Dollar Shock Research Articles

Navigating Energy Market Cycles: Insights from a Comprehensive Analysis

In this article, we investigate the dynamics the intricacies of fluctuations during periods of economic expansion and contraction, and examining the connections between the length of energy cycles and the influential factors could affect them. Utilizing the extended BBQ algorithm, we firstly identify turning points and, then apply the Cox hazard Model to analyze factors that affect the cycle phases, including geopolitical conflict and economic situations over the period from January 1990 to July 2022. The results reveal the presence of asymmetry in growth phases, highlighting the need for policymakers to understand the factors driving these phases. Market expansion is driven by positive interest rate and US dollar shocks, while stability relies on competent management. During economic contractions, energy costs are influenced by economic growth. Geopolitical risks and economic uncertainty require effective risk mitigation, and policy changes significantly impact the energy market during expansion phases. The study also suggests that Conferences of Parties (COP) meetings have a nuanced influence on the energy market, warranting further research.

Dominant currency shocks and foreign exchange pressure in the periphery

The spillover effects of a strong dollar and euro, two dominant currencies, on emerging market economies (the periphery) are examined. The paper empirically studies dominant currency shocks on the foreign exchange (FX) constraint, economic growth, external debt, and inflation. Comparing a dollar shock to euro and commodity price shocks, using various empirical methodologies across regimes of trade invoicing and commodity dependence, the paper shows that appreciation of the trade weighted exchange rate (the dollar index) can worsen the FX constraint and decrease growth in the periphery, failing to achieve the conventional macroeconomic adjustments of a competitive currency depreciation. A strong dollar reduces external debt, but a strong euro has the opposite effect. An FX-constraint shock emanating from the periphery appreciates the US dollar, affirming dollar’s safe-haven status. These findings have implications for balance of payments and exchange rate policy management for a larger group of emerging markets and developing economies.

Broad Dollar Shocks and Economic Activity in Trade-Heavy Countries: The Role of Government Size

This paper investigates how government size influences the responses of government expenditure and economic growth to broad dollar shocks in 155 trade-heavy countries across 6 continents from 1995 to 2019. In most cases, we document that the magnitude of contractions in expenditures and economic growth from broad dollar appreciations depends on the size of government. Countries with large governments experience a more severe negative impact from dollar appreciations than countries with smaller governments and this is true for different expenditure types: total, current and capital government expenditures. Accordingly, government size plays a role in the disparities observed in the responses of expenditure and growth to broad dollar shocks across these countries.

REGIONAL INPUT-OUTPUT MATRICES AND AN APPLICATION TO ANALYZE A MANUFACTURING EXPORT SHOCK IN MEXICO

Based on the national Input-Output Matrix (IOM) 2012 calculated by INEGI, we estimate with the Flegg approach four regional Input-Output Matrices (RIOMs) using Banco de México’s regionalization (Northern, North-Central, Central and Southern). These RIOMs are employed to evaluate the impact on regional gross output, value added and employment from a 10,000 million dollar shock on Mexican manufacturing exports. The results show that the effects on the absolute values of gross output, value added and employment in the North are clearly larger than those estimated for the other regions. Another finding is that the total effects of the regional shocks tend to concentrate in the manufacturing sector, with the highest concentration observed in the North, and the lowest in the South. It is also shown that the North is, by far, the region experiencing the greatest change in its value added relative to GDP, followed by the North Central, the Central and the South. The results suggest a strong linkage between the manufacturing sector and tertiary activities, particularly commerce and services in the central regions, as well as between manufacturing and oil and gas extraction in the South.

Is the relationship between gold and the U.S. dollar always negative? The role of macroeconomic uncertainty

ABSTRACTThe main work of this article is to access the role of macroeconomic uncertainty in effecting the correlation between gold and the dollar. The empirical analysis is divided into two parts. Firstly, we examine the impact of macroeconomic uncertainty on short and long correlation between gold and the dollar. Secondly, we analyse the explanatory power of economic uncertainty for the abnormal market relation between gold and the dollar with a threshold model. In particular, we investigate impacts of economic uncertainty sourced from different economies. The empirical results indicate that economic uncertainty generates direct impacts on the correlation between gold and the dollar. Moreover, our results emphasize that uncertainty sourced from different economies have different impacts on the dynamics between gold and the dollar. This article also presents the relative contribution of gold and the dollar shocks to the likelihood of being in the high-uncertainty regime. These results have implications for risk management, international asset allocation and hedging strategies.

How Have Global Shocks Impacted the Real Effective Exchange Rates of Individual Euro Area Countries Since the Euro's Creation?

This paper uncovers the response pattern to global shocks of euro area countries' real effective exchange rates before and after the start of Economic and Monetary Union (EMU), a largely open ended question when the euro was created. We apply to that end a newly developed methodology based on high dimensional VAR theory. This approach features a dominant unit to a large set of over 60 countries' real effective exchange rates and is based on the comparison of two estimated systems: one before and one after EMU. We find strong evidence that the pattern of responses depends crucially on the nature of global shocks. In particular, post-EMU responses to global US dollar shocks have become similar to Germany's response before EMU, i.e. to that of the economy that used to issue Europe's most credible legacy currency. By contrast, post-EMU responses of euro area countries to global risk aversion shocks have become similar to those of Italy, Portugal or Spain before EMU, i.e. of economies of the euro area's periphery. Our findings also suggest that the divergence in external competitiveness among euro area countries over the last decade, which is at the core of today's debate on the future of the euro area, is more likely due to country-specific shocks than to global shocks.

How have global shocks impacted the real effective exchange rates of individual euro area countries since the euro’s creation?

This paper uncovers the response pattern to global shocks of euro area countries’ real effective exchange rates before and after the start of Economic and Monetary Union (EMU), a largely open ended question when the euro was created. We apply to that end a newly developed methodology based on high dimensional VAR theory. This approach features a dominant unit to a large set of over 60 countries’ real effective exchange rates and is based on the comparison of two estimated systems: one before and one after EMU. We find strong evidence that the pattern of responses depends crucially on the nature of global shocks. In particular, post-EMU responses to global US dollar shocks have become similar to Germany’s response before EMU, i.e., to that of the economy that used to issue Europe’s most credible legacy currency. By contrast, post-EMU responses of euro area countries to global risk aversion shocks have become similar to those of Italy, Portugal or Spain before EMU, i.e., of economies of the euro area’s periphery. Our findings also suggest that the divergence in external competitiveness among euro area countries over the last decade, which is at the core of today’s debate on the future of the euro area, is more likely due to country-specific shocks than to global shocks.

How Have Global Shocks Impacted the Real Effective Exchange Rates of Individual Euro Area Countries Since the Euro's Creation?

This paper uncovers the response pattern to global shocks of euro area countries' real effective exchange rates before and after the start of Economic and Monetary Union (EMU), a largely open ended question when the euro was created. We apply to that end a newly developed methodology based on high dimensional VAR theory. This approach features a dominant unit to a large set of over 60 countries' real effective exchange rates and is based on the comparison of two estimated systems: one before and one after EMU. ; We find strong evidence that the pattern of responses depends crucially on the nature of global shocks. In particular, post-EMU responses to global US dollar shocks have become similar to Germany's response before EMU, i.e. to that of the economy that used to issue Europe's most credible legacy currency. ; By contrast, post-EMU responses of euro area countries to global risk aversion shocks have become similar to those of Italy, Portugal or Spain before EMU, i.e. of economies of the euro area's periphery. Our findings also suggest that the divergence in external competitiveness among euro area countries over the last decade, which is at the core of today's debate on the future of the euro area, is more likely due to country-specific shocks than to global shocks.

Does the Euro Make a Difference? Spatio-Temporal Transmission of Global Shocks to Real Effective Exchange Rates in an Infinite VAR

This paper provides evidence on whether the creation of the euro has changed the way global turbulences affect euro area and other economies. Specifically, it considers the impact of global shocks on the competitiveness of individual euro area countries and assesses whether their responses to such shocks have converged, as well as to what pattern. Technically, the paper applies a newly developed methodology based on infinite VAR theory featuring a dominant unit to a large set of over 60 countries' real effective exchange rates, including those of the individual euro area economies, and compares impulse response functions to the estimated systems before and after EMU with respect to three types of shocks: a global US dollar shock, generalised impulse response function shocks and a global shock to risk aversion. Our results show that the way euro area countries' real effective exchange rates adjust to these shocks has converged indeed, albeit to a pattern that depends crucially on the nature of the shock. This result is noteworthy given the apparent divergence in competitiveness indicators of these countries in the first ten years of EMU, which suggests that this diverging pattern is unlikely to be due to global external shocks with asymmetric effects but rather to other factors, such as country-specific domestic shocks.

Asymmetric cointegration relationship among Asian exchange rates

This study investigates the asymmetric cointegration relationship among the Japanese yen, the Korean won, and the Singapore dollar using an instrumental variable threshold cointegration test which allows asymmetric adjustment and avoids test statistics depending on nuisance parameters. This threshold cointegration approach clearly provides evidence for a cointegration relationship characterized by asymmetric adjustment toward the long-term equilibrium level. This finding indicates that the long-term equilibrium relationship among the Japanese yen, the Korean won and the Singapore dollar remains stable with asymmetric adjustment. The finding also shows there is a temporal delay in the reaction of the Korean won and the Singapore dollar to the Japanese yen change. Therefore, we conclude that, in the short-term, Korean won and Singapore dollar shocks are important to determine the response of the Japanese yen; the Singapore dollar shock is also important to determine the response of the Korean won; however, the Japanese yen shock is unimportant to determine the responses of the Singapore dollar and Korean won.

Budgetary shocks and revenue adjustment: How governments respond to unexpected fiscal shocks

This paper uses panel data from seven Canadian provinces which received Equalization payments over the period 1980/81 to 1995/96 to examine how provinces adjust own-source revenue in response to past budget shocks. Governments respond symmetrically to past own-source revenue shocks: they increase or reduce own-revenue by $0.75 for every unexpected dollar shock in own-source revenue last year. In contrast, revenue responses to past grant shocks are asymmetric. Provinces lower own-source revenue by $0.87 in response to an unexpected extra dollar from Equalization last year. But, they make no adjustment following an unexpected Equalization shortfall. The magnitude of these responses suggest that provinces see a significant component of these shocks to be persistent. Lastly, the results with respect to past spending shocks are mixed. In contrast to recent empirical results on asymmetric responses to changes in grants, the results in this paper suggest that, at least in the short run, unexpected increases in Equalization are unlikely to have a large, stimulative effect on government spending.

The Destruction of the Full-Set Industrial Structure—East Asia's Tripolar Structure

Since the days of the dollar shock and the oil crises, debates over Japan's industrial structure have taken several twists and turns. During boom times, Japan's industrial prowess was ascribed to structural factors. Now, during a recession that has seen the upward spiral that had continued since the close of World War II come to an end, serious discussion has ensued on such topics as shifts in the industrial structure and the need for structural adjustments. Published in the midst of this recession, Beyond the Full-Set Industrial Structure is therefore truly a product of its times.

Applications of Fluidics in Japan

Research and developement of fluidics applications occured in Japan around 1967. But successful applications appeared 1970, introducing in this paper as fishing robot. First time “dollar shock” stopped increasing investments on facilities of users at 1970. Fluidics applications also stopped by same cause. In this paper, some unique examples of fluidics applications in Japan are introduced.

Ribbing Ingrish: Innovative Borrowing in Japanese

turned up in the American press:1 A rage to travel abroad is sweeping the Japanese in spite of the 'doru shokku' (dollar triggered by President Nixon in August (Atlanta Journal, 14 December 1971, p. 1-D). This lead line of a UPI news item from Tokyo is followed by three additional references to the shokku; the first two in the form shokku and the last simply as dollar shock. Although only time will tell if we are witnessing the borrowing into English of a construction invented by the Japanese (but using loanwords from English and an English idiom); dollar shock seems to be a likely candidate. In the 4 October 1971 issue of Time, there was an article headed Adjusting to Nixon Shokku, which contained another reference to the doru shokku (dollar shock) as well as the additional expression Nixon shokku. One might suppose these expressions have been made by analogy with another phrase known to the Japanese, future shock, after the book of the same title.2 In the 17 July 1972 issue of Newsweek (p. 34), there is passing reference to future shock in another article on Japan: Fortunately, Japan's innate self-discipline and sense of harmony have cushioned much of the 'future shock' . . . and so far Japan is relatively free of the urban crime, drug addiction and disorders so prevalent in other industrialized societies. The quotation marks suggest that the writer is referring to the Japanese use of this term. There are, however, even earlier reported uses of shokku. Shortly after sputnik in 1957, Japanese observers of the United States are said to have introduced the term suputtoniku shokku in reference to American reactions to the Russian satellite. Recent expanded use of shokku may be seen in another article in Time (3 September 1973, p. 18), where it has the