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 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 The Long-run Relationship between Real Exchange Rate and Real Interest Rate in Asian Countries: An Application of Panel Cointegration

2001 ◽  
Vol 40 (4II) ◽  
pp. 577-602 ◽  
Author(s):  
Shaista Alam ◽  
Muhammad Sabihuddin Butt ◽  
Azhar Iqbal
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Real Interest Rate ◽  
Real Exchange Rates ◽  
Panel Cointegration ◽  
The Real ◽  
Long Run ◽  
Interest Rate Differentials

The role of exchange rate policy in economic development has been the subject of much debate and controversy in the development literature. Interest rates and exchange rates are usually viewed as important in the transmission of monetary impulses to the real economy. In the short run the standard view of academics and policy-makers is that a monetary expansion lowers the interest rate and rises the exchange rate, with these price changes then affecting the level and composition of aggregate demand. Frequently, these influences are described as the liquidity effects of monetary expansion, viewed as the joint effect of providing larger quantities of money to the private sector. Popular theories of exchange-rate determination also predict a link between real exchange rates and real interest rate differentials. These theories combine the uncovered interest parity relationship with the assumption that the real exchange rate deviates from its long-run level only temporarily. Under these assumptions, shocks to the real exchange rate—which are often viewed as caused by shocks to monetary policy—are expected to reverse themselves over time. This study investigates the long-run relationship between real exchange rates and real interest rate differentials using recently developed panel cointegration technique. Although this kind of relationship has been studied by a number of researchers,1 very little evidence in support of the relationship has been reported in the case of developing countries. For example, Meese and Rogoff (1988) and Edison and Pauls (1993), among others, used the Engle-Granger cointegration method and fail to establish a clear long-run relationship in their analysis.

Exploring real exchange rate effects on trade balances in Thailand

2002 ◽  
Vol 28 (11) ◽  
pp. 16-27 ◽  
Author(s):  
Tantatape Brahmasrene ◽  
Komain Jiranyakul
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Foreign Currency ◽  
Bilateral Trade ◽  
Real Exchange Rates ◽  
The Real ◽  
Cointegration Tests ◽  
Non Linear ◽  
The Impact

This study investigates the impact of real exchange rates on the trade balances between Thailand and its major trading partners. Previous empirical evidence gave mixed results of the impact of real exchange rates on trade balances. In this study, Augmented Dicky‐Fuller and Phillips‐Perron tests for stationarity followed by the cointegration tests are implemented. All variables in the model are nonstationary but cointegrated. In cointegrating regressions, biases are introduced by simultaneity and serial correlation in the error. The specification that deals with these problems is the non‐linear specification of Stock and Watson (1989). By using this non‐linear model as modified by Reinhart (1995), the results show that the impact of real exchange rates (Thai baht/foreign currency) on trade balances is significant in most cases. Therefore, the generalized Marshall‐Lerner condition seems to hold. Furthermore, the results show that the real exchange rates play a more important role in the determination of the bilateral trade balances than other factors. Since the real exchange rate variable plays a major role in this study, the policy recommendation is to prevent exchange rate misalignment. A policy that can neutralize the changes in nominal exchange rates and relative prices should be introduced to prevent further deterioration of the trade balance.

scholarly journals THE RESPONSE OF ZIMBABWE TOBACCO EXPORTS TO REAL EXCHANGE RATES VOLATILITY

2020 ◽  
Vol 56 (2) ◽  
Author(s):  
Knowledge Mutodi ◽  
Tinashe Chuchu ◽  
Eugine Tafadzwa Maziriri
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Real Exchange Rates ◽  
Exchange Rate Volatility ◽  
Response Model ◽  
The Real ◽  
Long Run ◽  
Exchange Rates Volatility ◽  
Real Exchange Rate Volatility

The focus of this study was on investigating the response of tobacco exports to real exchange rates and real exchange rate volatility and other factors in Zimbabwe using secondary data spanning from 1980 to 2019. Bilateral nominal exchange rates and time-variant weights of Zimbabwe’s 10 major trading partners were calculated and used to compute the real exchange rate index. The time-dependent weighting system was used to better represent the evolution of trade patterns in the index. The arithmetic method was employed for computing the index. Generalized autoregressive conditional heteroskedasticity (GARCH) and autoregressive conditional heteroscedasticity (ARCH) models were used to generate the real exchange rate volatility index. The export response function was adopted as the tobacco exports response model. The variables in the tobacco exports response model were the realworld Gross Domestic Product (GDP), real exchange rate, terms of trade, real exchange rate volatility and dollarization. A vector error correction model (VECM) was used to estimate the response of tobacco exports to real exchange rate, real exchange rate volatility and other factors. The VECM results indicated that real world GDP was insignificant in both the short and long run. In the long run, the real exchange rate appreciation had a negative impact on tobacco exports. Conversely, in the short run, the depreciation of real exchange rate had a positive impact on tobacco exports. Hence, the government has to adopt other mechanisms that reduce uncertain movements of exchange rates.

Real Exchange Rates and Currency Risk Premiums

2019 ◽  
Vol 10 (1) ◽  
pp. 94-121 ◽  
Author(s):  
Pierluigi Balduzzi ◽  
I-Hsuan Ethan Chiang
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Predictive Power ◽  
Real Exchange Rates ◽  
Currency Risk ◽  
Risk Premiums ◽  
The Real ◽  
Long Run ◽  
Long Run Risks

Abstract Standard finite horizon tests uncover only weak evidence of the predictive power of the real exchange rate for excess currency returns. On the other hand, in long-horizon tests, the real exchange rate strongly and negatively predicts future excess currency returns. Conversely, we can attribute most of the variability in real exchange rates to changes in currency risk premiums. The “habit” and “long-run risks” models replicate the predictive power of the real exchange rate for excess currency returns, but substantially overstate the fraction of the volatility of the real exchange rate due to risk premiums. Received December 14, 2017; Editorial decision October 14, 2018 by Editor: Raman Uppal. Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

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 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

Sign in / Sign up

Export Citation Format

Share Document