scholarly journals Mathematical Analysis of the Impact of Real Exchange Rate on Output Growth and Inflation: The Case of Tanzania Zanzibar

2013 ◽  
Vol 2 (4) ◽  
pp. 23-36
Author(s):  
Khamis Khalid Said ◽  
Eliab Luvanda ◽  
Estomih S Massawe
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Decomposition Analysis ◽  
Variance Decomposition ◽  
Output Growth ◽  
Stationary Time Series ◽  
Impulse Response Functions ◽  
The Real ◽  
Long Run ◽  
The Impact

This paper examines the dynamic relationship between stationary time series for the impact of real exchange rate on output growth and inflation in Tanzania: Zanzibar using vector autoregressive (VAR) model. The impact of the real exchange rate on economic performance in Tanzania using VAR approach shows that the main sources of variance decomposition in the volume of tourism and inflation are in their own shocks. Impulse response functions analysis show that the response generated by itself at short run and vanishing at the long run, and the inflation and number of tourism has no instantaneous impact on the first difference of real exchange rate. Variance decomposition analysis show that the impact of number of tourism arrival on real exchange rate increases monotonically to the long-run. Thus analysis show that 98 percent of the variance of number of tourism arrival is generated by its own innovations, while only 87 percent of the variance of inflation is generated by its own innovations and about 99 percent of the variance of real exchange rate generated by its own innovations. Furthermore; the real exchange rate is Granger causal to both inflation and number of tourism, while the number of tourism is Granger Causal to the inflation.

scholarly journals DETERMINANTS OF REAL EXCHANGE RATE IN ETHIOPIA

2016 ◽  
Vol 4 (6) ◽  
pp. 183-210
Author(s):  
Nandeeswara Rao ◽  
TassewDufera Tolcha
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Impulse Response ◽  
Variance Decomposition ◽  
Capital Inflow ◽  
Terms Of Trade ◽  
Nominal Exchange Rate ◽  
The Real ◽  
Long Run ◽  
Short Run

Real exchange rate has direct effects on trade particularly on international trade and has indirect effects on productions and employments, so it is crucial to understand the factors which determine its variations. This study analyses the main determinants of the real exchange rate and the dynamic adjustment of the real exchange rate following shocks to those determinants using yearly Ethiopian time series data covering the period 1971 to 2010. It begins with a review of literatures on Exchange rate, real exchange rate, determinants of the real exchange rate and provides an updated background on the exchange rate system in Ethiopia. An empirical model linking the real exchange rate to its theoretical determinants is then specified. This study had employed the cointegration and vector autoregression (VAR) analysis with impulse response and variance decomposition analyses to provide robust long run effects and short run dynamic effects on the real exchange rate. Share of investment, foreign exchange reserve, capital inflow and government consumption of non-tradable goods were the variable that have been found to have a long run relationship with the real exchange rate. The estimate of the speed of adjustment coefficient found in this study indicates that about a third of the variation in the real exchange rate from its equilibrium level is corrected within a year. The regression result of VECM reveals that terms of trade, nominal exchange rate, and one period lag of capital flow were the variables significantly affects the real exchange rate in the short run. However, the impulse response and variance decomposition analysis shows a better picture of the short run dynamics. The their analysis provided evidence that the Shocks to terms of trade, nominal exchange rate, capital inflow and share of investment have persistent effects on the real exchange rate in the short run. In general the regression results of both long run and short run models mostly suggest that the fluctuations of real exchange rates are predominantly responses to monetary policies shocks rather than fiscal policy shocks.

scholarly journals The Effect of Exchange Rate Movements and Economic Growth on Job Creation

2017 ◽  
Vol 62 (2) ◽  
pp. 20-41
Author(s):  
Chama Chipeta ◽  
Daniel Francois Meyer ◽  
Paul-Francois Muzindutsi
Keyword(s):  
Economic Growth ◽  
South Africa ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Job Creation ◽  
Vector Autoregressive ◽  
The Real ◽  
Long Run ◽  
Exchange Rate Shocks ◽  
The Impact

Abstract Job creation is at the centre of economic development and remains a source of sustenance for social and human relations. The creation of a job-enabling economic environment is imperative in promoting social and economic cohesiveness in the macro and microeconomic environment. Any shocks to the economy, particularly those of exchange rate shocks and changes in economic growth, may negatively affect the labour market and job creation. This study made use of quarterly observations, from the first quarter of 1995 to the fourth quarter of 2015, to investigate the effect of the real exchange rate and economic growth on South Africa’s employment status. South Africa, a developing country, was selected as a case study due to its high unemployment rate that is still increasing. The Vector Autoregressive (VAR) model and multivariate co-integration techniques were used in assessing the impact and responsiveness of employment to the real exchange rate and real economic growth in South Africa. Findings of this study revealed that employment responds positively to economic growth and negatively to the real exchange rate in the long-run. The short-run displays a positive relationship between real economic growth and employment, while the relationship between employment and the real exchange rate is also negative. However, the effect of economic growth in creating jobs is not significant enough in stimulating job creation in South Africa, as indicated by results in variance decomposition. Movements in the exchange rate exerted a significant short and long-run negative effect on employment dynamics; implying that a depreciation of the rand against the U.S. dollar is associated with decrease in overall employment. Exchange rate stability is thus important for economic growth and job creation in South Africa. The study provided further recommendations on promoting job creation in South Africa and other developing countries.

scholarly journals Dynamics of the Real Exchange Rate, Inflation, and Output Growth: The Case of Malawi

2016 ◽  
Vol 8 (10) ◽  
pp. 23 ◽  
Author(s):  
Zelealem Yiheyis ◽  
Emmanuel Cleeve
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Foreign Exchange ◽  
Correction Term ◽  
Output Growth ◽  
Cointegration Analysis ◽  
Causality Analysis ◽  
Bounds Testing ◽  
The Real ◽  
Long Run

<p>This paper investigates the temporal causality and dynamics of real exchange rate, inflation, and output growth in Malawi, controlling for monetary growth and foreign exchange accumulation. The relationships among these variables are examined using quarterly data and the bounds testing approach to cointegration analysis. A long run relationship among the variables is observed, with the real exchange rate as the dependent variable, which is found responsive, in the long run, to the growth rate of output but not to inflation. Analysis of short-run dynamics reveals that the real exchange rate was influenced by output growth and inflation. The Granger causality analysis in a multivariate setting points to causation running from the real exchange rate to inflation and from each of these to output growth. The lagged error correction term, where included, emerged significant, providing evidence for the presence of long-run causality running interactively through it from the other variables as a group to the real exchange rate. Taken together, the results indicate the relevance of domestic economic activity, monetary policy, and foreign exchange availability for the evolution of the real exchange rate, which, in turn, is observed to have played a role in influencing domestic inflation and output growth in Malawi.</p>

scholarly journals Can Financial Development Mitigate the Impact of Remittances on Real Exchange Rate Appreciation?

2019 ◽  
Vol 4 (2) ◽  
pp. 89-116
Author(s):  
Abubakar Lawan Ngoma ◽  
Normaz Wana Ismail
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Empirical Studies ◽  
Real Exchange Rates ◽  
Financial Sector ◽  
Asian Countries ◽  
The Real ◽  
Financial Sector Development ◽  
Long Run ◽  
The Impact

Remittances have been blamed for causing real exchange rate appreciation by raising the relative prices of nontraded goods and services in the recipient countries. However, empirical studies seeking to support this claim are lacking in Asia, despite the huge amount of remittances received by the region. In view of that, this paper used a panel dataset from eighteen remittance-recipient Asian countries during the period of 1981 – 2010 and Pooled Mean Group (PMG) estimator to examine the effect of remittances and financial sector development on real exchange rate. The paper, specifically, questions if the real exchange rate appreciation caused by the inflow of remittances varies with the degree of financial sector development in these countries. The paper finds that inflow of remittances has significant long-run impact on the appreciation of the real exchange rates in the remittance-recipient Asian countries. However, such effect of appreciation declines in countries with enhanced financial sector development.

scholarly journals The Impact of Macroeconomics Factors on Real Exchange Rate in Latin America:

2020 ◽  
Vol 3 (8) ◽  
pp. 6
Author(s):  
Carlos Cesar Chávez
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Latin American ◽  
System Gmm ◽  
The Real ◽  
Positive Effects ◽  
Long Run ◽  
Negative Impacts ◽  
The Impact

This paper studies the determinants of the real exchange rate using macroeconomic variables, and whether they can predict it. A panel data is used, which estimator is system GMM that allows controlling the endogeneity of the variables. In turn, we transformed the variables with forward orthogonal deviations (FOD) and first difference (FD), which allows us to eliminate unobserved effects that are invariant in time. To check the robustness of the estimates, different periods were used, from 1980-2019, 2000-2019 and 2010-2019. For the period 1980-2019, it is found that the past values of the real exchange rate, the current values of inflation, economic growth, fiscal and monetary policy have positive effects on the current values of the real exchange rate, while the money supply and the terms of trade have negative impacts on the real exchange rate. For the period 2000-2019, we had similar results and for the period 2010-2019, we found that economic growth has negative impacts on the real exchange rate. It is also presented the Arellano-Bond test and the Sargan test to estimate model over-identification. Using the Pedroni test, we estimated the cointegration of the variables with respect to the real exchange rate, finding cointegration with inflation in the long run. The originality of this paper is that we focused on Latin American countries, analyzing short-term relationships with the System GMM estimator and long-term relationships with the Pedroni Test.

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

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

scholarly journals The Determinants of Pakistan’s Trade Balance: An ARDL Cointegration Approach

2010 ◽  
Vol 15 (1) ◽  
pp. 1-26 ◽  
Author(s):  
Waliullah Waliullah ◽  
Mehmood Khan Kakar ◽  
Rehmatullah Kakar ◽  
Wakeel Khan
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Money Supply ◽  
Trade Balance ◽  
Exchange Rate Regime ◽  
Annual Data ◽  
Impulse Response Functions ◽  
Bounds Testing ◽  
Distributed Lag ◽  
Long Run

This article is an attempt to examine the short and long-run relationship between the trade balance, income, money supply, and real exchange rate in the case of Pakistan’s economy. Income and money variables are included in the model in order to examine the monetary and absorption approaches to the balance of payments, while the real exchange rate is used to evaluate the conventional approach of elasticities (Marshall Lerner condition). The bounds testing approach to cointegration and error correction models, developed within an autoregressive distributed lag (ARDL) framework is applied to annual data for the period 1970 to 2005 in order to investigate whether a long-run equilibrium relationship exists between the trade balance and its determinants. Additionally, variance decompositions (VDCs) and impulse response functions (IRFs) are used to draw further inferences. The result of the bounds test indicates that there is a stable long-run relationship between the trade balance and income, money supply, and exchange rate variables. The estimated results show that exchange rate depreciation is positively related to the trade balance in the long and short run, consistent with the Marshall Lerner condition. The results provide strong evidence that money supply and income play a strong role in determining the behavior of the trade balance. The exchange rate regime can help improve the trade balance but will have a weaker influence than growth and monetary policy.

scholarly journals The Long-Run Volatility Puzzle of the Real Exchange Rate

2004 ◽  
Author(s):  
Ricardo Hausmann ◽  
Ugo Panizza ◽  
Roberto Rigobon
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
The Real ◽  
Long Run ◽  
Volatility Puzzle
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