scholarly journals The Limits to Dollarization in Ecuador: Lessons from Argentina

2011 ◽  
pp. 457-462
Author(s):  
Matias Vernengo ◽  
Mathew Bradbury
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Current Account ◽  
Foreign Capital ◽  
External Financing ◽  
Twin Deficits ◽  
The Us ◽  
Financing Gap ◽  
Us Dollar

The paper draws lessons from the failed Argentine experience with convertibility to highlight the dangers of dollarization in Ecuador. Argentina’s currency peg to the US dollar was successful in reducing inflation but given the overvalued real exchange rate, created burgeoning twin deficits and a chronic dependency on foreign capital. Ecuador too suffers from chronic current account imbalance. In contrast to Argentina, Ecuador seems to be relying on remittance income to close its external financing gap. Though perhaps this model is less unstable than that of relying on foreign capital it is no more sustainable. The paper closes with a realistic critique of thisdevelopment strategy.

scholarly journals Importance of the Debt-Adjusted Real Exchange Rate in the Eurozone and V4

2017 ◽  
Vol 65 (4) ◽  
pp. 1325-1337
Author(s):  
Patrik Abrahámek
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Empirical Analysis ◽  
Monetary Union ◽  
Current Account ◽  
Purchasing Power Parity ◽  
External Imbalances ◽  
The Us ◽  
Us Dollar ◽  
The Current Account

The purpose of this paper is to determine a potential overvaluation and undervaluation of currencies of selected eurozone countries and of the Visegrád Four. The DARER (Debt-Adjusted Real Exchange Rate) model was used for an empirical analysis of the period between 2010–2014 in individual quarters. The advantage of this model is that it explicitly takes into consideration the development of the current account and the debt of the country in connection with the theory of purchasing power parity. The DARER model appears to be a suitable tool for the empirical analysis because, currently, there are many countries in the eurozone with a high debt. In the analysis, data on the current account, debt service payments, GDP, HICP USA and individual researched countries, the exchange rates EUR/USD and CZK/USD, PLN/USD, HUF/USD were used. According to the average overvaluation and undervaluation of currency in all observed states in the Eurozone, in total the overvaluation of the euro against the US dollar was 19.3 %. The overvaluation in individual countries varied from 6.3 % to 33.38 %. These differences in the overvaluation of states’ currency against the US dollar were caused mainly by different development of the balance of payments of the country and the country’s debt. This can indicate various levels of external imbalances among the states within the monetary union. According to the result of this research, the DARER model was able to identify varying overvaluation and undervaluation of currencies in individual eurozone states and the Visegrád Group, so it can be used by policy makers as one of the indicators of these external imbalances of individual countries in the monetary union.

scholarly journals THE INFLUENCE OF OIL PRICES ON INDONESIA’S EXCHANGE RATE

2019 ◽  
Vol 21 (3) ◽  
pp. 303-322 ◽  
Author(s):  
Seema Wati Narayan ◽  
Telisa Falianty ◽  
Lutzardo Tobing
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Exchange Rate Regime ◽  
Oil Prices ◽  
The Real ◽  
Float Exchange Rate ◽  
Long Run ◽  
The Us ◽  
Us Dollar

This study tests for a long-run relation between oil prices and the rupiah–US dollarexchange rate. We discover, first, that the long-run cointegration relation between oilprices and the real exchange rate (RER) is sensitive to different exchange rate regimesin Indonesia. Second, we find a long-run cointegrating relation between oil prices andthe RER over the float exchange rate regime. However, in the managed float period,there is no evidence of a long-run relation between oil prices and the RER. In the longrun, higher oil prices lead to an appreciation of the rupiah against the US dollar in thefloat period (post-August 1997 period). We demonstrate that these results are robust todifferent data frequencies.

The effect of oil shocks and cyclicality in hiding Indian twin deficits

2018 ◽  
Vol 45 (1) ◽  
pp. 27-45 ◽  
Author(s):  
Ashima Goyal ◽  
Abhishek Kumar
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Current Account ◽  
Aggregate Demand ◽  
Oil Shocks ◽  
Twin Deficits ◽  
Content Type ◽  
The Real ◽  
Supply Shocks ◽  
Compositional Effects

Purpose The purpose of this paper is to estimate the relationship between the current account (CA) and fiscal deficit (FD), and the real exchange rate for India, for the managed float period 1996 Q2 to 2015 Q4, after controlling for output growth and oil shocks. It also examines the cyclicality of the CA, the size of each shock, and assesses whether aggregate demand, forward-looking smoothing, or supply shocks dominate outcomes. Design/methodology/approach The authors use several variants of structural vector autoregression (SVAR), implemented with quarterly Indian data, to control for effects of oil prices, and the output cycle, and then see how FD shocks affect the current account deficit (CAD) and the real exchange rate. For robustness, the authors tried different identifications, changed variable definitions, added new variables, or substituted with other variables. The cyclicality issue is addressed by examining the effect of growth shocks. The relative size of each shock is assessed through co-movement decompositions of the forecast errors. Responses to shocks help identify dominant influences on India’s CAD. Findings The CAD is found to be countercyclical. A FD shock raises the CAD, but high impact growth shocks and large variance oil shocks lead to overall divergence of the deficits. There is some support for the aggregate demand channel, but it is moderated by supply shocks and compositional effects. Consumption is sticky rather than forward-looking. Originality/value The paper contributes to the literature by including supply shocks, compositional effects, cyclicality, real interest and exchange rate in a theoretically and empirically consistent way for the analysis of twin deficits. The large empirical literature on twin deficits in EMs has not yet done this. There is no study using quarterly data in an SVAR allowing the dynamic relationship between the variables to be explored. The extensions bring in the supply side and compositional effects qualify the working of both the channels, with empirical exercises supporting theoretical predictions.

Modeling the real exchange rate: looking for evidence of the wage-share effect

2020 ◽  
Vol 8 (2) ◽  
pp. 178-194
Author(s):  
Verónica De Jesús Romo ◽  
Julio López Gallardo
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Negative Association ◽  
Var Models ◽  
The Real ◽  
Wage Share ◽  
Long Run ◽  
The Us ◽  
Us Dollar ◽  
The Difference

In this paper we study the determinants of the real exchange rate (RER), analysing in particular its association with the share of wages in output. We model the behavior of the RER against the US dollar of the domestic currency of three countries: Mexico, Korea, and France. We specify econometric vector autoregression (VAR) models and find for each country a long-run relation for the RER. In the three cases, we identify a negative association between the RER and the wage share and the RER, and the difference between the domestic and the US nominal interest rate. We also find that the RER is positively associated with labor productivity in Korea and France, but negatively associated in Mexico. We then suggest theoretical reasons for the type of associations found. As a corollary, we discuss the reasons that may explain why the RER tends to return to a long-run ‘normal’ value.

Problem of Yuan Undervaluation in US-China Trade Relations

2012 ◽  
pp. 20-28
Author(s):  
A. Polivach
Keyword(s):  
Exchange Rate ◽  
National Currency ◽  
Chinese Government ◽  
Scientific Validity ◽  
Trade Relations ◽  
China Trade ◽  
The Us ◽  
World Economic ◽  
Us Dollar ◽  
World Economic Crisis

Before the world economic crisis the Chinese government restricted the sphere of the Yuan’s circulation exceptionally by the domestic market. Basically, until that time the Yuan was not freely convertible while the Chinese foreign trade transactions were operated with the help of the US dollar. This is a sufficient reason to state that the issue of Yuan’s underestimated exchange rate has no fundamental relevance. However, the crisis forced China to substantially extend the utilization of its national currency in the international settlements. This is especially true in case of mutual settlements with the neighbor countries. So far, presumably, the issue of Yuan’s underestimated exchange rate will, at last, receive a scientific validity only when the Chinese national currency will become fully convertible and the scales of its utilization will become comparable with those of the traditional hard currencies.

Monetary Policy and Global Imbalances

2007 ◽  
Vol 199 ◽  
pp. 34-39 ◽  
Author(s):  
Ray Barrell ◽  
Ian Hurst
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Current Account ◽  
First Year ◽  
Sustained Improvement ◽  
J Curve ◽  
The Us ◽  
Curve Effect ◽  
Noticeable Improvement ◽  
The Current Account

The US current account imbalance has stayed stubbornly high despite the fall in the dollar that we have seen since the beginning of 2003. The exchange rate has fallen by around 15 per cent on average, mainly between the first quarter of 2003 and the first quarter of 2005. As we can see from figure 1, the fall has come in three steps, and each time it fell we might have expected an initial worsening of the current account for a year or so as prices change in advance of quantities (the J curve effect of the first year textbook). Hence we might have expected no sustained improvement until at least a year after the last downward step towards the end of 2004. However, as we can see from figure 2, there is no noticeable improvement in the current account during 2006, suggesting that domestic absorption was rising. At the same time inflation in the US was gradually drifting up under pressure from the weakening exchange rate.

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