scholarly journals Effects of Inflation Uncertainty on Inflation, Growth, Interest Rate and Exchange Rate in Turkey

2014 ◽  
Author(s):  
Nezir Köse ◽  
Mehmet Kenan Terzioğlu
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Interest Rate ◽  
Real Exchange Rate ◽  
Economic Structure ◽  
Inflation Uncertainty ◽  
Dummy Variable ◽  
High Inflation ◽  
The Exchange Rate

In this study, the effects of inflation uncertainty to inflation, economic growth, real exchange rate and interest rate is investigated in the framework of BEKK-MGARCH and DCC-MGARCH models by using the 1987Q1–2013Q3 quarterly periods data in the perspective of Turkey’s economic structure. High inflation periods before 2003 and low inflation periods after 2003 was evaluated separately by means of slope dummy variable. The findings show that during both high and low inflation periods inflation uncertainty does not affect the exchange rate and has an increasing effect on inflation. Whereas, it is found that while the effect of inflation uncertainty on economic growth is positive during the periods of high inflation, its effect turns negative in low inflation periods Moreover, it is determined that inflation uncertainty has an reducing impact on interest rate in high inflation periods and its effects become positive in low inflation periods.

Investigating the Relationship between Trade Balance and the Exchange Rate: The Case of Laos’ Trade with Thailand

2018 ◽  
Vol 19 (3) ◽  
pp. 590-603 ◽  
Author(s):  
Phouphet Kyophilavong ◽  
Muhammad Shahbaz ◽  
Ijaz Ur Rehman ◽  
Somchith Souksavath ◽  
Sengchanh Chanthasene
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Trade Policy ◽  
Real Exchange Rate ◽  
Trade Balance ◽  
The Real ◽  
J Curve ◽  
The Exchange Rate ◽  
The Relationship

We investigate the nexus between Laos’ trade balance and its real exchange rate with Thailand. We apply the combined cointegration approach and find that the trade balance and the real exchange rate have cointegration. The devaluation of Laos’ Kip improves the trade balance, but there is no evidence of the J-curve phenomenon. Laos’s economic growth causes its trade balance to deteriorate. A rise in Thai income increases the trade balance of Laos. This study presents new insights for policymakers who seek to sustain trade with Thailand by designing a comprehensive trade policy.

scholarly journals REAL EXCHANGE RATE MISALIGNMENTS: THE CASE OF THE INDONESIAN RUPIAH

2021 ◽  
Vol 24 (3) ◽  
pp. 441-464
Author(s):  
Rasbin Rasbin ◽  
Mohamad Ikhsan ◽  
Beta Y Gitaharie ◽  
Yoga Affandi
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Control Method ◽  
Equilibrium Price ◽  
Synthetic Control ◽  
Synthetic Control Method ◽  
Equilibrium Level ◽  
The Exchange Rate

This paper analyses the equilibrium price of the Indonesian Rupiah using the Synthetic Control Method (SCM) and assesses its misalignments. We find evidence of Rupiah misalignment, as the currency was undervalued for most periods, except for 1993-1996. This finding is robust across model specifications, predictors, and weighting. Our finding implies that keeping the exchange rate at its equilibrium level is ideal, and that policymakers can take advantage of the undervalued currency to promote economic growth via exports.

scholarly journals Country Risk Modeling in Indonesia: An Empirical Approach

2015 ◽  
Vol 7 (1) ◽  
pp. 155
Author(s):  
Muhammad Adnan ◽  
Sri Maemunah ◽  
Fitri Ismiyanti ◽  
Rudi Purwono
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Interest Rate ◽  
Significant Influence ◽  
Country Risk ◽  
Short Term ◽  
The World ◽  
World Economic ◽  
The Exchange Rate ◽  
The Interest Rate

<p>This study is intended to analyze the influence of internal and external risk factors considered relevant influencing the country risk. We find result of long term VECM estimation indicating that the exchange rate, the interest rate of certificate of Bank Indonesia (SBI) for 6 months and the world economic growth have positive and significant influence to country risk. Inflation, Indonesia economic growth, the Fed, and MSCI ACWI IMI return have negative and significant influence to country risk. All hypotheses presented in this study are theoretically and statistically accepted, except that the hypothesis on inflation is rejected because it is in controversy with theory, although statistically it has significant influence to the country risk in Indonesia.</p><p>Meanwhile the estimated output of VECM in a short term, the exchange rate, the interest rate of SBI for 6 months and the world economic growth have positive and significant influence to country risk. The Fed and MSCI ACWI IMI return have negative and significant influence to country risk. The hypotheses testing accepted from the estimated VECM in short term are the exchange rate, the SBI interest rate in 6 months, the Fed, the world economic growth and the return of MSCI ACWI IMI.</p>

The long-run interrelationship between exchange rate and interest rate: the case of Mexico

2019 ◽  
Vol 46 (7) ◽  
pp. 1380-1397 ◽  
Author(s):  
Salvatore Capasso ◽  
Oreste Napolitano ◽  
Ana Laura Viveros Jiménez
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Real Exchange Rate ◽  
Real Interest Rate ◽  
Content Type ◽  
Long Run ◽  
Monetary Authorities ◽  
The Exchange Rate ◽  
The Interest Rate

Purpose The purpose of this paper is to analyse the long-term nature of the interrelationship between interest rate and exchange rate. Design/methodology/approach By employing Mexican data, the authors estimate a non-linear autoregressive distributed lags (NARDL) model to investigate the nature of the changes and the interaction between interest rate and exchange rate in response to monetary authorities’ actions. Findings The results show that, contrary to simplistic predictions, the real exchange rate causes the real interest rate in an asymmetric way. The bounds testing approach of the NARDL models suggests the presence of co-integration among the variables and the exchange rate variations appear to have significant long-run effects on the interest rate. Most importantly, these effects are asymmetric and positive variations in the exchange rate have a lower impact on the interest rate. It is also interesting to report that the reverse is not true: the interest rate in the long-run exerts no statistical significant impact on the exchange rate. Practical implications The asymmetric long-term relationship between real exchange rate and real interest rate is evidence of why monetary authorities are reluctant to free float exchange rate. In Mexico, as in most developing countries, monetary policy strongly responds to exchange rate movements because these have relevant effects on commercial trade. Moreover, in dollarized economies these effects are stronger because of pass-through impacts to inflation, income distribution and balance-sheet equilibrium (the well-known “original sin”). Originality/value Under inflation targeting and flexible exchange rate regime, despite central banks pursue the control of short-term interest rate, in the long-run one could observe that it is the exchange rate that influences the interest rate, and that this reverse causality is stronger in emerging economies. This paper contributes by analysing the asymmetric relationship between the variables.

Exchange rate misalignment and economic growth in India

2017 ◽  
Vol 9 (4) ◽  
pp. 414-434
Author(s):  
Vaseem Akram ◽  
Badri Narayan Rath
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Structural Break ◽  
Annual Data ◽  
Content Type ◽  
Distributed Lag ◽  
Exchange Rate Misalignment ◽  
The Exchange Rate ◽  
The Impact

Purpose The purpose of the paper is to examine the impact of exchange rate misalignment on economic growth in India using annual data from 1980 to 2014. Design/methodology/approach First, misalignment is measured, which is defined as the deviations of the actual real exchange rate (RER) from its equilibrium level. The equilibrium real exchange rate (ERER) is estimated using the auto-regressive distributed lag (ARDL) model by considering key macroeconomic fundamentals of the determinants of RER. Zivot and Andrews’ unit root with structural break is used to test the stationarity property of data. The impact of exchange rate misalignment on economic growth has been examined using ARDL and variance decomposition techniques. Findings Our results find an overvaluation of the exchange rate till 2000, and thereafter, an undervaluation of the exchange rate prevails in India. Further, the result indicates that an increase in exchange rate misalignment leads to a decrease in economic growth and vice versa. Moreover, a positive misalignment (overvaluation) hurts the economic growth and a negative misalignment (undervaluation) promotes the economic growth. Research limitations/implications From the policy perspective, the results highlight that India needs to maintain an appropriate exchange rate which can reduce the RER misalignment. It is better for the Reserve Bank of India (RBI)’s intervention to smoothen the fluctuations of the exchange rate to avoid the inefficiency in the allocation of resources. However, to minimize the RER misalignment, the intervention should be conducted only in the short run. Originality/value The study contributes to the existing literature by estimating the exchange rate misalignment for India and its impact on economic growth.

scholarly journals The dynamic response of the rand real exchange rate to fundamental shocks

2016 ◽  
Vol 43 (1) ◽  
pp. 108-121 ◽  
Author(s):  
Mehmet Balcilar ◽  
Rangan Gupta ◽  
Charl Jooste
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Real Exchange Rate ◽  
South African ◽  
Impulse Responses ◽  
The South ◽  
Content Type ◽  
The Exchange Rate ◽  
The Relationship ◽  
Over Time

Purpose – The authors analyse the relationship between the South African real exchange rate and economic fundamentals – demand, supply and nominal shocks. The paper aims to discuss these issues. Design/methodology/approach – The authors use a time-varying parameter VAR to study the coherence, conditional volatility and impulse responses of the exchange rate over specific periods and policy regimes. The model is identified using sign-restrictions that allow for some neutrality of impulse responses over contemporaneous and long horizons. Findings – The results suggest that the importance of fundamental shocks on the exchange rate is time dependent. Hence there is a loss in information when using standard linear models that average out effects over time. The response of the exchange rate to demand and supply shocks have weakened over the 1994-2010 period. Research limitations/implications – The period following financial crisis has strengthened the relationship between supply and demand shocks to the exchange rate, but has weakened the relationship between interest rate shocks and the exchange rate response. Practical implications – This paper provides deeper insight as to how the exchange rate responds to fundamental shocks. This should help monetary policy understand the consequences of interest rate decisions on the exchange rate and the indirect effect of inflation on the exchange rate. Originality/value – This application is new to the South African literature. The authors propose that the use of interest rates is limited in affecting the value of the rand exchange rate over particular periods. Isolating fundamental shocks to exchange rates over time helps policy makers make clearer and more informed decisions.

scholarly journals Monetary Policy Transmission Through the Rate Channel in Some Countries in ASEAN

2020 ◽  
Vol 7 (2) ◽  
pp. 57
Author(s):  
Nguyen Thi Quynh Dung ◽  
Pham Thi Ha An
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Positive Impact ◽  
Exchange Rate Policy ◽  
The Real ◽  
Rate Policy ◽  
The Exchange Rate ◽  
Asean Countries ◽  
Table Data

Using a quantitative regression of table data through FEM and REM models, the study has measured the extent and direction of exchange rate impacts on the economic growth of five ASEAN countries namely, Vietnam, Indonesia, Singapore, Philippines, Malaysia, in the period of 1985-2015. The estimation results show that for every 1% rise in the real exchange rate, the multilateral force will have a positive impact, since the speed of economic growth of five countries increased by 2.09%. This result is consistent with some previous studies, especially in some developing countries. Further, the thesis has assessed the exchange rate policy in Vietnam and analyzed the situation. As a result, the authors have made some recommendations for exchange rate policy. The recommendations focus on the State’s intervention in adjusting the exchange rate and pay attention to the real exchange rate for policy evaluation. The recommendations of the thesis are consistent with the actual situation in the five ASEAN countries in order to stabilize economic growth.

On the Exchange Rate Policy

2010 ◽  
pp. 21-28
Author(s):  
K. Yudaeva
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Exchange Rate Policy ◽  
Institutional Changes ◽  
Crisis Period ◽  
Local Currency ◽  
High Inflation ◽  
Rate Policy ◽  
The Exchange Rate

The level of trust in the local currency in Russia is very low largely because of relatively high inflation. As a result, Bank of Russia during crisis times can not afford monetary policy loosening and has to fight devaluation expectations. To change the situation in the post-crisis period Russia needs to live through a continuous period of low inflation. Modified inflation targeting can help achieve such a result. However, it should be amended with institutional changes, particularly development of hedging instruments.

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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