Effective Exchange Rate Research Articles

Impact of exchange rates, Inflation, foreign direct investment, government spending, and economic openness on exports, imports, and economic growth in Indonesia

Globalization and economic integration have an impact on increasing trade volume and economic growth in various countries, especially those that are open in their economies. This situation also provides ease of capital mobility between countries, which makes investment not only rely on domestic investment but also on foreign direct investment. Exchange rates and inflation also affect export growth, imports, and economic growth. The purpose of this study is to determine the effect of exchange rate, inflation, foreign direct investment, government expenditure, and economic openness on export and import growth. This study used time series data during the period 1980–2021, sourced from UNCTAD, ASYB, and Indonesian Central Bank (BI). The analysis model used is multiple linear regression with the help of EViews software, which first tests classical assumptions so that the regression results are Best Linier Unbiased Estimator (BLUE). The results show that foreign direct investment and government spending can significantly increase the rate of exports and imports. Meanwhile, the depreciating rupiah against the US dollar cannot encourage an increase in both exports and imports. Furthermore, foreign direct investment, government spending, and economic openness can significantly increase economic growth. The other variables, net exports and inflation, have no effect on Indonesia’s economic growth rate.

A Gravity Model Analysis of China’s Bilateral Trade Flows: The Role of Free Trade Agreements and Exchange Rates

In the field of International Economics, the gravity model of trade has been one of the most successful empirical models guiding trade-policy decisions by nations. This paper aims to incorporate the theoretical foundations into the real world of trade flows between China and rest of the countries. An augmented gravity model is applied to study the impact of two variables, free trade agreements and nominal effective exchange rate on bilateral trade flows. Multiple regression analysis is carried out on a panel data consisting of trade flows with 224 countries from 1992-2015. The estimated results reveal a positive and significant influence of FTA on exports and imports. NEER displays a positive, though not significant, relationship with China’s imports and negative with exports.

THE EFFECT OF NARROW MONEY (M1), BROAD MONEY (M2) AND EXCHANGE RATE ON PROFITABILITY OF KBMI 1 AND 2 BANKS

The aim of this research is to analyze the effect of narrow money (M1), broad money (M2) and exchange rates on the profitability of KBMI 1 and 2 banks. This research is quantitative research that relies on numerical data. This study is crucial to deliver valuable informations to investors and management of company. The method of data analysis in this paper is carried out quantitatively which will be measured using statistics through SPSS version 27. The data used in this study is secondary data from January 2018 - December 2023 at KBMI 1 and 2 banks. Based on this study, it can be summarized that M1 and M2 have significant effect to ROA for KBMI 1 Banks. Exchange rate has significant effect to ROA for KBMI 2 Banks. The monetary authority really needs to maintain economic stability by making good monetary policy. This will also have an impact on increasing profitability in the banking sector in Indonesia. The findings of this study can help investors, policy makers, and other stakeholders in making decision and improving the bank performance in the future. This study has several limitations, there’s no investigation further of Return on Asset of the other countries such as developing and developed countries. Researchers who want to conduct research with the same theme are expected to use other variables more specific to Return on Asset. It is hoped that further research will pay attention to other factors that can effect Return on Asset of banking companies.

DO MACROECONOMIC FACTORS AFFECT THE COMPOSITE STOCK PRICE INDEX?

The movement of the stock market index is a barometer of economic growth, and can be used to make investment decisions. Many factors influence the movement of a stock index, particularly from the macroeconomic perspective. This study analyzes the effects of BI rate, exchange rate, and inflation on the Composite Stock Price Index (CSPI). This research is a quantitative descriptive study conducted on food and beverage companies listed on the Indonesia Stock Exchange (IDX) during the 2018-2022 period. Sixty companies were sampled and analyzed using multiple linear regression tests. Hypothesis testing uses the R2 (coefficient of determination) test, F, and t-tests. The results show that BI and exchange rates have a partially significant effect on CSPI. Inflation did not have a significant effect on the CSPI. However, simultaneous testing showed that the three variables affected the CSPI.

Asymmetric Impact of Real Effective Exchange Rate Shocks on Economic Growth in Africa: Evidence From Symmetric and Asymmetric Panel ARDL-PMG Model

Asymmetric Impact of Real Effective Exchange Rate Shocks on Economic Growth in Africa: Evidence From Symmetric and Asymmetric Panel ARDL-PMG Model

Analysis of the optimal inflation rate in the economic growth process of a developing country: The case of South Africa

The consensus is that price stability promotes sustainable economic growth while excessive inflation harms growth. This study assesses the linkage between inflation and economic growth in South Africa to determine the optimal inflation rate threshold for the sustainable growth of the economy. Quarterly data from 1995 to 2022 was analysed through the ARDL and threshold regressions. The ARDL and threshold regressions estimate established a relationship between inflation and economic growth and computed the optimal inflation rate threshold for economic growth at 6 percent. The results also established that both the repo rate (repurchase rate) and real effective exchange rate have a negative relationship with economic growth. The Toda-Yamamoto causality test result indicated a unidirectional causality runs from inflation to economic growth. These results are crucial for the South African Reserve Bank to discharge its monetary policy functions to attain and maintain price stability. Therefore, this study offers the Bank a roadmap for targeting an inflation rate that aligns with the nation’s long-term objectives for sustainable economic growth.

Dynamics of deposit dollarization in Turkey

<p style="text-align:justify"><span style="font-size:16px"><span style="font-family:Times New Roman,Times,serif"><span dir="ltr" lang="EN-US"><span style="color:black">Deposit dollarization in Turkey has been on the rise, reaching record levels in 2022. This was caused by the worsening macroeconomic fundamentals along with the transition to the presidential system in 2018 and the associated deviation from the monetary policy stance afterward. The unique case of Turkey presents an excellent natural experiment to explore the dynamics of deposit dollarization and how it is affected by the changes in the institutional structure as well as various social, economic, and financial shocks in a relatively short time. This study examines the time varying reactions of deposit dollarization for the period between 2013 and 2022 based on rolling window maximum entropy bootstrap estimates. Our findings reveal that all the model variables had significant and sometimes asymmetric effects on deposit dollarization during the different stages of this turbulent period. In particular, we observe diminishing effects of real exchange rate, policy credibility and consumer confidence over time. The findings provide ample new evidence regarding the dynamics of deposit dollarization in general, and how it is affected by loss of monetary policy credibility.</span></span></span></span></p>

The inflationary effect of the budget deficit: does financial sector development matter?

This study aims to examine the budget deficit–inflation relationship, considering financial sector development and broad money supply as moderating and mediating variables. For this purpose, a panel data set ranging from polled mean group, mean group, and dynamic fixed effect estimation techniques are employed. Hence, the pooled mean group estimation result reveals that the budget deficit is inflationary. In addition, GDP per capita, the effective exchange rate, financial sector development, regulatory quality, and the interaction term of the budget deficit and financial sector development are significant determinants of inflation. The study further examines the role of the broad money supply as a mediating variable in the budget deficit–inflation relationship. The structural equation model results and the mediation effect tests confirmed a partial mediation effect of the broad money supply on the budget deficit–inflation relationship. Based on the findings, it is recommended to strengthen regulatory quality, reduce broad money supply, and improve financial sector development. By doing so, we can create a more stable and efficient economy that benefits everyone in the long run.

The exchange rate pass‐through to domestic prices: A meta‐analysis

AbstractEstimates of the exchange rate pass‐through vary significantly across studies. Therefore, I conduct a meta‐analysis to understand why estimates differ and provide consensus for the conflicting results. The dataset includes 72 primary studies containing 1219 estimates of the pass‐through from nominal effective exchange rates to consumer prices for 111 countries. Because there are many potential causes of heterogeneity, I use Bayesian model averaging to identify the important ones. I find that results vary mainly due to a combination of country‐specific and methodological characteristics, even though factors such as asymmetry and product‐specific characteristics also play a role. The country‐specific characteristics include trade openness, exchange rate flexibility, economic development status, exchange rate persistence, and commodity dependence. On the other hand, the methodological factors include estimation methods, data characteristics, endogeneity bias, and the researcher's choice of control variables. Finally, I model the exchange rate pass‐through, taking into account asymmetry and the best practices in the literature. I find that a 1% increase in the exchange rate leads to a 0.09% decrease in the consumer price level, whereas a 1% decrease leads to a 0.19% increase.

The effect of financial inclusion, exchange and interest rates on inflation in 17 emerging market countries

The effect of financial inclusion, exchange and interest rates on inflation in 17 emerging market countries

Effect of Exchange Rate on Goods and Services in Nigeria

Effect of Exchange Rate on Goods and Services in Nigeria

The Nexus Between Energy Demand and Currency Valuation: Evidence from Selected OECD Countries

This study focuses on the unequal relationship between energy consumption and its determinants. Past studies have not examined how minor and substantial currency value changes affect energy consumption in the organization for economic cooperation and development (OECD) countries. This study compares the effects of modest and significant exchange rate (ER) changes on energy demand (ED) in OECD countries, which include Greece, Belgium, Ireland, Denmark, Portugal, Norway and Italy. Our work adds to the literature by distinguishing the effect of small to significant changes in currency fluctuations. We do this with a sophisticated model, an updated multiple threshold nonlinear autoregressive distributed lag (MTNARDL). Next, we compare the model’s outcomes to conventional nonlinear autoregressive distributed lag (NARDL) and autoregressive distributed lag (ARDL) models. According to NARDL and ARDL estimates, co-integration is present in the context of Belgium. However, the MTNARDL model division of series suggests cointegration in all sample countries. It implies that this model is superior to previous ones. We conclude with policy recommendations based on the results of our inquiry.

PENGARUH NILAI TUKAR PETANI PANGAN, PETERNAKAN DAN PDB SEKTOR PERTANIAN TERHADAP INDEKS PEMBANGUNAN MANUSIA DI INDONESIA

This study examines the effect of Farmer's Exchange Rates of Food, Livestock, and Gross Domestic Product of the Agricultural Sector on the Human Development Index in Indonesia in the short and long run. This study uses time series data for 48 quarters from 2010 to 2021. The study employs the Vector Error Correction Model (VECM). The results showed that in the short and long run, the Farmer's Exchange Rates of Food, Livestock, and the Gross Domestic Product of the Agricultural Sector partially had a negative and significant effect on the Human Development Index in Indonesia. The Farmer's Exchange Rates of Food, Livestock, and the Gross Domestic Product of the Agricultural Sector simultaneously had a significant effect on the Human Development Index in Indonesia

PENGARUH NILAI TUKAR RUPIAH, HARGA INTERNASIONAL DAN JUMLAH PRODUKSI KAKAO TERHADAP VOLUME EKSPOR KAKAO INDONESIA

This research aims to determine the effect of the rupiah exchange rate, international prices, and the amount of cocoa production on the volume of Indonesian cocoa exports from 1990-2022. This research uses secondary data and time series data from 1990-2022 obtained from the World Bank, Badan Pusat Statistic (BPS), and International Cocoa Organizations. The data analysis method uses the Autoregressive Distributed Lag (ARDL) approach. The results of this research show that the rupiah exchange rate variable in both the short and long term has a positive and insignificant effect on the volume of Indonesian cocoa exports. In the short term, the international cocoa price variable has a positive and insignificant effect on the volume of Indonesian cocoa exports, while in the long term, it has a negative and insignificant effect. And the production quantity variable has a positive and significant impact on the volume of Indonesian cocoa exports in the short and long term.

Navigating Economic Ripples: How Real Exchange Rate Volatility Shapes Real Gross Domestic Product with Evidence from Tanzania

This article aimed at examining the effects of the real exchange rate on real gross domestic product (GDP) in Tanzania using a data set spanning from 1964 to 2019. The Gregory–Hansen test was employed to check the long-run relationship between the real exchange rate and real economic growth. Structural vector autoregressive and vector error correction models were employed to establish the effects of the real exchange rate on real economic growth, while fully modified least-squares and Granger causality tests were used for robustness check and determination of the direction of causality between variables, respectively. Findings show a long-run relationship between the exchange rate and economic growth. In addition, when the Tanzanian shilling appreciates, it significantly and negatively affects real GDP. A 1% appreciation leads to a 0.13% decrease in GDP in the long run and 0.01% in the short run. Merchandise exports had a positive effect, while inflation had a negative effect both in the long and short run. The impulse response function shows that the real exchange rate affects the real GDP through the merchandise export channel and inflation. This implies that the appreciation of the Tanzanian shilling makes merchandise exports more expensive, reduces foreign exchange inflows and thus reduces actual output. Stabilising the exchange rate, targeting inflation, improving productive capacity and promoting export-led growth are important.

The effect of exchange rate pass-through to inflation in Nigeria

The study examines the effect of exchange rate pass-through (ERPT) to inflation in Nigeria. The study period spans from 1990 to 2022 and data were sourced from Central Bank of Nigeria Statistical Bulletin and World Bank’s Development indicators (WDI). The study employed preliminary test of Augmented Dickey Fuller unit root test. Analytical technique of Autoregressive Distributed Lag (ARDL) model was used for the analysis. The dependent variable is Consumer price index proxied by inflation while the explanatory variables include monetary policy rate (MPR), nominal effective exchange rate (NEER), import price index (IMPI) and Global oil price (GOP). The result of unit root suggests mixed order of integration while the ARDL bound test demonstrate long run relationship among the variables under consideration. Findings indicate that exchange rate exhibit a positive and significant impact on consumer price while import price exerts a negative and significant influence on consumer price. Based on this outcome, the study suggests that monetary authority should exercise caution in using devaluation of the domestic currency to promote economic growth, as that would not only aggravate domestic inflation but also likely increase the ERPT. Given that exchange rate devaluation is unlikely to improve the country’s chances in the international market vis-à-vis its exports.

The effect of exchange rate, inflation, interest rate and import on exports in ASEAN countries

The effect of exchange rate, inflation, interest rate and import on exports in ASEAN countries

THE RELATIONSHIP BETWEEN BIST BANK INDEX AND INFLATION, EXCHANGE RATE, INTEREST RATE, GOLD AND OIL PRICES: EVIDENCE FROM THE ARDL BOUND TEST

The aim of this study is to investigate the effects of inflation, exchange rate, interest rates, gold and oil prices on the BIST bank index between January 2005 - October 2023. For this purpose, firstly, the stationarity levels of the data were tested by the Augmented Dickey-Fuller (ADF) and Phillips- Perron (PP) tests. Then, since the series became stationary at different levels, ARDL bounds test, one of the cointegration tests, was applied. In the study, it is concluded that the BIST bank index and its independent variables are cointegrated in the long-run in the relevant period. According to the short-term asymmetric relationship results, a 1% increase in gold prices by 0.036%, a 1% increase in interest rates by 0.33%, and a 1% increase in the dollar exchange rate by 1.03% decreased the BIST Bank index. On the other hand, a 1% increase in CPI has a positive effect on the BIST Bank Index. No statistical relationship was found between oil prices and BIST Bank Index.

Transmission of Inflation and Exchange Rate Effects: The Markov Switching Vector Autoregressive Methodology

The aim of this study is to delve into the intricate the mechanism through which alterations in currency exchange rates give rise to shifts in inflation rates, while taking into careful consideration the country’s economic cycle. In order to accomplish this objective, we used a dataset that spanned from 1 January 1999 to 1 July 2023, focusing our analytical lens on three specific geographic areas, namely the Eurozone, the United Kingdom, and Canada. In our pursuit of understanding this complex relationship, we employed the Markov Switching Vector Autoregressive model. Our research outcomes can be succinctly encapsulated as follows: in the initial stages, particularly during phases characterized by robust economic growth, the transmission of exchange rate effects onto inflation levels appeared to exhibit a partial impact across all geographic areas under examination. However, during periods marked by economic downturns, both the United Kingdom and Canada displayed a distinctly more comprehensive transmission of these effects. Moreover, the prevailing projections for the forthcoming time horizon, across all the countries encompassed by our study, strongly indicate the onset of an expansionary phase that is projected to extend over a span of 25 months. Lastly, concerning the implications of unexpected disturbances or shocks, it is noteworthy that the response of exchange rates to inflation induced shocks was neither immediate nor as pronounced as the corresponding reaction of inflation to sudden shifts in exchange rates.

Determinants of Foreign Exchange Reserves of Six Countries in Southeast Asia

The purpose of this study is to find out and analyze the ratio of Indonesia's foreign exchange reserves to the foreign exchange reserves of other countries in the Southeast Asia region and to find out and analyze how the effect of exchange rates, net exports and economic growth on the foreign exchange reserves of six countries in Southeast Asia. Research results show ratio comparison backup Indonesia's foreign exchange against five ASEAN countries other show that reserve average _ Indonesia's foreign exchange has ratio highest with Vietnam, namely 4.10 and the lowest with Singapore, which is 0.37. If seen results ratio This show that from six major countries in Asia southeast Indonesia only be in order to four with backup foreign exchange the biggest, above Indonesia there are Singapore, Thailand and Malaysia, while those are under Indonesia only Vietnam and the Philippines. Based on results panel data regression with using Fixed effect model shows that exchange rate influential positive significant and growing economy influential negative significant. Temporary export net No influential significant to backup foreign exchange in six ASEAN countries.