scholarly journals Exchange rate and interest rate distribution and volatility under the Portuguese target zone

2010 ◽  
Vol 57 (3) ◽  
pp. 261-282 ◽  
Author(s):  
Duarte Portugal ◽  
Sousa Andrade ◽  
Adelaide Duarte
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rate Volatility ◽  
European Monetary System ◽  
European Monetary ◽  
Target Zone ◽  
Rate Distribution ◽  
Economies In Transition ◽  
Portuguese Economy ◽  
The Exchange Rate

The aim of this study is to analyse the exchange rate and interest rate distribution and volatility under the participation of the Portuguese economy in the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS) based on some of the main predictions of the target zone literature. Portugal adopted this exchange rate target zone from April 6 1992 until December 31 1998. During this period, the exchange rate distribution reveals that the majority of the observations lie close to the central parity, thus rejecting one of the key predictions of the Paul Krugman (1991) model. The analysis of the data also shows that exchange rate volatility tended to increase as the exchange rate approached the edges of the band, contrary to the predictions of the basic model. Interest rate differential volatility, on the other hand, seemed to behave in line with theoretical predictions. This suggests an increase in the credibility of monetary policy, allowing us to conclude that the adoption of a target zone has contributed decisively to the creation of the macroeconomic stability conditions necessary for the participation in the European Monetary Union (EMU). The Portuguese integration process should therefore be considered as an example to be followed by other small open economies in transition to the euro area.

scholarly journals Interest Rate and Exchange Rate Volatility Spillovers: Multiscale Perspective of Monetary Policy Transmission in Ghana

2020 ◽  
Vol 9 (1) ◽  
pp. 135-167
Author(s):  
Nana Kwame Akosah ◽  
Paul Alagidede ◽  
Eric Schaling
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rate Volatility ◽  
Output Gap ◽  
Monetary Policy Transmission ◽  
Volatility Spillovers ◽  
Policy Transmission ◽  
The Exchange Rate ◽  
Macro Variables

AbstractGhana’s economy is characterised by acute exchange rate volatility alongside persistent and high consumer inflation. This places the economy among the sub-Saharan African countries with the highest inflation over the years. Therefore, we explore in-sample and out-of-sample macro-volatility spillovers to determine the effectiveness of monetary policy and also ascertain the relevance of the exchange rate in Ghana’s interest rate setting at both time and multiscale domains. The study reveals scale-dependent interconnectedness among the macro-variables as their causal linkages broadly intensify at the longer time-scale. We find the real policy rate and the exchange rate to be net transmitters of shocks, while inflation and output gaps are net receivers of shocks from the system. Output gap, however, is the largest net receiver of shocks from the system. The empirical findings generally buttress the prerequisite to uphold exchange rate stability in order to inure general macroeconomic stability in Ghana. In addition, the extent of spillover dynamics from policy interest rate to and from the targeted macro-variables (particularly output gap and inflation) appears to be moderate even in the long run, surmising less effective monetary policy transmission in Ghana.

Empirical Investigation of the Effects of the Fundamentals on the Exchange Rate

2005 ◽  
pp. 83-110
Author(s):  
Juan R. Castro
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Empirical Investigation ◽  
Negative Relationship ◽  
Foreign Reserves ◽  
Target Zone ◽  
Monthly Data ◽  
The Exchange Rate ◽  
Interest Differential ◽  
Exchange Rate Depreciation

This paper examines, by using several econometric techniques, the effects of foreign reserves and other fundamental variables on the exchange rate using the target zone theory. This paper uses monthly data for Chile from January 1979 to November 1997. The data used consists of foreign reserves, credit from the Central Bank, domestic reserves, imports, exports, claims on government, GDP, foreign liabilities, domestic and foreign interest rate. We find that the interest differential does not have any effect on depreciation, rejecting the target zone implication that the domestic interest rate can be used to manage the exchange rate. We find that foreign reserves support the exchange rate by reducing the exchange rate depreciation, and the exchange rate and foreign reserves follow a negative relationship, which supports the assumption that increasing the foreign reserves appreciates the exchange rate.

scholarly journals Interest rate and exchange rate volatility and the performance of the Nigerian informal sector: Evidence from small and medium-sized enterprises

2021 ◽  
Vol 23 (1) ◽  
pp. 19-32
Author(s):  
Henry Osazevbaru
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Regression Model ◽  
Interest Rates ◽  
Informal Sector ◽  
Exchange Rate Volatility ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Bound Test ◽  
Ardl Bound Test

This paper investigates the joint impact of interest rate and exchange rate volatility on the performance of the informal sector in Nigeria, focusing on Small and Medium-sized Enterprises (SMEs). The annual time-series data on the exchange and interest rates for the period 1981-2018 were obtained from where exchange and interest rates volatility data were computed. The data analysis was carried out using descriptive statistics, correlation, a unit root test, an Autoregressive Distributed Lag (ARDL) bound test for cointegration and the ARCH regression model. The results obtained by the ARDL bound test confirmed the presence of the long-term relationship between interest and exchange rates volatility and SMEs' performance, which suggests that all the variables of interest move together in the long run. Moreover, the ARCH regression model showed a positive impact of exchange and interest rates volatility on SMEs' performance. However, only exchange rate volatility was significant. Thus, policy makers should pursue the interest rate and exchange rate regimes that will encourage massive investments in SMEs. This, in turn, would increase the performance of SMEs. Also, the monetary authorities should implement the policies aimed at curtailing incessant volatility in the exchange rate and the interest rate so as to protect SMEs from the external perturbations of the movements of the exchange rate and the interest rate.

The Role of Different Channels in Transmitting Monetary Policy into Output and Price in Vietnam

2015 ◽  
pp. 20-40
Author(s):  
Vinh Nguyen Thi Thuy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Interest Rate Channel

The paper investigates the mechanism of monetary transmission in Vietnam through different channels - namely the interest rate channel, the exchange rate channel, the asset channel and the credit channel for the period January 1995 - October 2009. This study applies VAR analysis to evaluate the monetary transmission mechanisms to output and price level. To compare the relative importance of different channels for transmitting monetary policy, the paper estimates the impulse response functions and variance decompositions of variables. The empirical results show that the changes in money supply have a significant impact on output rather than price in the short run. The impacts of money supply on price and output are stronger through the exchange rate and credit channels, but however, are weaker through the interest rate channel. The impacts of monetary policy on output and inflation may be erroneous through the equity price channel because of the lack of an established and well-functioning stock market.

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