Effects Of Currency Depreciation Research Articles

The Effects of Currency Depreciation on Consumer Buying Behavior in Somalia

This study analyzed the effects of currency depreciation on consumer buying ehavior in Somalia. The study used a qualitative research method to assess the effects of local currency depreciation on consumer buying ehavior. The study employed documentary review tool to collect data on the effects local currency depreciation on consumer buying ehavior in Somalia. The study reviewed several books, articles and journals in relation to the effects local currency depreciation on consumer buying ehavior in Somalia. The key findings of the study on the effects of currency depreciation on consumer buying ehavior in Somalia include: currency depreciation increases the price of imported of goods and services that makes it impossible from the consumers to buy them with local currency, currency depreciation increases the consumers’ buying power to purchase the domestic goods, currency depreciation leads to aggravated inflation that hinders the buying power of the consumers and manufacturers move imported cost like the cost of raw materials to the consumer who they bear the burden and they become so poor with little capacity to purchase goods and services. Therefore, the study recommended that the Federal Government to come with clear and effective monetary policy and regulations to allow the use financial control and the use of local currency in the economy to increase consumer purchasing power to promote rapid economic growth in the economy.

Dynamic Relationships between Seafood Exports, Exchange Rate and Industrial Upgrading

Few studies have examined the relationship between seafood export performance and exchange rate fluctuations. This paper investigates the short and long-term relationship between variables and the effect of currency depreciation on investment in industrial upgrading in the Namibian seafood industry. Employing the Johansen cointegration technique and a vector error correction model (VECM) on quarterly data from 2008 to 2020, we find that investment in industrial upgrading has a higher impact on exports than exchange rate fluctuations. Therefore, investment in industrial upgrading plays a significant role in mitigating the negative impact of exchange rate volatility. Key policy implications include the need to take advantage of currency depreciation to mitigate challenges to investment in industrial upgrading by increased budgetary allocations.

MACROECONOMIC DETERMINANTS OF EMPLOYMENT IN NIGERIA’S SERVICES SECTOR: DO FOREIGN DIRECT INVESTMENT AND EXCHANGE RATE MATTER?

The study employs the ARDL modeling technique to investigate the determinants of employment generation in Nigeria’s services sector, focusing mainly on the roles of foreign direct investment and exchange rate movements during the 1991-2019 period. The study finds that in the short-run, FDI positively affects employment generation in the services sector while currency depreciation adversely affects it with a one-year lag. The long run employment generation effect of the FDI in the services sector remains positive, but loses its statistical significance, while the effect of currency depreciation on services sector employment is positive and significant. It is also found that economic growth positively affects service sector employment generation in the short-and long-run, though the effect is only significant in the short-run. The effect of trade openness is positive and significant in the short-run, but also turns out to be non-significant in the long-run. Financial sector development favours employment generation in the services sector in the short-and long-run. Based on the evidence it is recommended that the government make effort to enhance the attractiveness of various sectors of the economy to FDI and guard against undue appreciation of the nation’s currency. It is also recommended that economic growth and the development of financial system be prioritized. In view of the transience of the effect of trade openness on employment generation in the services sector, caution must be exercised in implementing trade liberalization policies. These measures, if implemented, are expected to enhance job-creation in the nation’s services sector.

Effects of Money Demand on Trade Balance in Nigeria

Previous studies appear to have concentrated on the effects of currency depreciation on trade balance and macroeconomic policy, while the relationship between money demand and trade balance is scantly documented in the literature. This paper therefore examines the effects of money demand on trade balance in Nigeria. For the analysis conducted, annual time series data covering the period ranging from 1986 to 2018 were used along with the Autoregressive Distributed Lag (ARDL) estimation technique. The long‑run coefficient of money demand was positively signed and statistically significant at 5% level. The positive relationship exhibited by the coefficient of money demand in the long run had a significant influence on trade balance. Thus, this implied that a unit percent increase in money demand would lead to a 1.57% significant increase in trade balance. The implication of this finding was that money demand had significantly influenced trade balance, enhancing the production of goods and fostering investment, which had led to increased growth. The paper recommends that the Central Bank of Nigeria through the Monetary Policy Committee should amend qualitative and quantitative credit control policies with the aim of improving lending to enhance the flow of credit to the real and exporting sector of the economy in order to bring about the desired effect on trade balance. However, the study is limited to an analysis of the existence of the relationship between money demand and trade balance using the Nigerian data set.

Causality and dynamic relationships between exchange rate and stock market indices in BRICS countries

Purpose This paper aims to investigate simultaneously the causality and the dynamic links between exchange rates and stock market indices. It attempts to identify the short- and long-term effect of the US dollar on major stock market indices of Brazil, Russia, India, China and South-Africa (BRICS) nations. Design/methodology/approach This paper applies a new methodology combining the panel generalized method of moments model and the panel auto-regressive distributed lag (ARDL) method to investigate the existence of a causal short-/long-run relationships and dynamic dependence among all stock market returns and exchanges rates changes of BRICS countries. Findings Results show that exchange rate changes have a significant effect on the past and the current volatility of the BRICS stock indices. Besides, ARDL estimations reveal that exchange rate movements have a significant effect on short- and long-term stocks market indices of all BRICS countries Originality/value The findings have implications for policymakers and market participants who try to manage the exchange rate will have a different dose of intervention if they know that the effects of currency depreciation are different than appreciation. These results have important implications that investors should take into account in frequency-varying exchange rates and stock returns and regulators should consider developing sound policy measures to prevent financial risk.

Asymmetric Effects of Real Exchange Rate on the Trade between Iran and China

The Exchange rate and policies related to that have long been a subject of interest in Iran and one of the main challenges of the country's economy. The exchange rate determinant, effects of currency depreciation or devaluation on a country's trade balance and economic variables are usually critical issue in Iran. So, this paper examines the effect of the real exchange rate on the trade balance between Iran and China which is one of its largest current trade partners. For this purpose, a nonlinear symmetric method is used over the period of 1993-2016. The results show that the most appropriate method in such studies is the use of asymmetric and nonlinear models, and it provides more efficient short-run and long-run coefficient estimates. On the other hand, the increase of the exchange rate, which is the depreciation of the Rial against the Yuan, improves in the long-run and short-run trade, although its long-term effect has been more than its short-term effects. But the depreciation of the Yuan makes the balance in favor of China, as well as the effect of the depreciation of the exchange rate more than its effect on the trade balance between the two countries. Therefore, it is suggested that the realization of the value of the Rial against the yuan and allowing the depreciation of the national currency in line with inflation and other indicators would increase the competitiveness and expand foreign trade.

Capital Flow Reversals, Sudden Stops, and International Reserve Adequacy: Further Evidence From the Global Financial Crisis

Using a dataset of 39 emerging markets, we examined the role of international reserves during currency and capital flow crises. Our analysis revealed that higher levels of reserves are associated with lower intensity crises where intensity is measured by the magnitude of the change in exchange market pressure (EMP) or size of capital flow reversals. We also find evidence for the cushioning effects of reserves during the crises. When used against capital flow reversals, reserves can help mitigate the negative output effects of the crisis. Finally, our findings show that reserve adequacy should be evaluated based on the nature of the potential crisis. Policy makers may prefer to refrain from using reserves if export competitiveness is more important than potential balance sheet effects of currency depreciation.

Assessing exchange rate sensitivity of bilateral agricultural trade for the Visegrad countries

This article examines the short- and long-term effects of exchange rate changes on bilateral agricultural foreign trade for the Visegrad countries. Data used in this study covered the period from 1999: Q1 to 2014: Q3 and were based on the Standard International Trade Classification. To distinguish the long-term effects from the short-term ones, the J-curve theory was applied. A Johansen cointegration test and a vector error correction model were also used. The analyses showed that food, live animals, beverages and tobacco commodities were significantly connected with exchange rate movements in the long term. The effects of currency depreciation were ambiguous. However, an improvement in particular trade balances was observed in most cases following currency depreciation. The J-curve pattern was confirmed only for the Czech Republic in the trade of food and live animals with Italy and Poland and for Hungary in the trade of beverages and tobacco with Italy.

Exchange rate flexibility and financial integration: The case of France 1977-2014

From 1977 until 2014, the real effective exchange rate in France declined. Over the same period, the total value of stocks traded in proportion to the nation’s GDP increased. The data is consistent with economic theory - currency depreciation was followed by an increase in the total value of stock transactions (in proportion to GDP). The results of most regression analyses have shown that the relationship between currency depreciation and stock transactions are not always consistent with economic theory. The effect of currency depreciation on stock transactions can be either positive or negative due to various reasons, one of which is the omission of an important variable. Phylaktis and Ravazzolo (2005) showed that the lack of a significant relationship between exchange rate movements and stock transactions could be due to excluding the influence of the world capital markets. This paper builds on Phylaktis and Ravazzolo (2005) and tests the hypothesis that currency depreciation increases the total value of stock transactions in France. Annual data is obtained from the World Development Indicators of the World Bank. The total value of stocks traded is expressed as a percentage of GDP. The real effective exchange rate index is the nominal effective exchange rate divided either by a price deflator or by an index of costs. A trivariate VECM is estimated for the period 1977-2014. The paper investigates the short-run and long-run relationships between the real effective exchange rate and the total value of stocks traded in France. The effect of the U.S. stock market, representing the world capital markets, is also examined. The Dickey-Fuller Generalized Least Squares unit root test indicates that the variables are I(1). The Johansen cointegration test indicates a long-run relationship between the variables. Since AIC selected a model with 4 lags and the maximum rank of the cointegrating matrix is found to be 1, the VECM is estimated with 4 lags and 1 rank specification. The short-run results indicate that the adjustment coefficient is statistically insignificant; thus the estimated results are plausible in the short-run but not in the long-run. The short-run results indicate a significantly negative relationship between the real effective exchange rate and the total value of stock transactions in France; thus there is a close association between the stock market and the foreign exchange market in France. The short-run relationship between stock transactions in the U.S. and France is also found to be significantly negative.

The Effects of Currency Depreciation on Industry Trade Flows between Malaysia and China

ABSTRACTThis article investigates the impact of real depreciation of ringgit/yuan on Malaysian bilateral trade with her largest trading partner, China, over the period of 1987 to 2013. Using disaggregated import and export data from 39 industries, the results from the bounds testing approach to co-integration and error-correction model reveal that the real bilateral exchange rate has short- and long-run effects in the majority of the industries. However, the short-run effects shift into the long run in nine out of 20 import industries and in 13 out of 20 export industries. Most of these are small industries producing intermediate goods.

Commodity trade between Pakistan and the US: is there evidence of the J-curve?

ABSTRACTA few studies that have attempted to estimate the short-run (J-curve) and long-run impact of exchange rate depreciation on Pakistan’s trade balance are either based on aggregate trade data between Pakistan and the rest of the world or between Pakistan and her bilateral trading partners. The findings are mixed at best. Considering the trade balance between Pakistan and the US, as one of its major partners, no significant effects have been discovered. Suspecting that the trade flows between the two countries could suffer from another aggregation bias, we disaggregate their trade flows by commodity and consider the trade balance of 45 industries that trade between the two countries. We find significant short-run effects of currency depreciation on the trade balance of 17 industries. The short-run effects last into the long run in 15 cases. The largest industry that account for more than 10% of the trade seems to benefit from real depreciation in the long run.

The S-Curve Dynamics of U.S.-Mexico Commodity Trade

In testing the short-run effects of currency depreciation on the trade balance, rather than engaging in regression analysis, part of the literature basically looks at the correlation coefficients between past and future values of the trade balance and the current exchange rate. It is postulated that these coefficients are positive between future values of the trade balance and current exchange rate, but negative between past values of the trade balance and the current exchange rate, hence the S-Curve pattern. Previous research has shown that the curve is not supported for Mexico when aggregate trade data are used. In this paper we used bilateral trade data between Mexico and her main partner, the United States to test the curve. Still there was no support for the curve. However, when we disaggregated bilateral trade flows by industry and considered the trade balances of 223 industries that trade between the two countries, we were able to support the S-Curve in 90 industries.

Effects of Currency Depreciation on Trade Balances of Developing Economies: A Comprehensive Study on South Asian Countries

This research paper is aimed to investigate the effect of currency depreciation on the Trade Balances of South Asian Countries. The analysis was based on Marshal-Lerner Model developed by Lerner, A. P. (1944) and J-curve. The Marshal-learner model is the extension of model of Marshall, A. (1923), which stated that devaluation or depreciation of currency makes exports relatively cheaper and imports relatively expensive. Making textual analysis of the available data from South Asian countries, the study makes predictions on the devaluation of currency, its causes and the consequences. The cross sectional data was tested via multiple regression analysis. Effects of currency depreciation on the trade balances of each individual country were then subjected to a comprehensive analysis. The study supports and confirms Marshal-Lerner Model highlighting that devaluation of currency does not always help improve balance of trade.

Exchange rate effects on trade in services

PurposeThe purpose of this paper is to use disaggregated data on US‐UK trade to investigate the effects of exchange rate depreciation on trade in services both in the short‐ and long‐run.Design/methodology/approachThe paper focuses on the three traditional categories of internationally traded services – travel, passenger fares and other transportation services – and employs the “bounds” testing procedure advanced by Pesaran, Shin and Smith to investigate the J‐curve effect.FindingsThe results reveal that the real exchange rate has a statistically significant effect on trade in services in at least one of the time periods. The results also provide some support for the J‐curve effect.Practical implicationsEmpirical evidence on the J‐curve provides policymakers with valuable information about the effects of currency depreciation on the trade balance.Originality/valueTo the best of the author's knowledge this is the first paper to investigate the J‐curve effect using data on trade in services.

Impacts of the Exchange Rate and the Global Interest Rate on Real Output for Ten Selected Latin American Countries

This paper examines the effects of currency depreciation or appreciation, the changing global interest rate and other related macroeconomic variables on real GDP for ten selected Latin American countries, namely, Argentina, Bolivia, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Uruguay and Venezuela. The monetary policy reaction function is incorporated in the formulation of the model. There are several major findings. Currency depreciation hurts real GDP for Argentina, Brazil, Colombia, Mexico, Uruguay and Venezuela whereas the real exchange rate and real GDP exhibit a backward-bending relationship for Bolivia, Chile, Paraguay and Peru, suggesting that currency depreciation increases real GDP in early years whereas currency appreciation raises real GDP in recent years. Except for Bolivia and Paraguay, a higher global interest rate reduces real GDP. Expansionary fiscal policy is effective for Argentina, Mexico and Paraguay. Except for Chile, Paraguay and Venezuela, a higher expected inflation rate reduces real GDP. Hence, currency depreciation may be contractionary or expansionary, depending upon the level of real GDP or the state of economic development.

The J-curve: evidence from commodity trade between US and China

In testing the short-run (J-curve effect) and the long-run effects of currency depreciation on the trade balance many researchers have used either trade data between one country and the rest of the world or between one country and another trading partner. Both groups are said to suffer from aggregation bias. To reduce the bias, in this article we consider trade data between one country (the US) and her trading partner (China) disaggregated by commodity. We use imports and exports of 88 industries (2-digit and 3-digit classifications) and cointegration analysis to show that the trade balance of at least 34 of the industries react favourably to real depreciation of the dollar. The J-curve effect is detected in 22 industries. Furthermore, most of these industries that are sensitive to currency depreciation are durable commodity groupings.

Exchange Rate Fluctuations and the Macro-Economy: Channels of Interaction in Developing and Developed Countries

The paper analyzes interactions between exchange rate fluctuations and the macro-economy in a sample of developing and developed countries. The effect of currency depreciation is particularly pervasive in decreasing consumption and investment across developing countries. Given the high dependency on imported goods in developing countries, currency appreciation decreases competitiveness and, therefore, export growth without a significant negative effect on imports. The trade balance generally improves as currency depreciation boosts export competitiveness in many developing countries. In contrast, the reduction (increase) in exports with respect to currency appreciation (depreciation) may be matched by a reduction (increase) in the domestic value of imports in many industrial countries.

THE J‐CURVE AT THE INDUSTRY LEVEL: EVIDENCE FROM TRADE BETWEEN THE US AND AUSTRALIA*

Previous studies that tested the J‐curve phenomenon for Australia used trade data either between Australia and the rest of the world or between Australia and its trading partners on a bilateral basis. They were unable to find support for the J‐curve in the short run nor any significant relation between the trade balance and the exchange rate in the long run. In this paper we disaggregate the data between Australia and its second largest trading partner, the US, and consider the trade between 108 industries. Using annual data over the 1962–2003 period and bounds testing approach to cointegration and error‐correction modelling, we are able to discover short‐run effects of currency depreciation on the trade balance in 64 industries. The long‐run and positive effects were only evidenced in 35 cases, supporting the J‐curve.

On the transmission of exchange rate fluctuations to the macroeconomy: Contrasting evidence for developing and developed countries

The paper examines channels of interaction between exchange rate shifts and the macroeconomy. Exchange rate shifts are differentiated into anticipated and unanticipated components. Each component affects the demand and supply sides of the economy. Primarily, exchange rate shifts determine export competitiveness and the cost of imported inputs. The evidence reveals a relatively more important role for the cost channel in determining the real and inflationary effects in developing countries, compared with developed countries. Currency appreciation (depreciation), both anticipated and unanticipated, results in an increase (decrease) in output growth and a reduction (an increase) in price inflation in many developing countries. This evidence indicates the adverse effects of currency depreciation on macroeconomic performance in developing countries. Exchange rate policy should not be used to raise export competitiveness without considering the need for structural reforms in developing countries.

Exchange rate adjustment and output in Greece and Cyprus: evidence from panel data

This paper studies the effect of currency depreciation in Greece and Cyprus using panel data from 1969 to 1998. An empirical model, which includes monetary as well as fiscal variables in addition to exchange rates, is developed. Two versions of this model, one with the real exchange rate and another with the nominal exchange rate and foreign-to-domestic price ratio are estimated. Before estimating the model the time series properties of the data are diagnosed using unit root and cointegration tests. The estimated results suggest that the exchange rate depreciation is expansionary in the short run. In the medium and long run it is neutral to the economy.