scholarly journals New Structuralism and the balance-of-payments constraint

2019 ◽  
Vol 7 (4) ◽  
pp. 517-536 ◽  
Author(s):  
Gabriel Porcile ◽  
Guiliano Toshiro Yajima
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Income Elasticity ◽  
Aggregate Demand ◽  
Positive Function ◽  
Balance Of Payments ◽  
Long Run ◽  
Innovation And Diffusion ◽  
International Convergence ◽  
Pattern Of Specialization

Structuralists and Post-Keynesians share the perspective that in the long run economic growth is shaped by the income elasticity of exports and imports, and that such elasticities are a positive function of the degree of diversification and technological intensity of the pattern of specialization. Since the mid 1970s, New Structuralists began to stress the role of two sets of variables in driving the pattern of specialization: a stable and competitive real exchange rate, and the relative intensity of innovation and diffusion of technology in the center and periphery. In this paper we modify the balance-of-payments-constrained growth model to include these two sets of variables. The model provides a mechanism that ensures the validity of the original Thirlwall perspective, namely that adjustment to the balance-of-payments-constrained equilibrium takes place through changes in the rate of growth of aggregate demand rather than through changes in relative prices. In addition, it shows that a macroeconomic policy aimed at sustaining a competitive real exchange rate is a necessary complement to an active industrial policy for fostering international convergence.

scholarly journals Endogeneity of the elasticities and the real exchange rate in a balance of payments constrained growth model: cross-country empirical evidence

2019 ◽  
Vol 5 (2) ◽  
pp. 214-238
Author(s):  
Renato S. Campos ◽  
Frederico Gonzaga Jayme Jr. ◽  
Gustavo Britto
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Income Elasticity ◽  
Growth Models ◽  
Balance Of Payments ◽  
Sustainable Growth ◽  
The Real ◽  
Income Elasticities ◽  
Sustainable Growth Rate ◽  
Cross Country

Balance of payments constrained growth models are notable for their longevity. This is especially true for the case of Thirlwall’s Law, which defines that a country’s sustainable growth rate is given by the ratio between the income elasticity of exports and that of imports. In light of this, the current paper explores the hypothesis that the income elasticities of this type of models are endogenous. The debate on the latter is resurgent in the literature.  The results provide evidence that the ratio is, indeed, exogenous, and that the level of the real exchange rate influences economic growth as it determines such ratio. In other words, the real exchange rate is important for improving non-price competitiveness without, however, making the ratio between elasticities endogenous.

scholarly journals An alternative theory of real exchange rate determination: theory and empirical evidence for the Mexican economy, 1970-2004

2011 ◽  
Vol 69 (273) ◽  
Author(s):  
Francisco A. Martínez Hernández
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Real Exchange Rates ◽  
Balance Of Payments ◽  
Foreign Exchange Rate ◽  
Alternative Theory ◽  
Exchange Rate Determination ◽  
Long Run ◽  
History Of ◽  
Exchange Rate Models

The recent history of the Mexican economy has shown that its worst economic crises have been due to balance of payments problems, which eventually lead to foreign exchange rate crises (1976-1977, 1982, 1986-1988 and, 1994-1995). Although conventional exchange rate models hold that in the long-run real exchange rates will move in such a way as to make countries equally competitive, such an argument is far from being true because in reality countries are unequally competitive. In the case of Mexico (Mex), a clear and thorough assessment of real exchange rate determination and its relationship with the balance of payment, especially with the current account, which has been negative since the late forties despite currency devaluations, is necessary.

Stabilization and Economic Growth in Developing Countries (Invited Lecture)

1987 ◽  
Vol 26 (3) ◽  
pp. 341-361
Author(s):  
Mohsin S. Khan
Keyword(s):  
Economic Growth ◽  
Developing Countries ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Aggregate Demand ◽  
Domestic Demand ◽  
Balance Of Payments ◽  
Fiscal Policies ◽  
Demand Side ◽  
Aggregate Level

The need for stabilization typically arises when a country experiences an imbalance between domestic aggregate demand and aggregate supply, which is reflected in a worsening of its external payments position and an increase in the rate of inflation. To combat these twin problems, policies are required that restrain domestic demand and, at the same time, expand the production of tradeable goods, thereby easing the balance of payments constraint. Policies to influence the aggregate level or rate of growth of domestic demand and absorption, generally labelled as "demand side policies", include the whole range of monetary and fiscal measures, while the shifting of resources towards the production of tradeables involves altering the country's real exchange rate through devaluation. In general, monetary and fiscal policies and exchange rate action are considered an integral, if not an indispensable component of any stabilization programme.

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

Carry Trade, Exchange Rates, and the Balance-of-Payments

2021 ◽  
Vol 0 (0) ◽  
Author(s):  
Nelson H. Barbosa-Filho
Keyword(s):  
Exchange Rate ◽  
Interest Rate ◽  
Real Exchange Rate ◽  
Foreign Debt ◽  
Balance Of Payments ◽  
Forward Rate ◽  
Spot Rate ◽  
Financial Constraint ◽  
Carry Trade ◽  
The Real

Abstract This paper presents a partial equilibrium model that integrates interest rate arbitrage with the balance-of-payments constraint to determine the real exchange rate. The sequential logic is the following: (i) carry-trade determines the term premium, with the spot rate showing greater volatility than the forward rate, (ii) uncovered interest rate parity determines the spot rate based on the real exchange rate consistent with a financial constraint, defined as a stable ratio of foreign reserves to foreign debt; and (iii) the trade balance consistent with the financial constraint determines the long-run real exchange rate for a given ratio of domestic to foreign income.

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.

The Effect of Real Exchange Rate on Trade Balance in a Resource-Rich Economy: The Case of Mongolia

2018 ◽  
Vol 53 (4) ◽  
pp. 211-224 ◽  
Author(s):  
Gan-Ochir Doojav
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Balance ◽  
Developing Economies ◽  
Jel Classification ◽  
Vector Error Correction ◽  
Vector Error ◽  
Long Run ◽  
Short Run ◽  
Exchange Rate Depreciation

For resource-rich developing economies, the effect of real exchange rate depreciation on trade balance may differ from the standard findings depending on country specific characteristics. This article employs vector error correction model to examine the effect of real exchange rate on trade balance in Mongolia, a resource-rich developing country. Empirical results show that exchange rate depreciation improves trade balance in both short and long run. In particular, the well-known Marshall–Lerner condition holds in the long run; however, there is no evidence of the classic J-curve effects in the short run. The results suggest that the exchange rate flexibility may help to deal effectively with current account deficits and exchange rate risk. JEL Classification: C32, C51, F14, F32

scholarly journals Research On Monetary Neutrality: Evidence From Exchange Rate And Trade Balance Of G-7 Countries

2011 ◽  
Vol 24 (2) ◽  
Author(s):  
Doh-Khul Kim
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Balance ◽  
Monetary Shocks ◽  
Font Size ◽  
Long Run ◽  
Short Period ◽  
Short Run ◽  
Monetary Neutrality ◽  
Nominal Shocks

<p class="MsoBodyText" style="line-height: normal; margin: 0in 0.5in 0pt;"><span style="font-family: Times New Roman;"><span style="font-size: 10pt;">According to a recent paper by Fisher and Huh (200</span><span style="font-size: 10pt; mso-fareast-language: KO;">2</span><span style="font-size: 10pt;">), in contrast to a long-run neutrality hypothesis, nominal shocks have long-run effects on a country&rsquo;s real exchange rate</span><span style="font-size: 10pt; mso-fareast-language: KO;"> and trade balance.</span><span style="font-size: 10pt;"> However employing </span><span style="font-size: 10pt; mso-fareast-language: KO;">a </span><span style="font-size: 10pt;">similar method (VAR) with identical restrictions (</span><span style="font-size: 10pt; mso-fareast-language: KO;">long-run neutrality and </span><span style="font-size: 10pt;">short-run recursive</span><span style="font-size: 10pt; mso-fareast-language: KO;"> hypotheses</span><span style="font-size: 10pt;">), </span><span style="font-size: 10pt; mso-fareast-language: KO;">this paper </span><span style="font-size: 10pt;">show</span><span style="font-size: 10pt; mso-fareast-language: KO;">s</span><span style="font-size: 10pt;"> that the effects on the real exchange rate are much shorter</span><span style="font-size: 10pt; mso-fareast-language: KO;"> in this G-7 country study</span><span style="font-size: 10pt;"> than what </span><span style="font-size: 10pt; mso-fareast-language: KO;">Fisher and Huh (2002) contend.</span><span style="font-size: 10pt;"> Further, the trade balance improves for a short period of time, from which </span><span style="font-size: 10pt; mso-fareast-language: KO;">it can</span><span style="font-size: 10pt;"> conclude there is a shorter existence of the depreciation effect in response to </span><span style="font-size: 10pt; mso-fareast-language: KO;">expansionary</span><span style="font-size: 10pt;"> monetary shocks, which supports the long-run neutrality hypothesis</span><span style="font-size: 10pt; mso-fareast-language: KO;"> in an open macroeconomic framework</span><span style="font-size: 10pt;">.<span style="mso-spacerun: yes;">&nbsp; </span></span></span></p>

scholarly journals Real exchange rate and trade balance in Turkey: Evidence from heterogeneous panel data

2020 ◽  
pp. 7-7
Author(s):  
Ahmet Kaya
Keyword(s):  
Exchange Rate ◽  
Panel Data ◽  
Real Exchange Rate ◽  
Trade Balance ◽  
Bilateral Trade ◽  
Income Elasticity ◽  
Balance Model ◽  
Common Correlated Effects ◽  
The Usa ◽  
Heterogeneous Panel

In this study, the effect of real exchange rate on bilateral trade balance between Turkey and its 25 main trade partners is investigated for the period of 1996 - 2015 with heterogeneous panel data techniques. Trade balance model is estimated by using Mean Group (MG) estimator, which allows parameter heterogeneity, Common Correlated Effects Mean Group (CCEMG), and Augmented Mean Group (AMG) estimators, which both allow cross-section dependency and heterogeneity. Results indicate that the real exchange rate elasticity of the trade balance ranges between -0.40 and -0.45 and Marshall-Lerner (ML) condition is valid for Turkey. According to the results, the foreign income elasticity of trade balance ranges between 1.54 and 2.84, while for domestic income elasticity, it is found between -0.75 and -1.38. Country-specific results show that ML condition is valid for the USA, Belgium, Spain, Switzerland, Romania, and Russia at the bilateral level according to both CCEMG and AMG estimators.

scholarly journals The Determinants of Pakistan’s Trade Balance: An ARDL Cointegration Approach

2010 ◽  
Vol 15 (1) ◽  
pp. 1-26 ◽  
Author(s):  
Waliullah Waliullah ◽  
Mehmood Khan Kakar ◽  
Rehmatullah Kakar ◽  
Wakeel Khan
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Money Supply ◽  
Trade Balance ◽  
Exchange Rate Regime ◽  
Annual Data ◽  
Impulse Response Functions ◽  
Bounds Testing ◽  
Distributed Lag ◽  
Long Run

This article is an attempt to examine the short and long-run relationship between the trade balance, income, money supply, and real exchange rate in the case of Pakistan’s economy. Income and money variables are included in the model in order to examine the monetary and absorption approaches to the balance of payments, while the real exchange rate is used to evaluate the conventional approach of elasticities (Marshall Lerner condition). The bounds testing approach to cointegration and error correction models, developed within an autoregressive distributed lag (ARDL) framework is applied to annual data for the period 1970 to 2005 in order to investigate whether a long-run equilibrium relationship exists between the trade balance and its determinants. Additionally, variance decompositions (VDCs) and impulse response functions (IRFs) are used to draw further inferences. The result of the bounds test indicates that there is a stable long-run relationship between the trade balance and income, money supply, and exchange rate variables. The estimated results show that exchange rate depreciation is positively related to the trade balance in the long and short run, consistent with the Marshall Lerner condition. The results provide strong evidence that money supply and income play a strong role in determining the behavior of the trade balance. The exchange rate regime can help improve the trade balance but will have a weaker influence than growth and monetary policy.

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