Dollar Depreciation Research Articles

Do Foreign Yield Curves Predict U.S. Recessions and GDP Growth?

AbstractForeign term spreads constructed from bond yields of non‐U.S. G‐7 constituents predict future U.S. recessions and foreign term spreads are stronger predictors of U.S. recessions occurring within the next year than U.S. term spreads. U.S. and foreign term spreads are both informative of the U.S. economy but over different horizons and for different components of economic activity. Smaller U.S. term spreads lead to smaller foreign term spreads and U.S. Dollar appreciation. Smaller foreign term spreads do not lead to significant U.S. Dollar depreciation but do lead to persistent declines in U.S. exports and foreign direct investment (FDI) flows into the United States. These findings are consistent with the proposition that foreign term spreads embed growth spillovers from the U.S. and the resulting Dollar strength and slowdown abroad spill back to the United States.

Analysis of the Impact of US Quantitative Easing Policy on China's Macro Economy

The 2008 financial crisis caused many large enterprises to go bankrupt. In order to revitalize the crumbling economy and inject liquidity into the financial markets, US has carried out four rounds of QE policy. Since the COVID-19, America has resorted to unlimited quantitative easing in hopes of saving economy. The United States' QE has an impact on China's economic development due to their frequent economic interactions, and this impact will unavoidably spread as a result of QE's spillover effects. This research examines the Fed's QE monetary policy influence on Asian's biggest country economy in two time period, after the 2008 financial crisis and during the new coronavirus pandemic, in depth using current theories. In this study, the content of the QE monetary policy in the American continent is introduced, the implementation backdrop and impact of the policy are examined. The main focus of this paper is to present the impact of US QE monetary policy on China’s economy. First of all, US policy impact will inevitably spread to China's monetary policy and exchange rate policy. Secondly, the QE’s spillover effect of Chinese inflation is analyzed from RMB appreciation and commodity price rise. Third, the capital market's strong liquidity will lead to the inflow of international capital into our country due to the United States' QE monetary policy, so the impact on our capital market is analyzed. Fourthly, it analyzes the impact of dollar depreciation brought about by QE on the China's foreign exchange assets safety.

Influence of Rupiah Exchange Rate on Indonesia’s Economic Growth: Literature Study

In the international economy, the exchange rate has an important role as a transaction tool. Its existence clearly affects the economy of a country both nationally and internationally. In Indonesia, the rupiah exchange rate is pegged to the US dollar, because international trade is dominated by transactions in US dollars. The increase in the rupiah exchange rate caused the rupiah to depreciate against the US dollar. This study aims to determine how the effect of the rupiah exchange rate on Indonesia's economic growth every year. This research is a qualitative descriptive research through a review of literature studies originating from journals, books and sources of accurate information. From the review of literature studies it is known that the variable exchange rate of the rupiah against foreign currencies has a significant effect and has a negative sign. This is evidenced by the growth rate of Gross Domestic Product (GDP) compared to the rupiah exchange rate. This means that when the rupiah exchange rate depreciates (the dollar appreciates), economic growth will decrease. And conversely if the rupiah exchange rate appreciates (the dollar depreciates) it will cause economic growth to increase.

U.S. trade imbalances, East Asian exchange rates, and a new Plaza Accord

The U.S. real effective exchange rate is at its highest level since 1985. In that year, the U.S. and its trading partners coordinated a depreciation of the dollar and the U.S. agreed to reduce its budget deficit. This paper reports that a dollar depreciation today would still improve U.S. trade imbalances with East Asia and the world. East Asian countries would also benefit from a dollar depreciation because it would lower the local currency costs of imported oil, commodities, and food and reduce imported inflation. The U.S. and East Asia should consider engineering a coordinated dollar depreciation and the U.S. should again reduce its budget deficit.

Risk and return in the foreign exchange market: Measurement without VARs

This paper offers a detailed investigation of the foreign-exchange risk premium using a structural relationship in the inflation-index bond market, first introduced by Clarida. Unlike the conventional vector autoregressive (VAR) approach, this approach estimates risk premium through the non-arbitrage relationship between investing in inflation-indexed bonds from two countries and works in the market information set. A rise in the estimated foreign-currency risk premium helps to forecast dollar depreciation in subsequent periods. And the forecasting power is stronger than that of the other existing VAR approaches.

Dominant Currency and Value-Added Exports

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

Four types of tail dependence structures between U.S. dollar index and S&P 500 stock returns:1990-2019

ABSTRACT This research investigates four tail relationships between the U.S. dollar and S&P 500 returns by a dynamic mixture copula model with a link between the dependence structure and dependence intensity. The empirical results find that four tail relationships are evident and time-varying. Regarding the negative dependence, the tail relationship is prominently stronger in the situation where the U.S. dollar depreciates and the stock index increases than in the situation where the U.S. dollar appreciates and the stock index declines. Regarding the positive dependence, the situation of two returns increase occurs slightly more frequently than the situation of two returns decrease.

Sensitivity of Crude Oil Price Change to Major Global Factors and to Russian–Ukraine War Crisis

To assess the elasticity of crude oil price to global factors related to supply of crude oil and the US dollar exchange rate, the authors employed nonlinear models including flexible least squares, and maximum likelihood estimator, in addition to OLS regression mode; using yearly data from 1965 to 2021. The findings indicate change in oil prices due to 1% change in any of the explanatory variables, as follows: the effect of the US dollar depreciation rate, raise crude oil price/barrel by 71 US cents; and increase in OPEC production, decrease crude oil price by 82 US cents; a decrease in non-OPEC production, raise oil price by 4.78 US$. These results imply that, if a ban imposed on Russian crude oil export, and no increase in OPEC production to compensate Russian oil loss in the international markets, global crude oil price expected to rise by 88 US$ above its level before Russian–Ukraine crisis, meaning that crude oil price expected to rise at 160 US$ pbab. However, if OPEC members increase their output level by 10 million barrels per day to compensate the Russian oil loss, then global crude oil price is expected to stay at 102 US$ pb.

Sensitivity of crude oil price change to major global factors and to Russian-Ukraine war crisis

To assess the elasticity of crude oil price to global factors related to supply of crude oil and the US dollar exchange rate, we employed nonlinear models including flexible least squares (FLS), and maximum likelihood estimator (MLE), in addition to OLS regression mode; using yearly data from 1965 to 2021. Our findings indicate change in oil prices due to 1% change in any of the explanatory variables, as follows: the effect of the US dollar depreciation rate, raise crude oil price/barrel by 71 US cents; and increase in OPEC production, decrease crude oil price by 82 US cents; a decrease in non-OPEC production, raise oil price by 4.78 US$. These results imply that, if a ban imposed on Russian crude oil export, and no increase in OPEC production to compensate Russian oil loss in the international markets, global crude oil price expected to rise by 88 US$ above its level before Russian–Ukraine crisis, meaning that crude oil price expected to rise at 160 US$ pb[1][2]. However, if OPEC members increase their output level by 10 million barrels per day to compensate the Russian oil loss, then global crude oil price expected to stay at 102 US$ pb.

Modeling global real economic activity: Evidence from variable selection across quantiles

We conduct an open search of predictors of global real economic activity. To this end, we apply a predictive quantile regression framework, using four alternative proxies of global real economic activity during February 1997–August 2019 and building on a combination of machine learning algorithms to identify their predictors out of 23 candidate explanatory variables. The contemporaneous level of global real economic activity, the Asian and US financial stress are found the most robust predictors. The effect of US financial shocks appears asymmetric, as they undermine global economic growth when the latter is below the median, but do not matter much when the world economy expands fast. Besides, US shadow interest rates are significantly and positively linked to global real economic activity. This effect holds in a high-growth regime of the world economy and suggests that rising US policy rates, contrary to the conventional wisdom, entail US dollar depreciation rather than appreciation. A weaker US dollar stimulates dollar-denominated cross-border bank inflows to the countries other than the USA, leading to a rise in real investment worldwide and industrial output growth. Thus, our empirical findings inform policymakers which indicators should be monitored more closely to predict future shifts in global economic growth and also provide certain insights about optimal policy responses to such shifts.

FOREIGN FINANCING, EXCHANGE RATE EXPOSURES AND CORPORATE INVESTMENT IN SINGAPORE

We study the effect of exchange rate fluctuations on foreign corporate investment flows to Singaporean firms using a linear reduced-form empirical specification on data from the past decade. Overall, we find that the cost of debt capital falls on average when the Singapore dollar depreciates. Isolating the effect of exchange rates on US-denominated debt vis-a-vis interest rates and yield curve variables shows that an increase in the cost of foreign debt capital through exchange rate changes leads to lower investment, albeit only slightly and an order of magnitude less important than short-term government bond yields.

Politics and political determinants of health policy and systems research funding in Latin America and the Caribbean

Using a standardised protocol, we performed an analysis of available data and financing structures for health research and HPSR, based on research in eight countries, including interviews with key stakeholders (n = 42). Dollar depreciation and gross national product growth in the region may play a role in how governments fund research. There have been shifts in the political spectrum in governments, which have affected research coordination and funding in positive and negative ways. HPSR funding in some countries was dependent on budget decisions and although some have improved funding, others have regressed by decreasing funding or have completely cancelled financing mechanisms. Caribbean countries rely mainly on institutional funding. HPSR is recognised as important but remains underfunded; stakeholders believed it should be used more in decision making. Although HPSR is recognised as valuable for decision making and policy development, it does not have the financial support required to flourish in Latin America and the Carribean. Data on health research financing were not easy to access. There was little or no evidence of published reports or papers about research financing, health research funding, and HPSR funding in particular in the studied countries. Because of the fragility of health systems highlighted by the coronavirus disease 2019 (COVID-19) pandemic, HPSR should be of great relevance and value to both policy makers and funders.

The heterogeneity spillover impact of U.S. permanent and temporary monetary shocks on China’s economy

This study adopts the New Keynesian theoretical model to analyse the heterogeneity spillover effect of U.S. permanent and temporary monetary policy shock on China’s economy through an exchange rate channel. It also employs the Bayesian technique to estimate SVAR model and obtain two main results. First, the permanent increase in the nominal interest rate in the U.S. causes Chinese yuan appreciation and U.S. dollar depreciation, which has a negative spillover impact on China’s economy and leads to the decline in China’s real output. Second, the temporary increase in the nominal interest rate in the U. S. leads to Chinese yuan depreciation, which has a positive spillover impact on China’ s macroeconomy and leads to the rise of China's real output.

Financial and insurance services trade and role of the exchange rate: An asymmetric analysis

Almost all studies in the trade literature have concentrated on the trade in goods. Recently, a study considered trade in two service industries (insurance and financial) between the U.S. and six of her trading partners and concluded that exchange rate changes have no significant effects on the U.S. service trade. Could such a finding be due to assuming the effects to be symmetric? We provide an affirmative answer by arguing and demonstrating that the effects of exchange rate on service trade could be asymmetric, which requires using nonlinear models. Once we estimate the nonlinear models, indeed we show that dollar depreciation and dollar appreciation have significant short-run and long-run effects on the U.S. inpayments from and outpayments to most of its partners in the two service industries. We attribute our new discoveries to the nonlinear adjustment of the real exchange rate.

Spatial Price Transmission and Price Dynamics of Global Butter Export Market under Economic Shocks

Recently, the world has experienced striking economic and policy changes, and subsequent uncertainties have impacts on dairy trade price fluctuations. The Global Vector Autoregressive (GVAR) methodology was established in this paper to better understand international butter export prices transmission, the feedback between the economic context changes and price fluctuations, and the link between the global butter market, energy market, and other commodity markets. We assessed which key factors are typically associated with butter export price movements with regards to shocks to crude oil price, palm oil price, farm-gate raw milk price, exchange rates, and consumer price index (CPI) for food of the EU, New Zealand, the U.S., and the rest of world (RoW), respectively. Using generalized impulse response functions, this study found that decreases in farm-gate raw milk price could be swiftly transmitted to butter export prices of not only a home country but other foreign countries. However, palm oil price and crude oil price merely affects global butter export prices. We also found that U.S. dollar depreciations against the Euro will cause a decline in U.S. butter export price. It is concluded that butter export markets are not well-integrated, yet butter export prices of New Zealand and the U.S. are highly linked.

Correcting US payments imbalances: Taxing foreign holders of its treasury securities is better than import tariffs

AbstractTo correct US current account deficits, dollar depreciation rather than imposition of tariffs is economically the better response. The theory of second best (The Review of Economic Studies, 24, 11) implies that if there is only one distortion then correct it, but the welfare effects of adding a second, supposedly offsetting distortion, may not increase welfare and can reduce it. In the context of an overvalued dollar caused by the dollar's status as the predominant global investment currency—a distortion adversely affecting the US manufacturing sector, the first best policy is not to impose tariffs because this adds a trade distortion on top of an exchange rate distortion and can easily be welfare reducing. US imports may be diverted from China to higher‐cost foreign producers not subjected to the tariff, and tariffs do nothing to promote US exports. The first best policy is directly to reduce the distortion of an overvalued exchange by discouraging excessive accumulation of foreign holdings of US securities held as foreign exchange reserves and by foreign private investors. A tax on the foreign holdings is a way to accomplish this.

The Macroeconomic Effects of Oil Supply News: Evidence from OPEC Announcements

This paper studies how changes in oil supply expectations affect the oil price and the macroeconomy. Using a novel identification design, exploiting institutional features of OPEC and high-frequency data, I identify an oil supply news shock. These shocks have statistically and economically significant effects. Negative news leads to an immediate increase in oil prices, a gradual fall in oil production, and an increase in inventories. This has consequences for the US economy: activity falls, prices and inflation expectations rise, and the dollar depreciates, providing evidence for a strong channel operating through supply expectations. (JEL E31, E32, F31, Q35, Q38, Q43)

Beyond the Yield Curve: Understanding the Effect of FOMC Announcements on the Stock Market

A large literature uses high-frequency changes in interest rates around FOMC announcements to study monetary policy. These yield changes have puzzlingly low explanatory power for the stock market - even in a narrow 30-minute window. We propose a new approach to test whether the unexplained variation represents monetary policy news or just noise. In particular, we allow for a latent Fed non-yield curve shock'', which we estimate via a heteroskedasticity-based procedure. Using a test for weak identification, we show that our shock is well identified, that is, the unexplained variation is not just noise. We then go on to show that the shock, signed to increase stock prices, leads to sizable declines in the equity and variance premium, an increase in the 10-year term premium, an increase in short-run inflation expectations, as well as a dollar depreciation against multiple non-safe-haven currencies. Hence, the evidence supports the interpretation that the shock affects risk-appetite and leads to a reverse flight-to-safety'' effect. Lastly, using a method from the computational linguistics literature, we show that our shock can be linked to specific topics discussed in FOMC statements, suggesting that it reflects written communication by the Federal Reserve.

Do crude oil price bubbles occur?

The Generalized Supremum Augmented Dickey-Fuller (GSADF) test is employed to conclude whether crude oil price (OP) experiences multiple bubbles. The technique has distinctions to detect multiple bubbles along with its beginning and ending point. Oil is extremely significant due to its strategic position and several factors influence OP. The outcomes display the existence of bubbles which imply that OP deviates three times. This indicates the beginning and termination of bubbles coincide with a particular crisis. The expansion of the world economy, the mismatch between demand-supply of oil, dollar depreciation, excess supply by Organization of the Petroleum Exporting Countries, shale oil production of the U.S., and low demand by the emerging economies are the leading factors of OP bubbles. The main contributions are the investigation of the OP bubble, its determinants and the different technique of GSADF to detect OP bubbles. Moreover, the greater economic certainty and political stability ensure a smooth supply of OP can lessen unexpected fluctuation. The symmetric information can minimize market speculation, improve market efficiency, help investors make reasonable investment decisions, and minimize potential price risks.

FTA, Exchange rate pass‐through and export price behavior – Lessons from the Australian dairy sector

The growing number of bilateral and regional free trade agreements (FTAs) alongside exchange rate volatility has raised a question on whether these affect exporters’ pricing behaviors, hence competitiveness. This study contributes to this topic by examining Australian dairy export price behavior across eight major markets taking into account the extent of pass‐through of exchange rate and tariff as well as FTAs between Australia and its trading partners. Commodity‐level dairy trade data from 1996 to 2016 and the feasible generalized least squares methods are employed. The study finds incomplete pass‐through at the industry level. The dairy export prices decrease by 1.7% if Australian dollar depreciates by 10%, while 10% tariff reduction is associated with 0.7% export price cut. Results at the commodity level show different pricing behaviors across destination and commodity markets. Overall, apart from the tariff effects, there is minimal evidence of the impacts of FTAs on dairy export prices.