scholarly journals Distortionary effects of economic crises on policy coordination in Turkey: Threshold GMM approach

2021 ◽  
Vol 7 (3) ◽  
pp. 83-102
Author(s):  
Metin Tetik ◽  
Mustafa Ozan Yıldırım
Keyword(s):  
Fiscal Policy ◽  
Interest Rate ◽  
Taylor Rule ◽  
Generalized Method Of Moments ◽  
Policy Coordination ◽  
Real Effective Exchange Rate ◽  
Monetary Policies ◽  
Effective Exchange ◽  
Effective Exchange Rate ◽  
Policy Interest

This study investigates the interaction between fiscal and monetary policies and how crises affect the coordination between policymakers in Turkey. This study’s novelty is that a nonlinear Taylor rule indicating monetary policy response function is estimated based on the Threshold Generalized Method of Moments (Threshold GMM) methodology over the period January 2006—March 2020. The empirical findings reveal that when fiscal policy has an expansionary stage, especially in crises times, the policy interest rate does not react significantly to the inflation gap, output gap and real effective exchange rate gap in expansionary periods. On the contrary the policy interest rate gives statistically important responses to these variables during contractionary fiscal policy periods. Thus, the effectiveness of the Taylor rule appears in a period of contractionary fiscal policy. This situation gives rise to the significant policy implication that the monetary policymaker’s success in controlling inflation increases with the contractionary fiscal policy. Finally, it has been observed that effective coordination between monetary and fiscal policies did not occur during crisis periods, but compatible coordination was achieved in other periods.

scholarly journals Impacts of the monetary policy on the exchange rate: case study of Vietnam

2019 ◽  
Vol 26 (2) ◽  
pp. 220-237
Author(s):  
Van Anh Pham
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Real Effective Exchange Rate ◽  
Content Type ◽  
Effective Exchange ◽  
Quantitative Results ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Effective Exchange Rate

Purpose The purpose of this paper is to evaluate and analyze impacts of the monetary policy (MP) – money aggregate and interest rate – on the exchange rate in Vietnam. Design/methodology/approach The study uses data over the period of 2008–2018 and applies the vector autoregression model, namely recursive restriction and sign restriction approaches. Findings The main empirical findings are as follows: a contraction of the money aggregate significantly leads to the real effective exchange rate (REER) depreciating and then appreciating; a tightening of the interest rate immediately causes the REER appreciating and then depreciating; and both the money aggregate and the interest rate strongly determine fluctuations of the REER. Originality/value The quantitative results imply that the MP affects the REER considerably.

Exploring exchange rate based policy coordination in SADC

2016 ◽  
Vol 33 (4) ◽  
pp. 576-594 ◽  
Author(s):  
Mulatu Fekadu Zerihun ◽  
Martinus C. Breitenbach ◽  
Francis Kemegue
Keyword(s):  
Exchange Rate ◽  
Policy Coordination ◽  
Policy Implications ◽  
Real Effective Exchange Rate ◽  
Monetary Integration ◽  
Content Type ◽  
Structural Variables ◽  
Effective Exchange ◽  
The Exchange Rate ◽  
Effective Exchange Rate

Purpose This paper explores the possibilities for policy coordination in the Southern African Development Community (SADC) as well as real effective exchange rate (REER) stability as a prerequisite towards sensible monetary integration. The underlying hypothesis goes with the assertion that countries meeting optimum currency area conditions face more stable exchange rates. Design/methodology/approach The quantitative analysis encompasses 12 SADC member states over the period 1995-2012. Correlation matrixes, dynamic pooled mean group (PMG) and mean group (MG) estimators and real effective exchange rate (REER) and real exchange rate (RER) equilibrium and misalignment analysis are carried out to arrive at the conclusions. Findings The study finds that the structural variables used in the PMG model show that there are common fiscal and monetary policy variables that determine REER/RER in the region. However, the exchange rate equilibrium misalignment analysis reveals that SADC economies are characterised by persistent overvaluation at least in the short term. This calls for further sustained policy coordination in the region. Practical implications The findings in this paper have important policy implications for economic stability and for the attempt of policy coordination in SADC region for the proposed monetary integration to proceed. Originality/value This study is the first attempt that relates the exchange rate as a policy coordination instrument among SADC economies.

scholarly journals Macroeconomic Effects of Global Food and Oil Price Shocks to the Pakistan Economy: A Structural Vector Autoregressive (SVAR) Analysis.

2011 ◽  
Vol 50 (4II) ◽  
pp. 491-511 ◽  
Author(s):  
Muhammad Arshad Khan ◽  
Ayaz Ahmed
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Inflation Rate ◽  
Food Price ◽  
Oil Price ◽  
Real Effective Exchange Rate ◽  
Impulse Response Functions ◽  
Price Shocks ◽  
Effective Exchange ◽  
Effective Exchange Rate

This study examines the transmission channels through which the global food and oil price shocks affects selected macroeconomic variables including inflation rate, output, money balances, interest rate and real effective exchange rate for Pakistan using monthly data over the period 1990M1-2011M7. An empirical analysis is carried out by employing structural vector autoregressive (SVAR) framework. Generalised Impulse Response Functions and Generalised Forecast Variance Decompositions are employed to track the impact of oil and food price shocks to Pakistan‘s economy. Results suggest that oil price shock affects industrial production, appreciates real effective exchange rate negatively and affect inflation and interest rate positively. Whereas, following food price shocks, industrial output increases. Similarly, interest rate and inflation rate responds positively following food price shocks. However, the variation in interest rate due to food price shock is relatively larger than that of oil price shocks. Generalised impulse response functions reveal that real effective exchange rate is most important source of disturbances following either oil price or food price shocks. Generalised forecast variance decompositions analysis also supports the findings based on generalised impulse response functions. The result clearly reveals that oil and food price shocks significantly affect output, short-term interest rate, inflation rate and real effective exchange rate. However, among all, real effective exchange rate has seen a dominant source of variations in Pakistan. This implies that supply-side and demand-side disturbances originated by external shocks are the major sources of inflation (stagflation) in Pakistan. Keywords: Oil and Food Price Shocks, SVAR, GIRFs, GFEVDs, Pakistan

scholarly journals Conditions Monetaires Et Croissance Economique En Zone Cemac

2019 ◽  
pp. 27-46
Author(s):  
Waofo Deffo Alain Leberre
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Condition Index ◽  
Real Effective Exchange Rate ◽  
Model Parameters ◽  
Pooled Mean Group ◽  
Effective Exchange ◽  
Short Run ◽  
Estimation Of Model Parameters ◽  
Effective Exchange Rate

The objective of this study is to track the monetary policy stance in CEMAC zone with GDP as target variable using a real size. The construction of reel monetary condition index use heterogeneous macropanels VAR approach with individual specification proposed par Fabio and al (2013). The inter-individual cointégration test confirm the long term relationship between GDP, real short run interest rate, real effective exchange rate and credit to economy making possible the combination of those instruments to forecast growth. But the result of intraindividual cointegration remains lukewarm compromising the possibility to combine the instruments above-mentioned in a single synthetic indicator for each country in CEMAC zone. The estimation of model parameters has been done through pooled mean group in Blackburn and Fran (2007) way. The construction of real ICM uses Canada Bank approach. One finds that real ICM is determined mainly by real effective exchange rate, then credit to economy and lastly the real short run interest rate. The construction of ICM must be included among the large range of indicators used by central bank to forecast growth in CEMAC zone.

scholarly journals MEKANISME TRANSMISI GONCANGAN HARGA MINYAK DAN HARGA PANGAN DUNIA TERHADAP PEREKONOMIAN MAKRO INDONESIA: PENDEKATAN STRUCTURAL VECTOR AUTOREGRESSIVE (SVAR)

2017 ◽  
Vol 11 (2) ◽  
Author(s):  
Abdul Khaliq
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Industrial Production ◽  
Food Price ◽  
Oil Price ◽  
Real Effective Exchange Rate ◽  
Price Shocks ◽  
Price Shock ◽  
Effective Exchange ◽  
Effective Exchange Rate

<p>This study examines the transmission channels of oil and food price shocks to selected Indonesian macroeconomic variables including Indonesia industrial production index, world interest rate, inflation, domestic interest rate, real effective exchange rate, and Jakarta Composite Index using monthly data over the period 2001M01-2013M08. An empirical analysis is carried out by utilizing structural vector autoregressive (SVAR) framework. Impulse response functions (IRFs) and forecast variance decompositions (FEVDs) are employed to track the impact of oil and food price shock to Indonesian economy. The empirical findings of IRFs suggest that oil price shock negatively affects industrial production, depreciates real effective exchange rate, increases inflation and interest rate, and negatively affects aset price. However, following food price shocks, industrial production increases, depreciates real effective exchange rate, increase stock return. Moreover, inflation and interest rate respond positively following food price shocks. The FEVDs results clearly reveals that the variation in industrial production growth, inflation, interest rate, real effective exchange rate, and aset price due to oil price shock is relatively larger than the food price shocks. This implies that oil price is most important source of disturbances in Indonesian macroeconomy. As a whole, this study recommend that world oil and food price should be considered for policy analysis and forecasting an Indonesian macroeconomy.<br />Key Words : Oil and food price shocks, SVAR, IRFs, FEVDs, Indonesia</p>

scholarly journals Restoring international competitiveness in Croatia: The role of fiscal and monetary policy

2013 ◽  
Vol 58 (199) ◽  
pp. 39-55
Author(s):  
Tomislav Coric ◽  
Hrvoje Simovic ◽  
Milan Deskar-Skrbic
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Fiscal Policy ◽  
International Competitiveness ◽  
Real Effective Exchange Rate ◽  
Labour Costs ◽  
Unit Labour Costs ◽  
Effective Exchange ◽  
Effective Exchange Rate

Croatia has joined the European Union as a country with several substantial structural problems, of which the most important is weak competitiveness. Although competitiveness can be viewed from the ?institutional? perspective, which includes World Development Indicators (WDI) and Doing Business reports, in this paper the authors focus on the more standard view of competitiveness based on unit labour costs (ULC) and real effective exchange rate (REER). As a small, open and highly dollarized/euroised economy that has to coordinate its economic policy with the EU policy framework, Croatia has limited space for increasing international competitiveness using monetary policy measures aimed at (nominal) devaluation of the national currency. Therefore economic policy stakeholders should focus on decreasing unit labour costs and real effective exchange rate mainly through the process of internal devaluation, which is based on adequate fiscal policy measures. In this paper the authors analyse the role of monetary and fiscal policy in the deteriorating real effective exchange rate and unit labour costs since 2000, and their current capabilities and restrictions in restoring international competitiveness. The Structural VAR model (SVAR) is used to estimate the effects of foreign (banking) capital, credit growth, and current public expenditure on REER and ULC. The preliminary hypothesis of the paper is that monetary policy should continue to support bank lending activities and the role of fiscal policy is to achieve an internal devaluation, which will increase the competitiveness of the Croatian economy. Restoring international competitiveness is necessary due to its impact on net exports and consequently the economic recovery of the national economy, which has faced recession conditions for five years in a row. Also, restoring competitiveness is one of the most important preconditions for the success of a small country joining the single European market.

The determinants of ASEAN-5 real effective exchange rate vis-á-vis the UK pound

2014 ◽  
Vol 10 (2) ◽  
pp. 98-118 ◽  
Author(s):  
Abdalrahman AbuDalu ◽  
Elsadig Musa Ahmed
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Real Effective Exchange Rate ◽  
Content Type ◽  
Long Run ◽  
Effective Exchange ◽  
Short Run ◽  
The Uk ◽  
Effective Exchange Rate

Purpose – The purpose of this paper is to present an empirical analysis of long-run and short-run forcing variables of purchasing power parity (PPP) for ASEAN-5 currencies vis-à-vis the UK pound, i.e. their real effective exchange rate (REER). Design/methodology/approach – This study uses a recently developed autoregressive distributed lag (ARDL) approach to co-integration (Pesaran et al., 2001) over the period 1991:Q1-2006:Q2. Our empirical results suggest that the foreign interest rate (R*) and domestic money supply (M1) are the significant long-run forcing variables of PPP for ASEAN-5 REERs for the three periods. Findings – In the short-run, the variables have different impacts during the sub-periods and full period for ASEAN-5 countries. The results suggest that the domestic money supply (M1) for Malaysia, domestic interest rate and foreign interest rate (R*) for Indonesia, domestic money supply (M1) and term of trades (TOT) for Philippines, foreign interest rate (R*) for Thailand, and foreign interest rate (R*) and net foreign assets (NFA) for Singapore, respectively, have the highest significant short-run forcing variable of PPP for countries REERs. Originality/value – In this respect, the outcomes can derive policy implication for the monetary authorities in these ASEAN-5 countries.

The EMU-REER Spillovers on Southeastern European Economies: A G-VAR Model

2020 ◽  
Vol 66 (4) ◽  
pp. 259-290
Author(s):  
Petros Golitsis ◽  
Sotirios K. Bellos ◽  
Anastasios Alexandridis
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Policy Coordination ◽  
Policy Implications ◽  
Real Effective Exchange Rate ◽  
Vector Autoregressive ◽  
Effective Exchange ◽  
Monetary Policy Coordination ◽  
Global Vector ◽  
Effective Exchange Rate

In this paper, we empirically investigate the spillovers of Real Effective Exchange rate of European Monetary Union (EMU-REER) on Industrial Production, Real Effective Exchange rate, Foreign Reserves and interest rates for the South Eastern European (SEE) economies of Bulgaria, Croatia, Greece, North Macedonia, Romania, and Slovenia, using monthly data over 2002–2016. In a global vector autoregressive framework with EMU-REER as a global variable, we show that the EMU variable has a lasting impact on the SEE variables and economies. Specifically, we provide strong evidence that this impact of EMU-REER is not only of a greater importance compared to the importance of the domestic variables, but also that it negatively affects the competitive stance of the investigated SEE economies, which is partly compensated by the lower interest rates that certain SEE countries face in return. Our results offer potential policy implications with respect to monetary policy coordination and discretion.

scholarly journals The Exchange Rates and Monetary Dynamics in Pakistan: An Autoregressive Distributed Lag (ARDL) Approach

2005 ◽  
Vol 10 (2) ◽  
pp. 87-99
Author(s):  
Muhammad Arshad Khan ◽  
Muhammad Zabir Sajjid
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Real Income ◽  
Real Effective Exchange Rate ◽  
Real Money ◽  
Long Run ◽  
Ardl Approach ◽  
Effective Exchange ◽  
Short Run ◽  
Effective Exchange Rate

In this paper we investigate both the long and short-run relationship between real money balances, real income, inflation rate, foreign interest rate and real effective exchange rate with reference to Pakistan over the period 1982Q2-2002Q4 using ARDL approach which is a newly developed econometric technique. The estimated results indicate that in the long-run real income, inflation rate, foreign interest rate and real effective exchange rate have a significant impact on real money balances in Pakistan. The dynamics of real money demand show that the effects of rate of inflation, foreign interest rate and the real effective exchange rate are much smaller in the short run than long run. The results also reveal that the demand for real money balances in Pakistan is stable, despite the economic reforms pursued by the government since the late 1980s.

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