Exchange Rate Forecasting Based on Fundamental Macroeconomic Variables in a Floating Exchange Rate Regime

2012 ◽  
Vol 3 (3) ◽  
pp. 15-21
Author(s):  
Yesim Helhel ◽  
Seref Kalayci
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Exchange Rate Regime ◽  
Emerging Market ◽  
Exchange Rate Forecasting ◽  
Monthly Basis ◽  
Fixed Exchange Rate ◽  
Macroeconomic Fundamentals

Developing countries had a fixed exchange rate regime and avoided financial liberalization until the 1990’s. In the early 2000’s however, most of the developing countries abandoned their fixed exchange rate regimes in favor of floating rate regimes which in turn increased the importance of exchange rate forecasting in the emerging market economies. This paper intends to explain TR/USD (Turkish Lira/American Dollar) exchange rates by using macroeconomic fundamentals for the period between February 2001 and December 2009 on a monthly basis. A Vector Auto Regression (VAR) method is used. Among the macroeconomic Fundamentals, United States Federal Reserve Benchmark interest rates, one month Turkish Treasury Bill yields, Turkish import/export rates, m2 money supply and foreign direct investment explain the changes in TR / USD exchange rates.

scholarly journals Implications of New Keynesian Theory for Benchmarking of Monetary Efficiency

2016 ◽  
Vol 3 (2) ◽  
pp. 76 ◽  
Author(s):  
Oghenovo Adewale Obrimah
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Cross Section ◽  
Exchange Rate Regime ◽  
Exchange Rate Regimes ◽  
Balance Of Payments ◽  
New Keynesian ◽  
Keynesian Theory ◽  
Floating Exchange Rate

Relative to free floating exchange rate regimes, I find the adoption of a hybrid exchange rate regime induces alternate monetary policy responses within the context of new Keynesian theory. Specifically, while the efficiency with which an economy is managed can be derived from comparisons of effects of inflation or balance of payments on exchange rates within a cross-section of countries that run free floating exchange rate regimes, this is not the case within a cross-section of countries that operate hybrid exchange rate regimes. In countries that operate hybrid exchange rate regimes, the efficiency with which an economy is managed is derived from comparisons of the effects of exchange rates on inflation or balance of payments situations. In so far as measurement of economic distortions are concerned, while relations between deposit or lending interest rates and inflows of Foreign Direct Investment (FDI) into countries with hybrid exchange rate regimes yield insights into the extent to which inflows of foreign capital induce distortionary effects on price equilibriums, these relations do not yield similar insights within a cross-section of countries that run free floating exchange rate regimes. These findings, generated within the context of new Keynesian theory, identify theoretically appropriate differences in benchmarking of economic efficiency conditional on differences in exchange rate regimes.

scholarly journals Fixed Exchange Rate Regimes, Real Undervaluation, and Economic Growth

2016 ◽  
Vol 07 (02) ◽  
pp. 1650008
Author(s):  
Rui Mao ◽  
Yang Yao
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Purchasing Power Parity ◽  
Exchange Rate Regime ◽  
Value Added ◽  
The United States ◽  
Power Parity ◽  
Industrial Countries ◽  
Fixed Exchange Rate ◽  
Using Data

Using data on sectoral value added and purchasing power parity converter, we are able to estimate the home country’s industrial-service (quasi-) relative-relative total factor productivity (TFP) against the United States. Applying those estimates, our econometric exercises provide robust results showing that the fixed exchange rate regime (FERR) dampens the Balassa–Samuelson effect, and the real undervaluation thus created promotes growth. We also explore the channels of undervaluation to promote growth. Lastly, we compare industrial countries and developing countries and find that the FERR has more significant effects in developing countries than in industrial countries.

scholarly journals ASSET PRICE SHOCK RESPONSE TO SHOCK CAPITAL FLOW, EXCHANGE RATE AND INTEREST RATE: CASE STUDY OF 16 EMERGING MARKET COUNTRIES

2017 ◽  
Vol 1 (2) ◽  
pp. 14
Author(s):  
Rachman Guswardi
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Capital Flows ◽  
Asset Prices ◽  
Emerging Market ◽  
Capital Inflows ◽  
Emerging Market Countries ◽  
The Exchange Rate ◽  
Positive Shock

Capital flows to developing countries and emerging markets in the world is constantly increasing. However, the crisis that occurred in 2008 and 2011 caused concern for investors. A series of policies have been carried out in several emerging market countries to take steps prudence in controlling capital flows. This study aimed to analyze the response of asset prices to the shock caused by capital inflows, interest rates and exchange rates and analyzes the contribution of shock in capital inflows, interest rates and exchange rates on asset prices in 16 emerging market countries (India, Brazil, Russia, Indonesia, Republic of South Africa, Mexico, Thailand, South Korea, Colombia, Philippines, Egypt, Hong Kong, Peru, Czech, Bangladesh, Hungary) in the year 2001-2015. The method used is quantitative method using Panel Vector Auto Regression models. The results of this study show that the first shock of positive capital inflows will affect asset prices, both that a positive shock on interest rates will affect asset prices, the third that the positive shock of the exchange rate would affect asset prices. The variables that have the biggest contribution in influencing asset prices is the exchange rate which further interest rates and the smallest is the capital inflows.

scholarly journals Monetary Policy Convergence within the EAC: A Focus on Interest Rate and Exchange Rate

2021 ◽  
Vol 7 (5) ◽  
pp. p49
Author(s):  
Michael Oloo ◽  
Mary Mbithi ◽  
Daniel Abala
Keyword(s):  
Economic Growth ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Monetary Union ◽  
Exchange Rate Regime ◽  
East African Community ◽  
Common Trade ◽  
The Impact

This study was conducted to establish whether the key variables in monetary policy transmission mechanisms are converging within the East African Community. This region is eyeing having an economic union and subsequently a monetary union hence the significance of investing developments in the monetary sector. The analysis used panel data from the year 2005 to 2020 for five EACs. To test for convergence of interest rates and exchange rates, the analysis employed; unit-root test, sigma convergence, co-integration tests, and finally used the panel fixed effect model to establish the impact of the two variables on the GDP. The analysis shows that in the short run, there is no convergence in interest rates but there is convergence in exchange rates. However, in the long run, the two monetary policy variables are co-integrated indicating that the region is doing well in terms of integration in the financial sector in their preparation to form a common trade area and monetary union. The analysis of the impact of the two variables on economic growth shows that only the exchange rate is significant, therefore, the region should strive to foster a stable exchange rate regime to realize increased economic growth.

scholarly journals Monetary policy independence and floating exchange rates: what does the Brazilian evidence tell us?

2004 ◽  
Vol 24 (1) ◽  
pp. 30-37
Author(s):  
CARLOS EDUARDO SOARES GONÇALVES
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Real Interest Rates ◽  
Pass Through ◽  
Exchange Rate Pass Through ◽  
Floating Exchange Rates ◽  
Fear Of Floating

ABSTRACT Some authors have advocated that shifting from fixed exchange rates to floating regimes has not delivered better economic outcomes to developing countries. As the argument goes, pervasive fear of floating in these economies has prevented drops in real interest rates and, more importantly, has been a hindrance in the way towards more monetary policy autonomy. This paper presents evidence suggesting this may not be the case for Brazil. More precisely, there are signs that fear of floating was less acute here (presumably due to low exchange rate pass-through) than elsewhere, and also that policymakers are now targeting monetary policy principally to domestic objectives.

scholarly journals Exchange Rate Proclamations and Inflation-Fighting Credibility

2010 ◽  
Vol 64 (2) ◽  
pp. 313-337 ◽  
Author(s):  
Alexandra Guisinger ◽  
David Andrew Singer
Keyword(s):  
Developing Countries ◽  
Monetary Policy ◽  
Economic Policy ◽  
Exchange Rate ◽  
Fixed Effects ◽  
Exchange Rate Regime ◽  
Strong Support ◽  
Exchange Rate Policy ◽  
Fixed Rate ◽  
Fixed Exchange Rate

AbstractIf governments choose economic policies that often run counter to their public commitments, are those commitments meaningless? We argue that government proclamations can be critical in signaling economic policy intentions. We focus on the realm of exchange rate policy, in which countries frequently implement an exchange rate regime that differs from the officially declared regime. We argue that the official exchange rate regime is one of the most important signals of a government's economic policy preferences. When a government makes a de jure public commitment to a fixed exchange rate, it sends a signal to domestic and international markets of its strict monetary-policy priorities. In contrast, a government that proclaims a floating exchange rate signals a desire to retain discretion over monetary policy, even if it has implemented a de facto fixed rate. We use data on 110 developed and developing countries from 1974 to 2004 to test two hypotheses: first, that governments that adopt de facto fixed exchange rates will experience less inflation when they back up their actions with official declarations; and second, that governments that abide by their commitments—as demonstrated by a history of following through on their public declarations of a fixed exchange rate regime—will establish greater inflation-fighting credibility. Within developing countries, democratic institutions enhance this credibility. Results from fixed-effects econometric models provide strong support for our hypotheses.

Exchange Rate Forecasting Using Ensemble Modeling for Better Policy Implications

2020 ◽  
Vol 0 (0) ◽  
Author(s):  
Manas Tripathi ◽  
Saurabh Kumar ◽  
Sarveshwar Kumar Inani
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Linear Time ◽  
Exchange Rate Regime ◽  
Policy Implications ◽  
Exchange Rate Forecasting ◽  
Ensemble Technique ◽  
Optimal Weights ◽  
Floating Exchange Rate ◽  
Component Models

AbstractThis study aims to contribute in the area of foreign exchange forecasting. Exchange rate plays an essential role for the economic policy of a country. Due to the floating exchange rate regime, and ever-changing economic conditions, analysts have observed significant volatility in the exchange rates. However, exchange rate forecasting has been a challenging task before the analysts over the years. Various stakeholders such as the central bank, government, and investors try to maximize the returns and minimize the risk in their decision-making using exchange rate forecasting. The study aims to propose a novel ensemble technique to forecast daily exchange rates for the three most traded currency pairs (EUR/USD, GBP/USD, and JPY/USD). The ensemble technique combines the linear and non-linear time-series forecasting techniques (mean forecast, ARIMA, and neural network) with their most optimal weights. We have taken the data of more than seven years, and the results indicate that the proposed methodology could be an effective technique to forecast better as compared to the component models separately. The study has crucial economic and academic implications. The results derived from this study would be useful for policymakers, regulators, investors, speculators, and arbitrageurs.

South Africa’s Trade Performance under Alternative Exchange Rate Regimes

2018 ◽  
Vol 10 (6) ◽  
pp. 261
Author(s):  
Romaine Patrick ◽  
Phocenah Nyatanga
Keyword(s):  
South Africa ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Exchange Rate Regime ◽  
Real Exchange Rates ◽  
Series Data ◽  
Growth Strategies ◽  
The Real ◽  
Real Price ◽  
Floating Exchange Rate

This study examined the effect exchange rates have on import and export volumes under alternative exchange rate policies adopted in South Africa over the period 1960 to 2017. Using quarterly time series data for the stated period, a log-linear error correction model is employed to estimate the country’s export and import elasticities, taking into account Gross Domestic Product (GDP), the real price of exports, the real price of imports and real exchange rates. Using the freely floating exchange rate regime as the base period, the study concluded that both export and import volumes are lower under a system of fixed exchange rates. Export and import volumes were also found to be lower under the dual exchange rate regime, relative to the freely floating exchange rate regime. In accordance with export-led growth strategies, exports were found to be higher and imports lower under a managed floating exchange rate regime. It is therefore recommended that South Africa revert to a more managed exchange rate regime, until the South African economy is developed to accommodate a freely floating exchange rate regime.

Conclusions

2018 ◽  
Author(s):  
Stephany Griffith-Jones ◽  
José Antonio Ocampo ◽  
Paola Arias
Keyword(s):  
Developing Countries ◽  
Renewable Energy ◽  
Exchange Rates ◽  
Interest Rates ◽  
Development Strategy ◽  
National Development ◽  
Financial Inclusion ◽  
Production Sector ◽  
New Instruments ◽  
Innovation And Entrepreneurship

Based on the seven case studies analysed in this volume, this chapter concludes that national development banks (NDBs) have been successful in many cases in supporting innovation and entrepreneurship, key new sectors like renewable energy, and financial inclusion. They have developed new instruments, such as far greater use of guarantees, equity (including venture capital) and debt funds, and new instruments for financial inclusion. The context in which they operate is key to their success. Active countercyclical policies, low inflation, fairly low real interest rates, a well-functioning financial sector, and competitive exchange rates are crucial. They are also more effective if the country has a clear development strategy, linked to production sector strategies that foster innovative sectors. Under these conditions, the chapter argues that there is great need for a larger scale of NDB activity in Latin America and in developing countries in general.

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