Does exchange rate volatility influence import commodities of India-US? Evidence from ARDL approach

PurposeThe aim the study is to explore the impact of real exchange rate volatility and other macroeconomic variable such as price of import, industrial production and real exchange rate on 45 import commodities, considering global financial crisis period on India's import from the US. The empirical analysis at disaggregate level of import indicates the existence of both short-run and long-run effect in one-third importing commodities. The results show both positive and negative effect and causality among variables.Design/methodology/approachThe study uses E-GARCH model to gage the real exchange rate volatility, an autoregressive distributive lag (ARDL) bound test technique to discover the adequate short- and long-run relationships and Toda-Yamamoto causality method to analyze the causality among variables. The study uses the time period from 2002:M09 to 2019:M06.FindingsThe empirical analysis at disaggregate level of import indicates the existence of both short-run and long-run effect in one-third importing commodities. The results show both positive and negative effects and causality among variables.Practical implicationsThe finding of the study suggests that macroeconomic variables have significant role and could be important to undertake the small and medium scale industries in policymaking. Government may need to make decision for micro, small and medium enterprises (MSMEs) as their performance can bring change in the trade to compete globally by increasing and controlling the price of the import and defending the domestic competitiveness.Originality/valueThe study uses additional variable namely price of import and includes the global financial crisis period to measure dampening effect on each commodity by using robust econometric technique in context of emerging nation like India.

DOES THE SERVICE TRADE OPENNESS MITIGATE REAL EXCHANGE RATE VOLATILITY?

This study examines the relationship between trade openness and exchange rate volatility. We use panel data of 52 countries and document trade openness has a negative and statistically significant effect on exchange rate volatility. The second explanatory variable considered in the model is money supply shock which is found to have a positive and statistically significant effect on exchange rate volatility. Our results survive battery of robustness checks.

Currency Substitution and Exchange Rate Volatility in Nigeria: An Autoregressive Distributed Lag Approach

This study investigates the relationship between exchange rate volatility and currency substitution in Nigeria, using Autoregressive Distributed Lag (ARDL) model. After accounting for the presence of structural breaks, evidence from the findings shows that domestic interest rate and expected changes in exchange rate are important determinants of currency substitution. In addition, there is empirical support for a positive relationship between exchange rate volatility and currency substitution both in the short- and long-run. This implies that higher real exchange rate volatility is associated with an increased level of currency substitution. In view of these findings, the paper calls for sustained efforts by the monetary authority in containing exchange rate volatility and inflation as a way of curbing the spate of currency substitution in the country.

Asymmetric effect of exchange rate volatility on trade balance in Nigeria

<abstract> <p>The relationship between real exchange rate volatility and the trade balance has been a contentious issue since the fall of Bretton woods agreement of 1973, owing to the lack of unanimity on the effect. This article provides empirical evidence of the link between the real exchange rate volatility and the trade balance in the light of financial development, confirming the assertion that the effect is significantly dependent on the country's level of financial development. Due to Nigeria's relatively undeveloped financial system, its exchange rate dampens the country's exports. Rather than studying the relationship in isolation, we examine the moderating role of financial development on the link between export and the real exchange rate volatility in this paper. The empirical estimation is based on the Nigeria's data set spanning the years 1980–2019, and it employs threshold autoregressive non-linear co-integration and non-linear ARDL estimation techniques. According to the findings, financial development magnifies the beneficial benefits of the real exchange rate on Nigeria's foreign trade. It also states that the uncertainty in foreign capital flows has a negative impact on Nigeria's international trade. The findings have broad policy implications, implying that in order to diversify and improve the economy's future growth and associated international trade, Nigeria's policymakers should promote adequate financial sector development, as financial shocks are amplified by poorly implemented credit markets.</p> </abstract>

Real Exchange Rate Volatility and Financial Integration: Evidence from Latin American Countries

This research is an endeavor to reveal the dynamic association of real exchange rate volatility with real and monetary shocks and particularly with international financial integration in selected eight Latin American countries during 1992-2018. The estimation strategy employed in this research is the Generalized Method of Moments (GMM) to empirically obtain consistent estimates. Empirical results strongly supported the significant negative impact of financial integration on real exchange rate volatility when financial integration is approximated by the Chinn-Ito index. Furthermore, output volatility and money supply volatility both significantly contributed to increasing real exchange rate instability. An important policy implication is that process of financial integration needs to be more strengthened and shocks to output and money supply needs to be reduced to achieve lesser fluctuations of the real exchange rate in Latin American countries.

THE RESPONSE OF ZIMBABWE TOBACCO EXPORTS TO REAL EXCHANGE RATES VOLATILITY

The focus of this study was on investigating the response of tobacco exports to real exchange rates and real exchange rate volatility and other factors in Zimbabwe using secondary data spanning from 1980 to 2019. Bilateral nominal exchange rates and time-variant weights of Zimbabwe’s 10 major trading partners were calculated and used to compute the real exchange rate index. The time-dependent weighting system was used to better represent the evolution of trade patterns in the index. The arithmetic method was employed for computing the index. Generalized autoregressive conditional heteroskedasticity (GARCH) and autoregressive conditional heteroscedasticity (ARCH) models were used to generate the real exchange rate volatility index. The export response function was adopted as the tobacco exports response model. The variables in the tobacco exports response model were the realworld Gross Domestic Product (GDP), real exchange rate, terms of trade, real exchange rate volatility and dollarization. A vector error correction model (VECM) was used to estimate the response of tobacco exports to real exchange rate, real exchange rate volatility and other factors. The VECM results indicated that real world GDP was insignificant in both the short and long run. In the long run, the real exchange rate appreciation had a negative impact on tobacco exports. Conversely, in the short run, the depreciation of real exchange rate had a positive impact on tobacco exports. Hence, the government has to adopt other mechanisms that reduce uncertain movements of exchange rates.

Aid for Trade flows and Real Exchange Rate Volatility in Recipient-Countries

This paper aims to contribute to the literature on the determinants of real exchange rate volatility by investigating the effect of Aid for Trade (AfT) flows on real exchange rate volatility in recipient-countries. The empirical findings show that over the full sample, AfT flows influence negatively the volatility of real exchange rate, with a lower reducing effect on Least developed countries (LDCs) compared to NonLDCs. The channels through which this effect materializes include export product concentration, institutional and governance quality, foreign direct investment inflows and terms of trade volatility. These results show that AfT flows clearly matter for real exchange rate volatility.

Relationships between exchange rate regime, real exchange rate volatility and currency structure of government bonds in emerging markets

Public foreign currency borrowing is a common problem of emerging markets. Scholars named it the original sin of foreign debt. It has a proven negative influence on economic growth and development, undermining financial stability, and increasing the probability of monetary crises. The roots of the original sin often lay in emerging markets’ institutional underdevelopment, with low-quality monetary policy, inappropriate exchange rate regime choice, and exchange rate mismanagement being stated among the most important causes. This paper evaluates the influence of the exchange rate policy on the emission of foreign currency sovereign bonds in emerging markets. The relationship is estimated using panel data and GMM approach, with exchange rate regime type (both de jure and de facto) and real exchange rate volatility serving as explanatory variables. The findings reveal that fixed exchange rate regime and high real exchange rate volatility is promoting the foreign currency borrowing. Thus countries that want to reduce the burden of the original sin should lean towards a more flexible exchange rate policy while maintaining their real exchange rate stable.