Major exchange rates and value-added exports

The reform of RMB exchange rate formation mechanism has been advanced constantly and RMB exchange rate flexibility also has been enhanced orderly since July 2015, when China adopted a managed, floating exchange rate regime with reference to a basket of currencies instead of fixed exchange rate regime being pegged to the US dollar. In August 2015, China once again carried out the reform aiming at improving the central parity rate mechanism of RMB exchange rate against US dollar. Since then, the two-way volatility of RMB exchange rate has been normalized. As the price of home currency in the international market, the exchange rate can produce price and wealth effects along with its fluctuations, thereby resulting in distributional effect. On the one hand, owing to differentiated trade goods produced and consumed between rural and urban residents, the RMB exchange rate changes play a role in trade structure, industrial structure, employment structure and economic growth, and further in urban-rural income distribution pattern, by affecting import and export trade. On the other hand, the RMB exchange rate changes can affect types & amount of currencies that are possessed by urban-rural residents, and then have an important effect on cross-border capital investment. Especially with the internationalization of the RMB and the two-way opening-up of the financial market, the marketization of RMB exchange rate will be further heightened, thus it is no doubt that the effect of RMB exchange rate changes on income distribution will be strengthened.As an important aspect of unequal income distribution, urban-rural income gap has always been a major concern of all circles in China. Under the dual urban and rural economic background, this paper theoretically depicts micro mechanism concerning the effect of RMB exchange rate changes on urban-rural income gap. Then it applies panel threshold regression model proposed by Hansen(1999) with provincial data during the period of 1994 to 2016 and endogenous grouping to empirically investigate asymmetric and regional heterogeneous features of the effect of RMB exchange rate changes on urban-rural income gap in 28 Chinese provinces. Our results show that the effect of real effective RMB exchange rate changes on urban-rural income gap is not fixed, but depends on changes in regional per capita income and the degree of trade openness, thereby being featured by asymmetry and regional heterogeneity. Specifically speaking, the appreciation (depreciation) of real effective RMB exchange rate can reduce (expand) the urban-rural income gap in the provinces with low income level & low trade openness as well as middle income level & high trade openness, but will expand (reduce)the urban-rural income gap in the provinces with high income level and high trade openness. However, the changes in the real effective RMB exchange rate do not have an obvious effect on the urban-rural income gap in the provinces with middle and high income levels and low trade openness.Based on the conclusions of this paper, we can get the following enlightenment. Firstly, when formulating policies narrowing down the urban-rural income gap, Chinese governments should look upon the distribution effect of exchange rate changes and take different measures in different regions, to respond to the shock of exchange rate changes to urban-rural income gap. Secondly, to narrow down relative labor productivity gap between urban and rural areas is one of the important directions to alleviate income gap. Thirdly, in the process of expanding financial opening-up and trade openness, local governments should pay attention to the improvement of rural financial development and trade environment, and change the situation that rural areas cannot or will not enjoy the dividends of financial opening-up and trade openness to a greater extent, thereby providing conditions for narrowing down urban-rural income gap.The contributions of this paper are as follows:firstly, the existing literature investigates urban-rural income gap mainly from the perspectives of macroeconomic development, policy differences and historical legacy, while this paper focuses on exchange rate changes, which would enrich the previous research; secondly, we utilize the panel threshold approach and further explore the regional heterogeneous feature of the effect of RMB exchange rate changes on urban-rural income gap through endogenous grouping according to the threshold value, which is helpful to examine the income distribution effect resulting from real exchange rate changes more comprehensively & objectively; thirdly, the theoretical and empirical analysis of this paper helps us to understand the intrinsic mechanism and external manifestation of the effect of RMB exchange rate changes on urban-rural income gap, and then provides some enlightenment for governments to make relevant policies to reduce urban-rural income gap.

In this study, value-added perspective focuses on the role of exports within a bilateral trading partner in the process of global value chains with vertical specialization, which is one of the various innovations in the world economy. Theoretically, we determine a proper model to connect both the value-added exports (Hummels et al. 1999; Johnson & Noguera 2012; Koopman et al. 2010; Koopman and Wei 2014; UNCTAD 2013) and the changes in value-added exchange rates (Bems & Johnson 2012, 2015; Patel et al. 2014; Yang et al. 2014). Then, based on their relationships, we investigate the value-added effects of exchange rate changes on international trade. Empirically, we adopt the calculating methods of using the value-added trade statistics (TiVA) developed by OECD-WTO. In particular, proper time series econometric models are tested for the United States of America and South Korea. We find that increase in foreign income increases the value-added exports, and increase in domestic income increases the value-added imports, but that currency appreciation decreases the value-added exports in Korea while currency appreciation increases the value-added exports in the US. We would judge that the export competitiveness relies on the currency devaluation in Korea but the domestic industry/economic growth in the US. Also, the value-added exports to gross exports are higher in Korea than the ones in the US as using more the global value chains. This will contribute to mitigate the global imbalances and exchange rate conflicts.

This study investigates the real effects of exchange rate changes on exports with three key features; pricing in a dominant currency like the US dollar, imported intermediary use in production, and exports dependent on major demanded countries. We test the longitudinal effects of exchange rates using a data set of both gross and value-added bilateral exports. The key finding distinguishes the positive panel effect of US dollar depreciation due to the dollar liquidity effect from the negative panel effects of other currencies depreciations due to the intermediary import effect. The two detailed results stand out mostly due to the impacts of intermediate goods imports. First, the panel effect of currency depreciation on value-added exports is smaller than gross exports. Second, the panel effect of depreciation on intermediary goods exports is bigger than final goods exports. Also, the panel effects of income and exports-FDI feedback are significant, enriching for the relationship between trade flows and foreign investment.
 
 
 Received: 29 April 2022 / Accepted: 9 August 2022 / Published: 2 September 2022

This article empirically scrutinizes the effect of exchange rate changes, exchange rate uncertainty and firm leverage on firm-level productivity growth. It also examines the differential effects of these variables, conditional on the levels of exports. Finally, it investigates whether a firm’s heterogeneity in terms of its share of exports in total sales matters in determining the response of a firm’s productivity growth to these variables. The empirical analysis is based on an unbalanced panel data set with annual observations of 222 exporting firms listed on the Pakistan Stock Exchange over the 2009–2017 period. We find that both exchange rate changes and exchange rate uncertainty have significant, negative effects on the firm’s productivity growth, and exporting further makes intense these effects. Yet, we show that export activities are positively related to firms’ productivity growth. We also reveal that there is a significant heterogeneity in the effects of exchange rate changes, its uncertainty and leverage, which is attributed to export intensity. Specifically, we observe that the effects are more prominent in firms that export more shares of their output to foreign markets.

For more than thirty years, studies about the effect of the exchange rate on exports have been conducted. However, few have considered the combined effect of the exchange rate on imported inputs into the agricultural system and the exports of final agricultural products those inputs produce. A current concern is for the net effect as the total value and quantity of inputs imported has increased. This research examines the effect of exchange rate changes on imported inputs into the corn, wheat, and beef cattle production systems. Effects on cost of production budgets are calculated, examining affects on profitability. Vector Autoregression (VAR) and Bayesian Averaging of Classical Estimates (BACE) models were estimated to evaluate those effects. Daily and weekly price data were used for corn, wheat, feeder steers, ethanol, diesel, ammonia, urea, di-ammonium phosphate, and the exchange rate. A VAR model was estimated to model the relationship between the variables. After having incongruous test results in determining the lag length structure it was decided that a BACE model would be approximated. After estimating the BACE model the price responses of the commodities to the exchange rates was estimated. The price responses were used in demonstrating the effect of the exchange rate on a producer’s profitability. It was determined that, generally, a strengthening exchange rate has a negative impact on prices. It was also found that the exchange rate has a greater impact on prices now than it did 14 years ago, implying that the exchange rate now has a greater affect on profitability. A one percent increase in the value of the dollar led to a decline in profitability ranging from $0.02/bu in wheat to $0.56/cwt in feeder steers. However, agricultural producers should not be overly concerned about a lower valued dollar from the perspective of their agricultural business.

I. Introduction Recent high exchange rate fluctuations in sphere of growing trade and financial liberalization have attracted a great deal of interest from both economists and policy-makers. Of particular interest has been question of domestic economies' exposure to exchange rate risk. It is noted that fluctuations in exchange rate can substantially affect values of firms, through changes in terms of competition, changes in input prices, and changes in values of foreign currency-denominated assets (Bodnar and Gentry 1993). Domestic firms with foreign operations are obviously affected directly and, given these various channels of influences, even firms with no foreign operations may be indirectly affected. Accordingly, firms' stock prices and stock market may react to changes in exchange rates. Conversely, changes in stock prices may influence movements in exchange rate, via firms' portfolio adjustments (Bahmani-Oskooee and Sohrabian 1992) or outflows of capital (Qiao 1996). The latter is likely to be operative if changes in stock prices are sufficiently persistent to generate or destroy confidence in market. Empirically, there are quite a number of studies that attempt to determine impact on stock prices of exchange rate changes. The findings, however, are not uniform across various studies. Some studies documented positive effects of exchange rate changes on stock market (Aggrawal 1981), while others found negative effects (Soenen and Hennigar 1988). Yet other studies concluded that exchange rate changes have no significant impact on stock market (Solnik 1984). In a more recent study, Bahmani-Oskooee and Sohrabian (1992) evaluated interactions between Standard and Poor's Composite Index and effective exchange rate of dollar, using monthly observations from July 1973 to December 1988. Applying standard co-integration and Granger tests, they found bi-directional causality between stock price index and exchange rate. However, there was no long-run relationship between two variables. Using daily data for cases of Japan, Hong Kong and Singapore, Qiao (1996) found stock price-exchange rate causal nexus to be different across countries. Specifically, direction of causation is bi-directional for Japan, is unidirectional from exchange rate to stock returns for Hong Kong, and is non-causal for Singapore. He also noted presence of a strong long-run relationship in these three countries. Recently, Abdalla and Murinde (1997) investigated same issue for emerging markets of India, Korea, Pakistan and Philippines. They noted that understanding of issue is crucial, as these countries attempt to develop their financial markets and, at same time, move towards more flexible exchange rates. Their analysis is based on monthly observations from January 1985 to July 1994, using IFC stock market indices for countries and real effective exchange rates. The results from their studies suggested unidirectional causality from exchange rates to stock prices in all countries, except Philippines. In case of Philippines, Abdalla and Murinde found stock price to Granger caused exchange rate. Additionally, they documented presence of a long-run relationship for cases of India and Pakistan. These results led them to conclude that, for cases of unidirectional causality from exchange rates to stock prices, the respective governments of these emerging markets should well be cautious in their implementation of exchange rate policies. The objective of this study is to extend existing studies on stock price-exchange rate causal relationship by investigating issue for another emerging market, Malaysia. The country is one of open and fast-growing economies in region. The development of its stock market is also Exceptional. …

In small open economies, the connection between exchange rate and monetary policy function is well-recognised either in the form of theoretical concept or empirical literature. Unlike others, this paper revisits the study by utilising the panel threshold approach of Hansen (1999) to investigate how the monetary policy function of ASEAN-5 responding to exchange rate changes in two different policy regimes, pre-crisis (1980Q1-1996Q4) and post-crisis (1999Q1-2015Q4). The results exhibit asymmetric effect of exchange rate changes on monetary policy function in both sub-periods. The double threshold effect in the pre-crisis, showing exchange rate changes influencing the policy function in a limited threshold value. Conversely, in the post-crisis, the single threshold effect illustrating exchange rate changes having stronger effect on the policy function in various magnitudes at all threshold values. Although claiming the execution of flexible exchange rate system aftermath crisis, there exist policymakers’ intervention in stabilising the exchange rate changes with respect to ‘fear of floating’ behaviour in ASEAN-5. Lastly, in each sub-period, the threshold effect of exchange rate changes relative to inflation variation is highly significant while trivial to output gap in triggering the policy function. This witnessing, by and large, the ultimate goal of ASEAN-5 is to achieve price stability.

This study examines the relationship between exchange rates and South Korea's trade flows considering invoicing currencies in line with the dominant currency paradigm. We use the trade weight data of South Korea's total and bilateral trade with its major trading partners. Our analysis of the elasticities of South Korea's trade with respect to bilateral exchange rates shows that a strong US dollar—the dominant invoiced currency—is associated with a decline in South Korea's imports, regardless of the country of origin. We also show that the Japanese yen, as the other dominant invoicing currency in bilateral trade between South Korea and Japan, has a similar effect to that of the US dollar. In addition, fluctuations in the invoicing share of dominant currencies improve the statistical significance of the effect of exchange rate changes. We also report the results at the sectoral level. Overall, our results are consistent with the dominant currency paradigm. Finally, according to the South Korea pass‐through results, which show that US dollar rate fluctuations affect both import and consumer prices immediately, South Korean importers seem to react quickly by changing trade quantities and domestic sales prices.

This study examines the ability of exchange rate changes to aid in the explanation and prediction of the geographic segment earnings of U.S.‐based multinational corporations. In order to evaluate the potential usefulness of geographic segment earnings disclosures, it is important to understand the effect that currency changes should be expected to have on these earnings. Two types of exchange rate effects are examined. These include the mechanical translation effects of an exchange rate change, as well as the operating effects. A sample of geographic segment earnings disclosures is developed for two geographic locations (Canada and Europe) and six industries in which adequate country‐industry specific subsamples can be identified. Because the factors that impact exchange rate exposure tend to depend on country, industry, or both, provision is made for country, industry, and country‐industry specific sensitivity to currency changes. Regressions and nonparametric analyses are performed to determine whether exchange rate changes can help explain the geographic segment earnings within these samples. Results indicate that the accounting‐based translation effect that is typically modeled as the impact of exchange rate changes on earnings does not adequately capture the effect of exchange rate changes on segment earnings. Operating effects of past and current exchange rate changes do help explain earnings for geographic segments located in Europe and in four industries. Prediction models which are country or country‐industry specific are able to outperform a random‐walk prediction of geographic segment earnings in some circumstances.

This study examined the symmetric and asymmetric effects of exchange rate changes on stock prices in the economies of India, Indonesia, Brazil, South Africa, and Turkey, collectively known as the "Fragile Five" due to their similar economic dynamics in light of the global financial crisis and pandemic period. The study uses monthly data from July 2000 to July 2022, and panel autoregressive distributive lag and panel nonlinear autoregressive distributive lag models to investigate the effects of exchange rate changes on stock prices in the Fragile Five economies. Prior to the global financial crisis, exchange rate changes have both long- and short-term asymmetric effects on stock prices in the Fragile Five economies. However, after the global financial crisis, exchange rate changes have both short- and long-term asymmetric and symmetric effects. Similarly, exchange rate changes also have asymmetric effects on stock prices during the COVID-19 period.

Previous studies investigating the effect of exchange rate changes on a country’s exports have found little evidence that exchange rates matter. This “Exchange Rate Disconnect Puzzle” may stem from the fact that studies have mostly focused on aggregate data. Using HS-6 digit product-level data for Chinese exports, we analyze the effect of real exchange rate (RER) as well as the volatility of RER of the Chinese RMB. By decomposing China’s exports into its “extensive” and “intensive margins,” we find that RER volatility significantly impacts Chinese exports via both the margins. RER volatility increases the uncertainty and deters new firms from entering the market. As less firms operate, the export share of the existing firms increase. The overall effect of this volatility is slightly positive. We find that these effects are dominant for the minor trading partners of China compared to its major trading partners. We find weak evidence that RER depreciation affects China’s exports via the extensive margin.

Previous studies showed the exchange rate changes can have significant impacts on macroeconomic performance. Over fluctuation of exchange rate may lead to economic instability. Hence, monetary policy rule tends to react to exchange rate changes. Especially, in emerging economies where the policy-maker tends to limit the exchange rate movement through interventions. In this study, we seek to investigate how the monetary policy rule reacts to exchange rate changes. The nonlinear autoregressive distributed lag (NARDL) model is applied to capture the asymmetric effect of exchange rate changes on monetary policy reaction function (interest rate). We focus the study in ASEAN5 countries (Indonesia, Malaysia, Philippines, Thailand and Singapore). The results indicated the existence of asymmetric effect of exchange rates changes on the monetary reaction function for all ASEAN5 countries in the long-run. Where, in majority of the cases the monetary policy is reacting to the appreciation and depreciation of exchange rate by raising the policy rate. This affirms the intervention of policymakers with the ‘fear of floating’ behavior.

The Impact of Exchange Rate Movements on Trade Balance between Vietnam and Japan: J Curve Effect Test

Asymmetry cointegration between the value of the dollar and sectoral stock indices in the U.S

A foreign exchange rate is one factor that drives U.S. agricultural trade. Considering this fact, the impact of asymmetric exchange rate changes on U.S. agricultural trade with major trading partners are analyzed. We employ a nonlinear autoregressive distributed lag (NARDL) model to analyze the dynamic exchange rate changes on U.S. agricultural exports and imports. In order to test the asymmetric exchange rate effects on trade, we decompose the exchange rate into its positive and negative changes. Then, we calculate the partial sum for the positive and negative exchange rate. The results provide evidence that at least in the short run the effects of exchange rate changes on the U.S. agricultural exports are asymmetric for some countries while the impact of foreign exchange rate changes on the U.S. agricultural imports is symmetric. Furthermore, an increase or decrease in income among the major trading nations leads to rise or fall in the U.S. agricultural exports. Our study provides important evidence for the asymmetric exchange rate changes on the bilateral U.S. agricultural trade.