment ◽  
Vector Autoregressive ◽  
Long Run ◽  
Supply Shock ◽  
Price Rigidities ◽  
Exchange Rate Overshooting ◽  
Insight Into

Exchange rate behaviour does not follow very obvious and predicted pattern. Many attempts have been made to predict its behaviour as much as possible. This research re-examines the Dornbusch’s model of exchange rate overshooting caused by price rigidities. Dornbusch’s assumption of full employment in economy has been violated in this research which creates the possibility of exchange rate undershooting. In response to positive monetary shock, interest rate decreases and exchange rate undershoots its long run equilibrium. This research explains the dynamics of anti-intuitive exchange rate undershooting. Apart from theoretical formations of exchange rate undershooting, this research also analyses Pakistani data for exchange rate undershooting or overshooting in response to increase in money supply. Quarterly data of twenty three years for exchange rate, nominal interest rate, price, real output and money have been taken and vector autoregressive technique has been used. Evidence of exchange rate undershooting in response to positive money supply shock was found. It also gives an important insight into policy making by identifying some probable behaviour of exchange rate.

scholarly journals The impact of Economic Policy Uncertainty on the real exchange rate: Evidence from the UK

2021 ◽  
Author(s):  
Paula Moldovan ◽  
Sérgio Lagoa ◽  
Diana Mendes
Keyword(s):  
Economic Policy ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Debt Crisis ◽  
Subprime Crisis ◽  
Policy Uncertainty ◽  
Economic Policy Uncertainty ◽  
Long Run ◽  
The Uk ◽  
The Impact

The world economy has been punctuated by uncertainty as a result of the 2008 subprime crisis, the European sovereign debt crisis, Brexit, and the 2016 US presidential elections, to mention but a few of the reasons. This study explores how the UK real exchange rate reacts to economic policy uncertainty (EPU) shocks using monthly data for the period 1998 to 2020. We contribute to the literature by identifying the long-run and short-run impacts of EPU using a cointegrated ARDL model, and by studying a country that has been through periods of both relatively low and high uncertainty. Results confirm that EPU has an important effect in the long run by depreciating the exchange rate. In addition to urging policymakers and regulators to concentrate on the sometimes difficult task of keeping policy uncertainty to a minimum as a way of sustaining exchange rate stability and thus promoting long-term economic growth, further evidence is provided on exchange rate fundamentals.

scholarly journals New Structuralism and the balance-of-payments constraint

2019 ◽  
Vol 7 (4) ◽  
pp. 517-536 ◽  
Author(s):  
Gabriel Porcile ◽  
Guiliano Toshiro Yajima
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Income Elasticity ◽  
Aggregate Demand ◽  
Positive Function ◽  
Balance Of Payments ◽  
Long Run ◽  
Innovation And Diffusion ◽  
International Convergence ◽  
Pattern Of Specialization

Structuralists and Post-Keynesians share the perspective that in the long run economic growth is shaped by the income elasticity of exports and imports, and that such elasticities are a positive function of the degree of diversification and technological intensity of the pattern of specialization. Since the mid 1970s, New Structuralists began to stress the role of two sets of variables in driving the pattern of specialization: a stable and competitive real exchange rate, and the relative intensity of innovation and diffusion of technology in the center and periphery. In this paper we modify the balance-of-payments-constrained growth model to include these two sets of variables. The model provides a mechanism that ensures the validity of the original Thirlwall perspective, namely that adjustment to the balance-of-payments-constrained equilibrium takes place through changes in the rate of growth of aggregate demand rather than through changes in relative prices. In addition, it shows that a macroeconomic policy aimed at sustaining a competitive real exchange rate is a necessary complement to an active industrial policy for fostering international convergence.

Impacts of the Exchange Rate and the Global Interest Rate on Real Output for Ten Selected Latin American Countries

2012 ◽  
Vol 12 (1) ◽  
pp. 1850253 ◽  
Author(s):  
Yu Hsing
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Latin American ◽  
Inflation Rate ◽  
Early Years ◽  
Currency Depreciation ◽  
Real Gdp ◽  
Expected Inflation ◽  
Monetary Policy Reaction Function ◽  
Latin American Countries

This paper examines the effects of currency depreciation or appreciation, the changing global interest rate and other related macroeconomic variables on real GDP for ten selected Latin American countries, namely, Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay and Venezuela. The monetary policy reaction function is incorporated in the formulation of the model. There are several major findings. Currency depreciation hurts real GDP for Argentina, Brazil, Colombia, Mexico, Uruguay and Venezuela whereas the real exchange rate and real GDP exhibit a backward-bending relationship for Bolivia, Chile, Paraguay and Peru, suggesting that currency depreciation increases real GDP in early years whereas currency appreciation raises real GDP in recent years. Except for Bolivia and Paraguay, a higher global interest rate reduces real GDP. Expansionary fiscal policy is effective for Argentina, Mexico and Paraguay. Except for Chile, Paraguay and Venezuela, a higher expected inflation rate reduces real GDP. Hence, currency depreciation may be contractionary or expansionary, depending upon the level of real GDP or the state of economic development.

scholarly journals The Access to Demand

2015 ◽  
Vol 1 (1) ◽  
pp. 35-43 ◽  
Author(s):  
Luiz Carlos Bresser-Pereira
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Full Employment ◽  
Aggregate Demand ◽  
Business Enterprises ◽  
The Exchange Rate ◽  
Under Construction

In this paper I argue that, in developing countries, sufficient aggregate demand is not enough to motivate investment and achieve full employment. Besides, according to the Keynesian developmental macroeconomics under construction, competent business enterprises must have access to that demand – access which is denied to most of them because developing countries face the tendency to the cyclical and chronic overvaluation of the exchange rate.

scholarly journals Effects of Some Monetary Variables on Fixed Investment in Selected Sub-Saharan African Countries

2020 ◽  
Author(s):  
Ombeswa Ralarala ◽  
Thobeka Ncanywa
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Aggregate Demand ◽  
Real Economy ◽  
African Countries ◽  
Investment Activity ◽  
Long Run ◽  
Lending Rates ◽  
Sub Saharan

Monetary variables are not only important for the attainment of stable inflation but also for exercising influences in various ways on the behavior of the real economy, including the level of investment activity. Investment is very crucial in improving a country’s productivity and growth and increasing its competitiveness in the long run. The study aims to investigate how monetary variables such as lending rates, exchange rate, and money supply affect investment actions in some selected Sub-Saharan African countries in the period 1980–2018. Using the panel autoregressive distributive lag method in the long run, a negative and significant relationship between lending rates and investment was discovered. Also, investment is positively related to both money supply and exchange rate in the long run. It is recommended that when central banks take contractionary measures, they must always consider the resulting change in investment as it is an essential part of aggregate demand. In a sluggish economy, interest rates should not be raised to the point where investment is discouraged and assets are suppressed.

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