scholarly journals Exchange Rate Management: The Case of Malaysia

2020 ◽  
Author(s):  
Yusuf Haji Othman ◽  
Goh Soo Khoon ◽  
Dawood M. Mithani
Keyword(s):  
Exchange Rate ◽  
Random Walk ◽  
Real Exchange Rate ◽  
Current Account ◽  
Government Spending ◽  
Policy Implication ◽  
Exchange Rate Policy ◽  
Current Account Balance ◽  
Long Run ◽  
Rate Policy

This paper sought to examine whether Purchasing Power Parity (PPP) can become a predictor model for exchange rate. We try to determine whether at least some variant of the PPP-oriented rule may be used in Malaysia as a basis for exchange rate policy. Two methods are used to examine whether longrun PPP holds. The first method is testing whether or not the real exchange rate follows a random walk. The second is the Johansen procedure to test for a long-run relationship between real exchange rate and real economic shocks. It is found that the ringgit real exchange rate follows a random walk, which means PPP does not hold. However, supportive evidence is also seen that there is a long-run relationship between ringgit real exchange rate with current account balance and government spending. The policy implication of this important finding is that some variant of the PPP-oriented rule may be used in Malaysia as a basis for exchange rate policy. Government spending and current account balance can be used as a guide to determine the movement of real exchange rate. The error-correction model shows that real exchange rate, government spending and current account all adjusted to long-run equilibrium. It has a very important policy implication. Fiscal policy, which controls government expenditure, can be used as a tool to manage exchange rate. Measures have to be taken to increase export while at the same time import has to be reduced to maintain the current account balance to be in surplus. This will strengthen the ringgit, thus helping to stabilize the ringgit exchange rate.

The real equilibrium exchange rate in a commodity­exporting economy: the experience of Azerbaijan

2021 ◽  
pp. 25-38
Author(s):  
Vusal Gasimli ◽  
Vusala Jafarova
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Oil Prices ◽  
Exchange Rate Policy ◽  
Current Account Balance ◽  
Equilibrium Exchange Rate ◽  
Long Run ◽  
Equilibrium Exchange ◽  
Rate Policy ◽  
Relative Productivity

The case of Azerbaijan serves to study the adequacy of exchange-rate policy in a resource-rich economy. This paper analyses the behavior of Azerbaijan’s external accounts over the past twenty years. Declining oil prices made an existing exchange-rate peg unsustainable and led to a large devaluation in 2015. Since then, the current account balance has improved, but by less than expected. We use the EBA-Lite method to derive regression-based estimates of the equilibrium real exchange rate, and relate misalignments to measures of “policy gaps”. Our findings suggest that only a few years after the devaluation, Azerbaijan’s currency has once more become overvalued. Moreover, the equilibrium real exchange rate is volatile and hardly compatible with a long-run exchange rate peg. Exchange rate policy should try to accommodate shifts in the fundamental determinants such as relative productivity and real oil prices.

Does real exchange rate devaluation improve the current account balance of highly indebted low income countries?

2019 ◽  
Vol 10 (2) ◽  
pp. 212-225
Author(s):  
Getaneh Mihret Ayele
Keyword(s):  
Time Series ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Current Account ◽  
Low Income ◽  
Low Income Countries ◽  
Current Account Balance ◽  
Content Type ◽  
Long Run ◽  
The Current Account

Purpose The purpose of this paper is to examine whether real exchange rate devaluation improves the current account balance of four highly indebted low-income countries of East Africa. Design/methodology/approach The pooled mean group (PMG) approach is used for panel data from four countries over the period 1970–2016. The paper also applied bound testing and ARDL model for time-series data from individual sample countries. Findings The panel PMG/ARDL estimation result reveals that real exchange rate devaluation has no significant impact on the current account balance, both in the short and long run. However, the time-series analysis using the bound testing and restricted ARDL estimation suggests that real exchange rate devaluation improves the current account balance in the long run for only Ethiopia. The overall empirical results reveal that the current account balance would improve with the rising domestic income while it deteriorates with increasing foreign income and external indebtedness in the long run. Originality/value The paper is original.

scholarly journals Capital Controls or Real Exchange Rate Policy? A Pecuniary Externality Perspective

2013 ◽  
Author(s):  
Gianluca Benigno ◽  
Huigang Chen ◽  
Alessandro Rebucci ◽  
Christopher Otrok ◽  
Eric Young
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Capital Controls ◽  
Exchange Rate Policy ◽  
Pecuniary Externality ◽  
Rate Policy

Exchange Rate and Economic Growth

2017 ◽  
Vol 12 (1) ◽  
pp. 42-64 ◽  
Author(s):  
Mohammad A. Razzaque ◽  
Sayema Haque Bidisha ◽  
Bazlul Haque Khondker
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Development Strategy ◽  
Analytical Framework ◽  
Policy Option ◽  
Exchange Rate Policy ◽  
Long Run ◽  
Exchange Rate Movements ◽  
Short Run

This article aims to understand the effects of exchange rate movements on economic growth in Bangladesh. Using a suitable analytical framework to derive an empirical specification, we construct a real exchange rate series and employ cointegration techniques to determine the output response to Bangladeshi currency depreciations. Our results suggest that in the long run, a 10 per cent depreciation of the real exchange rate is associated with, on average, a 3.2 per cent rise in aggregate output. However, a contractionary effect is observed in the short run so that the same magnitude of real depreciation would result in about a half per cent decline in GDP. While the long-run expansionary effect of real depreciations may be appealing for considering exchange rate policy as a development strategy, the likelihood of rising inflationary pressures needs to be kept in mind while pursuing this policy option.

scholarly journals An Econometrics Analysis of the Impact Exchange Rate on Economic Growth of Nigeria

2021 ◽  
Vol 4 (3) ◽  
pp. 185-198
Author(s):  
Okosu Napoleon David
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Current Account ◽  
Series Data ◽  
Current Account Balance ◽  
National Account ◽  
Long Run ◽  
The Impact

The study interrogates the impact of exchange rate on the economic growth of Nigeria from 1981 to 2020 using quarterly time-series data from the Central Bank of Nigeria and the World Bank National Account. The dependent variable in the model was Real Gross Domestic Product (RGDP), and the independent variables were Exchange Rate (EXCHR), inflation (INFL), Interest Rate (INTR), Foreign Direct Investment (FDI), Broad Money Supply (M2) and Current Account Balance of Payment (CAB). The methodology employed was the Auto-Regressive Distributed Lag (ARDL) model which incorporates the Cointegration Bond test and Error-Correction Mechanism. The finding indicates that in the short run, EXCHR, CAB, M2 and FDI, had a positive impact on economic growth. The impact of EXCHR and CAB were significant on growth while that of M2 and FDI were insignificant to growth. However, INTR and INFL had a negative impact on economic growth with both variables being statistically significant. The bound test showed that there was a long-run relationship among the study variables, and the results from the long run reveal that the exchange rate has a positive and significant impact on economic growth. Inflation, Interest rate, FDI, Current Account Balance of Payment (CAB) and Broad Money Supply all have a positive and significant impact on economic growth. Based on the findings the study recommended that monetary authority should strictly monitor the operations of banks and other forex dealers with a view of ensuring unethical practices are adequately sanctioned to serve as a deterrent to others.

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