Analysis on dynamic relationship between credit restriction and exchange rate policy change

Since Jan 4th 2016, the State Bank of Vietnam (SBV) has applied the central exchange rate regime pegging VND to a basket of 8 currencies, which reflects the adaptation of macro policies in general, exchange rate policy in particular when integration context has changed. In order to propose suitable solutions to administrate exchange rate policy effectively, this article employs the VAR model, in which the relationship between exchange rate and three objectives of exchange rate policy (including prices, output and trade balance) are tested. The data used in this model is quarterly, in the period 2001q1-2017q3. Based on the results of the VAR model, a number of policy implications has been proposed, including: (i) continuing to apply currency basket pegged exchange rate regime; (ii) in stead of choosing to devaluate VND, the SBV should use other exchange rate management tools; (iii) speeding up the development of derivative exchange rate market is necessary to reduce the level of ERPT to the import price index so that helps to control inflation in Vietnam and (iv) the SBV should prioritize the exchange rate policy administration towards price stability through adopting the inflation-targeting monetary policy.
 Keywords
 Exchange rate policy, exchange rate, inflation, economic growth, trade balance
 References
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Purpose- The aim of this study is to empirically investigate the relationship between the change in exchange rates and the profitability of firms in Turkey. The changes in real effective exchange rate as the change in exchange rates criteria and return on assets as well as return on equity are considered for measuring profitability.Methodology- The sample of the research consists of 37 companies that are listed in BIST 100, operating in the manufacturing sector and whose data can be accessed completely. The data of the companies within the scope of the research were obtained from the official websites of Borsa Istanbul, Public Disclosure Platform, and Finnet and made ready for analysis. For the purpose of the research, panel data analysis, panel unit root tests, panel regression analysis, causality analysis, and moderating effect analysis were carried out.Findings-. Changes in foreign exchange rates, foreign sales and asset size of the companies do not have any significant impacts on the return on assets and return on equity during the period between 1999-2019 in Turkey. It has also been found that asset size, foreign sales, and change in exchange rates are the reasons for the return on assets and similarly, asset size, foreign sales, and change in exchange rate are the reasons for the return on equity. Finally, changes in the foreign exchange rate and export sales have a short-term causal relationship with both return on assets and return on equity, and changes in the foreign exchange rate and total assets have a moderating effect on return on assets.Conclusion- As a result of the research, it has been revealed that firms are affected by changes in foreign exchange rates with a delay. It means firms were likely be affected by the changes in exchange rates with a lag, and similarly, the changes in exchange rates affected financial performance with a lag. It has also been revealed from the research that firms effectively use internal and external hedging methods that help reduce the adverse impacts of the changes in foreign exchange rates.

The term ‘pass-through effect’ (PTE) refers to the effect of changes in the exchange rate of a domestic currency for foreign currency (or a trade-weighted portfolio of foreign currencies) on the country’s domestic prices for traded and non-traded goods. PTE of exchange rate changes on domestic prices is one of the major factors of transission of shocks in an open economy. Lafleche (1996) offered a diagram, which described these mechanisms of reaction of domestic prices to depreciation of domestic currency. A variety of mechanisms through which a change in exchange rate affects all domestic prices are thoroughly described in Lafleche (1996). Before the end of the 1970s academic economists did not pay enough attention to this phenomenon. However, in recent years this topic has became increasingly popular in many countries, perhaps in response to globalisation of the international markets and foreign trade growth. Higher PTE implies greater dependence of an open economy on external shocks in the world market and higher volatility of domestic prices due to changes in the exchange rate. Therefore, the government authorities should know the degree of PTE to forecast domestic inflation and conduct adequate inflationary and exchange rate policies.

The purpose of the present study is to examine the relationship between exchange rate changes and price level changes in Turkey during the 1980s using some modified Granger causality tests. During this period, Turkish exchange rate policy was characterised by considerable flexibility, in contrast to the long‐standing policy of fixing the exchange rate until a foreign exchange crisis necessitated devaluation. The weight of the evidence presented suggests that Granger causality runs from price level changes to exchange rate changes but that there is not feedback causality from exchange rate changes to price level changes. This conclusion is not altered by the inclusion of a money supply variable. Thus, for Turkey, exchange rate adjustment does not seem to have created a vicious cycle of currency depreciation leading to inflation as is often feared. Whether this result will hold for other developing countries which adopt flexible exchange rate regimes will require further testing.

The main objective of the study is to investigate the impact of exchange rate dynamics on agricultural sector performance in Nigeria. The study employed time series data obtained from the Central Bank of Nigeria statistical bulletin, World Development Indicators and National Bureau of Statistics. Agricultural sector performance was disaggregated into the overall agricultural, crop, livestock and fishery output. Autoregressive Distributive Lag (ARDL) and Generalized Autoregressive Conditional heteroskedasticity (GARCH) estimation techniques were used to establish the long run relationship among the variables, and the responsiveness of overall agricultural output, crop, livestock and fishery production to changes in exchange rate. It was revealed that long run relationship exists among the variables in all the estimated models. The result of the Error Correction Mechanism (ECM) within the framework of the ARDL shows that exchange rate has significant impact on agricultural sector performance. The GARCH results revealed that the responsiveness of aggregate agricultural output, crop, livestock and fishery production to changes in exchange rate is negative and statistically significant. This study concludes that the government must consciously direct policy actions towards the agricultural sector to achieve its full potentials in order to place the Nigerian economy on the path of self- sufficiency in agricultural production. The study recommends that; the government should implement appropriate exchange rate policy that will ensure sufficient crop production for both domestic consumption and exports. The movement in the market determined exchange rate should be strictly monitored by the apex bank, in order to ensure that the deregulation in exchange rate is not counterproductive through distortionary prices on agricultural production.

Is there an optimal crawl?

The implementation of an adequate exchange rate policy inevitably leads us to the pass-through of exchange rate changes on export prices and inflation. During the last decade of 20th century, there was a lot of research done on the pass-through of exchange rate changes from the microeconomic aspect. This approach, known as New Open Economy Macroeconomics, is theoretically grounded mainly on producers' ability to price discriminate in markets for export goods. Consistent with the established theoretical framework, the focus of this research has been directed towards studying the pass-through of exchange rate changes to export prices. Relatively few research papers, also based on theoretical grounds of basically macroeconomic character, have dealt with the pass-through of exchange rate changes to inflation. This paper observes the pass-through of exchange rate changes to inflation from the macroeconomic aspect. The starting point of our theoretical consideration of the pass-through of exchange rate changes to inflation is the well-known Dornbusch's overshooting model. The observation of the pass-through of exchange rate changes to inflation within the overshooting model allows us to observe two dimensions through which changes in the exchange rate pass through to inflation. The first dimension observes the pass-through of nominal exchange rate changes to inflation, whereas the second one observes the deviations of the nominal exchange rate from the equilibrium nominal exchange rate, having simultaneous internal and external equilibrium. The final pass-through of exchange rate changes to inflation will depend on the joint influence of both dimensions. Also, the pass-through of exchange rate changes to inflation will be observed in the countries with a fixed exchange rate system, which so far has not been a common situation in practice. We believe that exchange rate changes pass through to inflation even in a fixed exchange rate system, when a change in the exchange rate is equal to zero, which is manifested in deviations of the nominal exchange rate from the equilibrium exchange rate.

The paper investigates future exchange rate policy of the Middle East and North African (MENA) countries vis‐à‐vis the euro aimed at fostering their manufactured exports towards Euroland. The exchange rate policy is captured through three different indicators: the real effective exchange rate changes, volatility, and misalignment. The investigation is conducted for 11 sectors over the period 1970–1997. The sample includes four North African countries (Algeria, Morocco, Tunisia, Egypt) and Turkey. The results show that exchange rate management plays a crucial role in providing incentives for manufactured exports toward Euroland. The food sector is weakly responsive to real exchange rate changes while the textile sector is highly responsive. Four growing sectors (electronic, electrical, mechanical, and vehicles) were also found to be highly sensitive to exchange rate changes. The results suggest that policymakers should be more concerned with misalignment than with volatility.

Who Bears the Cost of a Change in the Exchange Rate? The Case of Imported Beer

Despite the importance of the international tourist demand and affected extent by daily changes of exchange rate, there are a few and inadequate studies that have addressed the measurement of the impact of exchange rate change on the international tourism demand for Egypt. therefore, this study aims to measure the effect of the Egyptian pound Exchange Rate change on the international tourist demand to Egypt from 2010 to 2017.For this purpose, field researches conducted using questionnaires for sample of international tourists and interviews with tourism and Economic experts. This study is based on an exploratory approach to achieve its goals. The main results of this study indicate that there is some countries are affected by the change of the Egyptian Pound exchange rate and others who are not affected by it. It was found that the most sensitive countries to changes of Egyptian Pound exchange rate are Russia, China and India. In contrast, USA and Germany are the less sensitive countries to the changes of Egyptian pound exchange rate. In addition, there is an inverse relationship between the international tourist demand to Egypt and the change of the exchange rate. When the floating system for the Egyptian pound exchange rate was applied, it reduced the value of the Egyptian pound exchange rate in 2016. It also resulted in an increase in the number of international tourists, to 8.3 million tourists in 2017 compared to 5.4 million tourists in 2016. Moreover, the Tourism revenues were about 7.6 billion in 2017, compared to 2.6 billion in 2016. Besides applying the floating system for the Egyptian pound exchange rate which led to the increase in the international tourist demand, there were other factors that led to these increases such as political stability in Egypt.

The thesis presents a relationship of monetary policy reaction function and exchange rate regime in open economy of Taiwan and Japan using SVAR model. The economic variables of the model are including domestic interest rate, consumer price index, industrial index, nominal exchange rate, and foreign interest rate. The research uses 206 panel data, from 1989:05 to 2006:06 to examine the role of exchange rate as a shock-absorber or source of shocks. The results of the empirical research are summarized as follows: The shock between Taiwan and United States belongs to symmetric shock. The interest rates of United States and Taiwan respond in the same way to real shock, so foreign monetary policy shock has a great effect on domestic monetary policy. It is little need for the exchange rate to act as a shock-absorber to stabilizing economy. It is effective for Taiwan to join optimal currency area than use exchange rate policy or monetary policy to stabilizing economy. The shocks are idiosyncratic between Japan and United States，so the exchange rate can absorb such shocks. Exchange rate market disturbance resulted in exchange rate variation; the reactions of monetary policy to supply shock and demand shock are influential. For Japan, it is better to have independent of monetary policy and exchange rate policy as shock absorption to stabilize economy.

(Analysis on the Expansion of Financial Opening and Changes in the Effects of Exchange Rates)

Exchange Rate Policies and Economic Development

The issue of changes in the real exchange rate (RER) has become rather controversial in discussions about exchange rate policy in some of the former socialist, currently transition, economies of Central and Eastern Europe (CEE).1 The countries concerned are those that are relatively developed and have achieved a measure of relative macroeconomic and exchange rate stability. These countries — namely, the Czech and Slovak Federal Republic (CSFR), Hungary, and Poland — went the furthest among countries of the region in liberalizing the domestic and foreign sectors of their economies and in implementing de facto resident convertibility of their currencies.2 This paper focuses on the experiences of these three countries (referred to as the three), but in particular on those of Hungary. The nominal exchange rates of the three countries display either relative (Hungary and Poland) or, for the time being at least, absolute stability (CSFR); in the parallel (black) markets, where they exist, there are no sizable premiums on foreign rates of exchange.

The Aim of this research is to analyze the impact of exchange rate Adjustments on stock returns in Egypt, and the impact of these changes depends on the analytical theoretical study approach to achieve the research objectives by reviewing what was stated in previous studies related to the research variables. The research focused on Egypt’s modern experience in exchange rate policies. As the research was conducted during the period from (2019-2023), it appears that positive and negative changes in the exchange rates of the Egyptian pound to the US dollar have a significant impact on stock returns, whether in the short or long term. It was found that currency depreciation tends to have a stronger impact on stock returns than the effect of currency appreciation, as the research concluded that exchange rate changes are affected by external variables, which affects stock returns, and that disclosures about exchange rate changes are necessary to avoid being subject to deterioration in stock returns. Practical Implications The results provide important insights for investors, regulators, and policymakers. With the devaluation of the local currency negatively impacting stock returns, investors should consider implementing appropriate currency hedging strategies to reduce the risks of currency depreciation, and thus maintain the expected rate of return on investments denominated in Egyptian pounds. Keywords: Foreign Exchange Rates – Stock Returns – Egyptian Stock Exchange