Real Exchange Rate

ne of the most significant discussion and challenges propounded in the macroeconomics is the effects of fluctuations of exchange rate on the macroeconomic variables (production, employment, inflation and … etc).In this direction, the important and noticeable point is the factors which lead to fluctuations in the exchange rate which, from amongst these factors as an example, is fluctuations in the oil price. For this reason, relationship between oil price fluctuation and exchange rate seems to be important and necessary. Time period used in this study relates to the years from 1990 to 2010. Also, Autoregressive Distributed Lag Model (ARDL) has been used to study relationship among the variables. Results obtained from this study show the negative and significant effect of oil price fluctuations on the exchange rate. A negative and significant quantity was obtained from ECM coefficient, and this problem represents activeness of the model from short-term to long-term. The oil price chan...

Mediterranean countries have noticeable affect on the world wine exportation. Among these countries France, Greece and Turkey are selected for this study because of different wine market, trade systems and wine policies they have. In this study, cointegration analysis was conducted for real wine export prices and real exchange rates for France, Greece and Turkey. The long term relationships between real exchange rates and real wine export values were explored by using cointegration analysis. Annual data from 1970 to 2003 was used for this analysis and the data sets were found to be integrated of the same order. It was also found that they move together in the long run by Johansen Cointegration Test. Then, Error Correction Model (ECM) was applied to search any short term relations and impacts of exchange rate variations on wine exports. French and Greek monetary policies affect their wine export volume by the years. Therefore, any depreciation of local currency in dollar terms will l...

One of the most controversial topics in recent economic literature concerns the determinants of the real exchange rate. In spite of the lack of theoretical consensus on how to determine the real exchange rate, empirical literature has shown that exchange rate overvaluation has negative effects on long-term economic growth. This paper theoretically discusses and empirically analyses these determining factors of the real exchange rate in Brazil in the 2000s. The Brazilian economy has shown a tendency of real overvaluation of its currency since high inflation was controlled in the mid-1990s. This tendency has only been interrupted by occasional internal or external shocks. Our empirical study is a modified version of the econometric model proposed by Razin and Collins (1999). Like these authors, our theoretical and empirical models break down the determining factors of the actual real exchange rate into long-term and short-term factors. However, while Razin and Collins (1999) assume th...

In this paper we develop a two-country dynamic general equilibrium model by means of which we seek to explain the long-run paths of a converging emerging market economy. The model’s novel feature is the inclusion of quality investment to the standard framework of applied general equilibrium two-country models. This extension proves crucial ingredient for explanation of the trend in real exchange rate. Using a case study calibration of productivity and deep parameters for the Czech economy we demonstrate the ability of the model to consistently explain dynamics in key macroeconomic variables that are essential inputs for commonly used ‘gap models’ in monetary policy practice.

Convergence is more the exception than the rule in the development landscape. As a possible explanation, we posit development progeria: the phenomenon where a low-income country exhibits the industrial share dynamics of high-income mature economies where the Non-traded Goods Sector outgrows the Traded Goods Sector and the share of the non-traded goods sector outstrips the share of the traded goods sector. We argue that this seems to be the case of the Philippines in the last 25 years.

We then inquire into the drivers of this phenomenon. One possibility is the Rodrik hypothesis: that market and institutional distortions hamstring the Tradable goods sector more than they do the Non-tradable goods sector. The other possibility is the exchange rate policy being favorable or unfavorable to the Tradable goods sector. Using cross-country data for countries with per capita income of us$10,000 or less, we show that these two factors cannot be rejected as drivers of development progeria.

The paper empirically examines the effects of real exchange rate on trade balance in Nigeria. The econometric diagnostics for presence of unit roots in the series was conducted using the Augmented Dickey-Fuller technique. The results indicate that all the variables are integrated of order one while the major Error Correction terms ( and ) are integrated of order zero, which

This paper investigates the asymmetric and persistent adjustment of the European real exchange rates using the framework of nonlinear cointegration. We explain the episodes of slow mean- reversion dynamics over the period from 1979 to 1999. A test of unit root against STAR cointegration is proposed and we present some complete estimations and Stochastic simulations of ESTAR models. We conclude

 ABSTRACT
          This thesis studies about the relationship of trade balance and real exchange rate in the agriculture sector between Lao PDR and China People Republic by the analysis of 2 methods there are descriptive analysis and quantitative analysis and using secondary data of the time series analysis for the year 1992 to year 2018. The descriptive analysis studies overall of the Agriculture trade of two nations by the compairision the increasing or the reducing by the time line graphique .And for the quantitative analysis studies the cointergration of all valiable of trade balance and real exchange rate by the method of Autoregressive Distributed Lag (ARDL) and Granger causality test by the method of Vector Error Correction Model (VECM).
The result of descriptive analysis by the overall found that China is second of trade partner of Laos (for all product). but China PR. to be the top of the import the agriculture product from Lao PDR. The result of quantitative analysis by the method cointergration of all variable by Autoregressive Distributed Lag (ARDL) and Causality test by the method of Vector Error Correction Model (VECM). The cointergration of Trade balance and Real exchange rate is in the direction non opposite and allowed by the first hypothesis (in the short run Relationship and the long run Relationship). If real exchange rate of LAK to CNY increase and the trade balance is surplus increase and statistic significant. At last of the result is Granger causality test found that Trade balance is Granger caused all dependence valiables by the statistic significant (uni-direction).
Key Words: Trade Balance, Real Exchange Rate, ARDL Method, ECM, VECM.

The effect of exchange rate volatility on trade is a controversial issue in international economics. Despite a widespread view that an increase in exchange rates volatility reduces trade, there is no real consensus on the direction or the size of the exchange rate volatility–trade level linkages. This paper investigates the relationship between US trade volume and exchange rate volatility using cointegration and error-correction models. We use conditional variances of the real effective exchange rate (REER) series modeled as a generalized autoregressive conditional heteroskedastic (GARCH) process to measure the exchange rate volatility. The cointegration results indicate a significant negative relationship between US export volume and exchange rate volatility. The short-run dynamics of the relationship, however, show that the effects of both real exchange rates and exchange rate volatility are insignificant.

This paper examines the effects of trade costs on macroeconomic volatility. We first construct a dynamic, two-country general equilibrium model, where the degree of market integration depends directly on trade costs (transport costs, tariffs, etc.). The model is a extension of Obstfeld and Rogoff (1995). Naturally, a reduction in trade costs leads to more market integration, as the relative price

El presente trabajo analiza la validez de la teoría de la Paridad del Poder Adquisitivo (PPP, por las siglas en inglés de “Purchasing Power Parity”) en Argentina durante el período 1943-2016. La metodología utilizada incluye una serie de innovaciones respecto a los antecedentes bibliográficos revisados. En primer lugar, se utilizan series largas con frecuencia mensual del tipo de cambio nominal, los precios al consumidor argentinos y los precios al consumidor estadounidenses. A su vez, se analiza la cointegración de estas variables con sistemas parciales, teniendo en cuenta que los precios de Estados Unidos no deberían realizar parte del ajuste ante desvíos en la relación de largo plazo (exogeneidad débil), debido al escaso peso de la economía argentina dentro del comercio exterior estadounidense. El análisis se realiza tanto a través de la metodología original de Johansen, como mediante las pruebas para sistemas parciales desarrolladas por Pesaran et al. (2000) y Harbo et al. (1998), que fueron programadas en el sofware econométrico EViews a los efectos de la presente investigación, y cuya aplicación empírica reviste particular interés para el estudio de la PPP en economías pequeñas y abiertas. Los resultados obtenidos indican que existe una relación de cointegración entre las variables, pero con una tendencia determinística. Este resultado implica que el tipo de cambio real de equilibrio ha tendido a depreciarse a lo largo del tiempo, lo cual podría deberse al efecto Balassa-Samuelson. También se comprueba que los precios estadounidenses no solo son débilmente exógenos, sino que además no están causados en el sentido de Granger por el resto de las variables (exogeneidad fuerte). Asimismo, se halla evidencia que respalda la exogeneidad débil del tipo de cambio nominal, lo cual implica una novedad respecto a otros trabajos que la consideran una variable endógena. El análisis de impulso-respuesta realizado a través del modelo final estimado indica que, luego de un shock devaluatorio, el tipo de cambio real demora entre 4 y 5 años en retornar a su equilibrio. Por último, se enumeran algunas limitaciones del trabajo y se delinean posibles líneas de investigación futuras, como la verificación de la hipótesis acerca del efecto Balassa-Samuelson o la incorporación de la influencia de los flujos financieros (paridad de tasas de interés) en el tipo de cambio real de equilibrio.

The Purpose of this paper is to examines empirically The causal impact of budget deficit financing methods on real exchange rate in Egypt during the period from 1975 to 2020.The main question of the paper whether there is a causal relationship between the large fluctuations in the real exchange rate and budget deficit/GDP proportion, governed by specific predictable factors, in particular the method of financing the budget deficit. Using structure vector autoregressive (SVAR) framework with variable lag structure, our empirical results provide evidence of the contribution of the money supply ratio to the GDP in the fluctuations of the real exchange rate in the short and medium terms, while the contribution of non-bank financing expressed in the real interest rate contributed to a lesser degree in these fluctuations, which gives an indication of the expansion in the use of local bank financing to finance the budget deficit during the study period. Moreover, the results showed that the government's dependence on local sources in financing the budget deficit was large, especially the local bank financing. It was also found that the non-banking domestic sources of funding have less influence on the fluctuations of the real exchange rate and therefore the value of the Egyptian pound relative to the US dollar. furthermore, also found out that the periods in which the real exchange rate index decreased and the value of the pound improved, are the periods in which the reliance on non-banking domestic financing was greater than on domestic banking financing,

... The second part describes how the crisis evolved, what defence was used by the central bank, and how the pegged regime was abandoned and replaced by the managed ¯oat. ... In addition, the central bank could use some other arrangements to borrow more foreign currency. ...

This study investigates the impact of exchange rate misalignment on outward capital flight in Botswana over the period 1980-2015. The study uses the autoregressive distributed lag (ARDL) approach to cointegration and the Toda and Yamamoto (1995) approach to Granger causality. Botswana's currency misalignment was caused by current account imbalances. The most important determinant of capital flight from Botswana is trade openness, which indicates that exportable commodities are misinvoiced leading to net capital outflows. Our main findings show that in the long-run, when the currency is overvalued, the volume of capital flight through trade misinvoicing declines and increasing foreign reserves does not reduce outward capital flight. However, when the currency is undervalued, the volume of capital flight through trade misinvoicing increases and foreign reserves reduce outward capital flight. Investors respond more to prospects of devaluation than to inflation. Botswana should tolerate overvaluation of the pula of only up to 5%. When the pula is overvalued beyond 5%, capital flight increases substantially. The government has to formulate trade regulations and monitor imported and exported commodities. Botswana should also implement capital controls to limit capital smuggling and maintain monetary autonomy.

This paper examines how macroeconomic policies can be managed to accommodate a large inflow of foreign aid to combat the HIV/AIDS epidemic and still maintain macroeconomic stability. Because of the daunting scale of this epidemic, funds need to be disbursed urgently in order to contain its spread, yet some economists worry that rapidly scaling up foreign assistance for this purpose

We propose a new methodology to measure exchange rate misalignment for Turkey, which has already undergone a severe economic crisis. We estimate the real exchange rate within a time varying parameter model, where a return-to-normality assumption about the ...

This study seeks to examine the relationship between Foreign Direct Investment (FDI) and Real Effective Exchange Rate (REER) volatility in Nigeria. Using annual time series data from 1980 to 2016, the study adopted the Exponential GARCH model, Ordinary Least Squares (OLS) estimation technique and the Error Correction Mechanism. The major findings of the study reveal that there is a negative correlation between Nigeria's past and future REER, which further implies that negative shock has less effects on exchange rate volatility when compared with a positive shock. It also found that exchange rate has a very significant effect on FDI in Nigeria while there also exists a long-run relationship between them. The study therefore advocates for a strong foreign exchange policies by the CBN to attract FDI. It also suggests that CBN should be keen on monitoring the financial news in the economy as it could heighten exchange rate and financial market volatilities; which may not be good for the economy's overall growth and development in the long-run.

1973 yılında Bretton Woods sisteminin çöküşünün ardından dalgalı kur rejimi, döviz kuru dalgalanmalarının dış ticarete olası negatif etkileri nedeniyle eleştirilere hedef olmuştur. Döviz kuru volatilitesinin dış ticaret üzerine etkilerini belirlemeye yönelik çok sayıda teorik ve ampirik çalışma yapılmasına rağmen, döviz kuru volatilitesinin dış ticareti etkileyip etkilemediği, eğer etkiliyorsa bu etkinin hangi yönde olduğuna ilişkin bir görüş birliği bulunmamaktadır. Bu tezde, döviz kuru volatilitesinin Türkiye dış ticaret hacmine etkisi ISIC Rev. 3 sınıflandırmasına göre 22 imalat sanayi sektörü özelinde incelenmiştir. Bu amaçla, ele alınan 22 imalat sanayi için sektörel reel döviz kuru hesaplanmış ve ekonometrik analiz sürecine bu kurlardan dört farklı yöntem kullanılarak elde edilen reel döviz kuru volatilitesi serileri dahil edilmiştir. 2005:Q1-2012:Q2 dönemi verileriyle panel veri analizi kullanılarak yürütülen ekonometrik analiz sonuçlarına göre, sektörel reel döviz kuru volatilitesinin sektörel ihracat hacmi üzerine etkisi pozitif ve anlamlı iken; sektörel ithalat hacmine anlamlı bir etkisi bulunmamaktadır. Dolayısıyla, sektörel reel döviz kuru volatilitesinin sektörel ticaret hacmi üzerindeki net etkisi dış ticareti arttırıcı yönde olmaktadır.
/
After the breakdown of the Bretton Woods system in 1973, floating exchange rate regime has been criticized because of the possible negative effects of exchange rate volatility on foreign trade. Although there are many theoretical and empirical studies to determine the effects of exchange rate volatility on trade, there is no consensus on whether, or which direction, exchange rate volatility affects foreign trade. In this thesis, the effect of exchange rate volatility on Turkey’s foreign trade volume was analyzed the case of the 22 manufacturing sectors which are classified according to the ISIC Rev. 3. To this end, sectoral real exchange rate was calculated for 22 manufacturing sectors and sectoral real exchange rate volatility series obtained by using four different methods were included in the econometric analysis proses. According to the results of the econometric analysis which was carried out for the period 2005:Q1-2012:Q2 and using panel data analysis, there is no significant effect of sectoral real exchange rate volatility on sectoral import volume, while the effect of sectoral real exchange rate volatility on sectoral export volume is positive and significant. Thus, the net effect of the sectoral real exchange rate volatility has an increasing effect on sectoral trade volume.