scholarly journals Does Exchange Rate Impact Commodity Prices: Evidence From a Small Open Economy 

2021 ◽  
Author(s):  
Kore Marc Antoine Guei ◽  
IREEN CHOGA
Keyword(s):  
Exchange Rate ◽  
Open Economy ◽  
Small Open Economy ◽  
Commodity Prices ◽  
Jel Classification ◽  
Terms Of Trade ◽  
Vector Autoregressive ◽  
Threshold Autoregressive ◽  
Svar Model ◽  
The Impact

Abstract The paper assesses the dynamics of exchange rate and the terms of trade on industrial commodity prices. We investigate the linear and asymmetric effects of exchange rate on commodity prices using an error correction model (ECM) and a threshold autoregressive (TAR) model that allows to estimate the dynamics of different regimes. Further we employ a structural vector autoregressive (SVAR) model to examine the impact of an external shock on the terms of trade using quarterly data over the period 1992q1 to 2019q4.The results suggest that an exchange rate above or equal 4.6 has a positive and significant impact on commodity prices. Specifically, if real exchange rate is above the threshold 4.6, the price of gold, copper, and nickel increases by 0.9 %, 1.1%, and 2.7%, respectively. We also find that a 1% increase in real interest rate is associated with a 0.003% fall in the terms of trade. JEL classification: E31, E43, F3

scholarly journals PERANAN KEBIJAKAN MONETER DALAM MENJAGA STABILITAS PEREKONOMIAN INDONESIA SEBAGAI RESPON TERHADAP FLUKTUASI PEREKONOMIAN DUNIA

2007 ◽  
Vol 9 (2) ◽  
pp. 145-177
Author(s):  
M. Maulana Al Arif ◽  
Achmad Tohari
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Open Economy ◽  
Small Open Economy ◽  
Monthly Data ◽  
Vector Autoregressive ◽  
The World ◽  
The Exchange Rate ◽  
The Impact

This paper analyzes the impact of the inflation and the world interest rate on the Indonesian economy and the effectiveness of the Indonesian central bank policy to adopt the domestic macroeconomic fluctuation.Assuming Indonesia as a small-open economy, the Stuctural Vector Autoregressive Model is utilized on the monthly data during the periode of 1999: 1 – 2004: 12 covering the main domestic macroeconomic indicator (output, price, money supply, interest rate and the exchange rate) and the world oil price and world interest rate as the disturbance source.The analysis provides 2 main results, first, the international variables do have impacts on the domestic variables fluctuation, implying the fragility of the domestic economy due to the external shock, second, the monetary policy is effective on supporting the economic growth and stabilizing the price level. However, the Bank Indonesia policy to stabilize the international shock via the exchange rate channel, contributes to a higher impact of the international shock on domestic interest rate.Keywords: monetary policy, business cycle, SVARJEL Classification: E52, E32, C32, F41

The long-run stability of a small, open economy under crawling peg regime

2002 ◽  
Vol 52 (1) ◽  
pp. 57-78
Author(s):  
S. Çiftçioğlu
Keyword(s):  
Exchange Rate ◽  
Open Economy ◽  
Risk Premium ◽  
Small Open Economy ◽  
Exchange Rate Policy ◽  
Price Stability ◽  
Output Stability ◽  
Long Run ◽  
The Exchange Rate ◽  
The Impact

The paper analyses the long-run (steady-state) output and price stability of a small, open economy which adopts a “crawling-peg” type of exchange-rate regime in the presence of various kinds of random shocks. Analytical and simulation results suggest that with the exception of money demand shocks, an exchange rate policy which involves a relatively higher rate of indexation of the exchange rate to price level is likely to lead to the worsening of price stability for all types of shocks. On the other hand, the impact of adopting such a policy on output stability depends on the type of the shock; for policy shocks to the exchange rate and shocks to output demand, output stability is worsened whereas for the shocks to risk premium of domestic assets, supply price of domestic output and the wage rate, better output stability is achieved in the long run.

Risk Aversion and Unemployment in an Open Economy

2000 ◽  
Vol 49 (2) ◽  
Author(s):  
Pia Weiß
Keyword(s):  
Risk Aversion ◽  
Open Economy ◽  
Small Open Economy ◽  
Risk Behaviour ◽  
Terms Of Trade ◽  
Individual Risk ◽  
Risk Averse ◽  
Search Frictions ◽  
Long Run ◽  
The Impact

AbstractThe paper analyses the impact which risk aversion has on a small open economy characterised by search frictions on the labour market. It is shown that the long-run qualitative effects caused by a terms-of-trade shock are independent of individual risk behaviour. As far as quantitative aspects are concerned risk aversion always leads to higher equilibrium employment; however the increase in unemployment due to a price shock is the higher the more risk-averse individuals are.

scholarly journals The 2000s commodity boom and the exchange rate in Argentina

2019 ◽  
Vol 27 (79) ◽  
pp. 46-61
Author(s):  
Luciano Campos
Keyword(s):  
Exchange Rate ◽  
Latin American ◽  
Open Economy ◽  
Small Open Economy ◽  
Exchange Rate Policy ◽  
Dutch Disease ◽  
Nominal Exchange Rate ◽  
Content Type ◽  
Selection Of Variables ◽  
The Impact

Purpose This paper aims to estimate the impact of the 2000s commodity boom in the major Latin American economies. Design/methodology/approach The author used a structural vector autorregresive analysis where the selection of variables is conditional on a New Keynesian Model for a small open economy. Findings The evidence indicates that the Argentinean nominal exchange rate appreciated less while its output and inflation grew more than those of the other nations when subjected to commodity shocks. These results are interpreted as a more aggressive leaning-against-the-wind intervention by Argentina, probably to avoid the Dutch disease. Although the effects with regard to output were indeed stronger in Argentina, this was only at the expense of higher inflation and volatility suffered during the boom. Originality/value At the time of the writing of this paper, no work had evaluated Argentinean underperformace to the manner in which its exchange rate policy was handled in comparison with the rest of the region during the boom. This paper intends to fill this gap.

scholarly journals INTERNALISASI SEKTOR PERBANKAN DALAM MODEL DSGE

2014 ◽  
Vol 17 (1) ◽  
pp. 23-60
Author(s):  
Harmanta Harmanta ◽  
Nur M. Adhi Purwanto ◽  
Fajar Oktiyanto Oktiyanto
Keyword(s):  
Monetary Policy ◽  
Open Economy ◽  
Banking Sector ◽  
Small Open Economy ◽  
Jel Classification ◽  
Capital Adequacy ◽  
Macroprudential Policy ◽  
Financial Friction ◽  
Policy Bank ◽  
The Impact

We build DSGE model for small open economy with financial friction in the form of collateral constrain on banking sector, designed for Indonesian economy. The constructed model is capable to simulate the monetary policy (Bank Indonesia rate) and macroprudential policy (reserve requirement, capital adequacy ratio – CAR, and loan to value – LTV). By internalizing banking sector into the model, this model also enable us to simulate the impact of any shock originated from banking sector.  Keywords: monetary policy, DSGE with banking sector, macroprudential policy JEL Classification: E32, E44, E52, E58 

The effects of government spending shocks on real exchange rate in Ethiopia

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hiluf Techane Gidey ◽  
Naser Yenus Nuru
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Government Spending ◽  
Small Open Economy ◽  
Government Investment ◽  
Government Consumption ◽  
Content Type ◽  
Vector Autoregressive ◽  
Spending Shocks

PurposeGovernment spending has inconclusive effect on real exchange rate. From the very beginning neoclassical economists argued that a rise in government spending brings depreciation in real exchange rate while neo-Keynesians claimed that government spending appreciates real exchange rate. Hence, the main purpose of this paper is to examine the effect of government spending shock and its components' shocks, namely government consumption and government investment on real exchange rate over the period 2001Q1–2016Q1 for Ethiopia.Design/methodology/approachTo examine the effects of government spending shocks on real exchange rate, Jordà's (2005) local projection method is employed in this study. The exogenous shocks, however, are identified recursively in a vector autoregressive model.FindingsThe impulse responses show that government spending shock leads to a statistically significant appreciation of real exchange rate in Ethiopia. This evidence supports the neo-Keynesian school of thought who predicts an appreciation of real exchange rate from a rise in government spending. While government investment shock depreciates real exchange rate on impact insignificantly, government consumption shock appreciates real exchange rate in this small open economy.Originality/valueThis research contributes to the scarce literature on the effect of fiscal policy shock on real exchange rate in small open economies like Ethiopia.

scholarly journals A Welfare Based Approach for choosing the Inflation Targeting and the Exchange Regime in Tunisia

2014 ◽  
Vol 6 (12) ◽  
pp. 919-932
Author(s):  
Abdelli Soulaima
Keyword(s):  
Exchange Rate ◽  
Open Economy ◽  
Inflation Targeting ◽  
Exchange Rate Regime ◽  
Small Open Economy ◽  
Flexible Exchange Rate ◽  
Stochastic Dynamic ◽  
Consumer Prices ◽  
The Social ◽  
The Impact

The inflation targeting is considered as an attractive monetary policy strategy in order to handle the inflation rate and improves the credibility of the central bank. The paper provides a stochastic dynamic general equilibrium model with the specificity of employing a small open economy. This model analyzes the impact of different regimes of inflation targeting and exchange rate in Tunisia in terms of the welfare loss and describes some aspects of the Tunisian’s economy. The results displays that the social loss is higher under the managed exchange rate than the flexible exchange rate regime for all the shocks. Then in terms of the inflation targeting index, it demonstrates that the consumer prices index outperforms the domestic inflation except for the productivity shock, in contrast to the result of (Parrado, 2004). Finally the strict is superior to the flexible inflation targeting except with the foreign inflation and the domestic interest rate shock.

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