scholarly journals Exchange Rate Management and Economic Growth: A Brewing Crisis in Pakistan

2017 ◽  
Vol 22 (Special Edition) ◽  
pp. 73-110 ◽  
Author(s):  
Naved Hamid ◽  
Azka Sarosh Mir
Keyword(s):  
Exchange Rate ◽  
Nominal Exchange Rate ◽  
Real Effective Exchange Rate ◽  
Negative Consequences ◽  
The Real ◽  
Exchange Rate Management ◽  
Effective Exchange ◽  
The Exchange Rate ◽  
Effective Exchange Rate ◽  
Policy Target

In this article it is argued that Pakistan has had a consistently overvalued exchange rate and the policy with regards to management of the exchange rate has undergone a significant change in recent years. We show that prior to March 2013, the policy target of the exchange management was stability of the real effective exchange rate. However, during the tenure of the current government, the policy target for exchange rate management seems to have been stability of the nominal exchange rate against the US dollar. As the currencies of Pakistan’s major trading partners (UK, Europe and China) have depreciated against the dollar during this period, the real effective exchange rate has appreciated by over 20 percent since the time that the current policy makers took office. Overvaluation in general and the recent reversal in the exchange rate management policy in particular have had an adverse impact on exports and the manufacturing sector. This not only has serious negative consequences for the long term, growth of the economy, but has greatly increased the short-term risk of a balance of payments crisis.

scholarly journals THE IMPACT OF EXCHANGE RATE ON ECONOMIC GROWTH IN ALGERIA

2019 ◽  
Vol 7 ◽  
Author(s):  
Mohammed Touitou ◽  
Yacine Laib ◽  
Ahmed Boudeghdegh
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Real Effective Exchange Rate ◽  
Vector Autoregressive ◽  
The Real ◽  
Effective Exchange ◽  
The Exchange Rate ◽  
Effective Exchange Rate ◽  
The Impact ◽  
Growth Economic

The transmission of changes in the exchange rate to macroeconomic performance has led to debates about their impact, particularly on growth economic. Many economists consider the exchange rate as a transmission channel of economic policy for open economies. This article focuses to determining empirically the impact of the exchange rate on economic growth. For this, we will adopt an approach in terms of the vector autoregressive model (VAR) with four variables namely, the real effective exchange rate, economic growth, financial development with credit indicators and finally the money supply. The empirical results allow us to confirm our theoretical expectations that decline in the real effective exchange rate of the dinar increases the growth economy through public spending for consumption and is stimulated by oil taxation.

scholarly journals An empirical study of the real effective exchange rate and foreign direct investment in Vietnam

2020 ◽  
Vol 17 (4) ◽  
pp. 1-13
Author(s):  
Tram Thi Xuan Huong ◽  
My-Linh Thi Nguyen ◽  
Nguyen Thi Kim Lien
Keyword(s):  
Foreign Direct Investment ◽  
Exchange Rate ◽  
Direct Investment ◽  
Positive Impact ◽  
Real Effective Exchange Rate ◽  
The Real ◽  
Effective Exchange ◽  
The Exchange Rate ◽  
Effective Exchange Rate ◽  
The Relationship

Foreign direct investment (FDI) inflows to Vietnam have increased significantly in recent years. Theoretically, capital inflows will put pressure on the overvaluation of local currencies in countries, despite different exchange rate mechanisms. So, the problem facing the Vietnamese government is the need to examine the relationship between the exchange rate and FDI in order to develop effective policies. This study examined the relationship between the exchange rate and FDI in Vietnam in the period of 2005–2019 using the VAR (vector autoregression) model based on quarterly frequency data. The new points of this study are: (i) using the real effective exchange rate (REER) of the Vietnamese currency with 143 major trading partners of Vietnam; and (ii) adding two control variables into the VAR model to examine the relationship between the exchange rate and FDI in Vietnam – a case study for developing countries. The findings show that, firstly, there is a positive causal relationship between FDI and Vietnam’s real effective exchange rate. Secondly, trade openness has a positive impact on FDI and REER in Vietnam. Thirdly, economic growth has an impact on REER, but no statistically significant impact on FDI was found. The findings can provide useful information to help policymakers plan and make decisions on future policies and support further research studies.

scholarly journals Equilibrium Real Exchange Rate and Misalignment: The Sierra Leone Perspective

2021 ◽  
Vol 8 (3) ◽  
pp. 41
Author(s):  
Abu Bakarr TARAWALIE
Keyword(s):  
Exchange Rate ◽  
Sierra Leone ◽  
Government Expenditure ◽  
Unit Root Test ◽  
Real Effective Exchange Rate ◽  
The Real ◽  
Long Run ◽  
Effective Exchange ◽  
Effective Exchange Rate ◽  
Long Run Equilibrium

This paper estimates the equilibrium real effective exchange rate and determine the level of exchange rate misalignment in Sierra Leone, for the period 1980 to 2018. The paper utilizes the behavioral equilibrium exchange rate methodology within the Johansen maximum likelihood framework to estimate the long run equilibrium real effective exchange rate. The unit root test result shows that all the variables are integrated of order one, whilst the cointegration test establishes the existence of one cointegrating vector as evidenced by both the Trace and Maximum Eigen Statistics. The normalized long run results reveal that openness, government expenditure and money supply were the most significant determinants of the real effective exchange rate in the long run. Furthermore, the findings reveal that the real effective exchange rate experienced sustained deviation from the long run equilibrium real effective exchange rate during the study period, with episodes of overvaluation and undervaluation. Specifically, the real effective exchange rate was overvalued by 3.69 percent during the period between 1980-1985; undervalued by 1.8 percent between 1986-1997, and overvalued by 0.9 percent between 1998-2004, Thus, the paper reveals episodes of misalignment of the real effective exchange rate. Based on these findings, the study recommends that, the monetary authorities should ensure stability of the exchange rate and maintain price stability, through sterilization of capital flows as well as contain money growth within the statutory limit.

scholarly journals Portfolio Investment Flows, GDP, and Investment in Brazil

2016 ◽  
Vol 8 (12) ◽  
pp. 1
Author(s):  
Roberto Meurer
Keyword(s):  
Exchange Rate ◽  
Correlation Coefficients ◽  
Strong Relationship ◽  
Production Costs ◽  
Real Effective Exchange Rate ◽  
Portfolio Investment ◽  
The Real ◽  
Financial Variables ◽  
Effective Exchange ◽  
Effective Exchange Rate

Foreign portfolio investment (FPI) flows have grown substantially in recent decades, following changes in the international financial system. In Brazil, FPI represented 66% of foreign direct investment between 1995 and 2009, which makes it meaningful to analyze these flows. In this paper, the relationships between FPI flows to Brazil, GDP, investment, and financial variables from 1995 to 2009 are analyzed, employing quarterly data and applying descriptive statistics, correlation coefficients, and Granger causality tests. Results show a positive relationship between flows, GDP, and investment. Relationships between flows and financial variables show a strong relationship between FPI and the real effective exchange rate, which could be one of the channels through which the flows are related to real variables by means of changes in relative domestic and foreign production costs. Expectations about future behavior of the economy seem to be an important explanation for the relationship between flows and the real variables. Because FPI is volatile and this volatility relates to real variables through the real effective exchange rate and the interest rate, there is a case to be made for the implementation of capital controls.

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.

Sign in / Sign up

Export Citation Format

Share Document