Effects Of Depreciation Research Articles

Exchange rate volatility and domestic consumption: Evidence from Japan

In 1952, Alexander provided an argument that since inflationary effects of depreciation could shift income from workers to producers it could lead to a decline in aggregate domestic consumption. This was based on the assumption that wages do not adjust fully to inflation and labor has a high MPC relative to that of the producers. In this paper, we argue that in addition to the exchange rate itself, exchange rate uncertainty could also affect domestic consumption. We demonstrate our conjecture by using quarterly data from Japan and a bounds testing approach that distinguishes the short run from the long run.

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.

China‐Germany commodity trade and the S‐curve

PurposeImpact of currency depreciation or devaluation on the trade balance is not instantaneous. Indeed, because of adjustment lags favorable effects of depreciation is only realized in the future. This short‐run dynamics of the trade balance is summarized by the S‐Curve phenomenon. The purpose of this paper is to test this phenomenon by using commodity level data between China and Germany.Design/methodology/approachThe methodology is based on cross‐correlation function.FindingsOut of 62 industries studied, only 22 support the S‐Curve or enjoy improvement in their trade balance in the future. The list included small and large industries as well as durable and non‐durable goods.Originality/valueNo study in the literature has considered commodity level trade between China and Germany.

Analysis, Design, and Experimentation of a Closed-Loop Metal Halide Lamp Electronic Ballast

This paper presents the analysis, design and experimentation of a closed-loop metal halide lamp ballast, which supplies the lamp with a low-frequency square waveform. First of all, a discussion related to the lamp parameter that should be regulated (power or current) is presented, since this issue has not been well addressed in previous literature. Experiments demonstrated that lamp current can be chosen to be kept constant during lamp life, because, on one hand, it can attenuate the effect of lumen depreciation with lamp ageing, and, on the other hand, the lamp power does not reach over-rated values during lamp life. In order to analyze the open-loop characteristic and design a suitable controller for the closed-loop operation, a dynamic model of the lamp-ballast system is developed,. Therefore, considering the dynamic of the lamp current sensor, a PI controller is proposed to minimize the steady state error and provide a phase margin of about 80° (fully stable system). Experimental results using a flyback-based ballast supplied from a non-regulated DC voltage source (100 ? 150V) are presented to validate the theoretical analysis. It is demonstrated that the lamp current is kept constant at rated value (0.42A) within the whole input voltage range. The time response of the complete closed-loop system is about 5 ms.

The effects of exchange rate fluctuations on exports: A sectoral analysis for Turkey

This paper examines the effects of exchange rate fluctuations on disaggregated data comprising 21 exporting sectors (BEC classification) in Turkey. Building on a theoretical model that decomposes movements in the exchange rate into anticipated and unanticipated components, the empirical investigation traces the effects through demand and supply channels. Anticipated exchange rate appreciation, in line with movements in underlying fundamentals, has significant adverse effects, contracting export growth across many sectors. Random fluctuations in the exchange rate, deviations around steady-state equilibrium, have asymmetric effects on sectoral export growth. The evidence indicates increased contraction of export demand to currency appreciation over time. In contrast, the effect of depreciation in stimulating export growth has lost momentum over time. While exchange rate fluctuations had a positive net effect on export growth before 2003, the net effect is negative for the post-2002 period. The implications are anticipated movement in the exchange rate guides export plans, signaling the importance of managing fundamentals to anchor rational forecasts. Moreover, less variability of the exchange rate is likely to improve sectoral export growth in Turkey over time.

Effect of the depreciation of public goods in spatial public goods games

In this work, the depreciation effect of public goods is considered in the public goods games, which is realized by rescaling the multiplication factor r of each group as r′=r(ncG)β (β≥0). It is assumed that each individual enjoys the full profit r of the public goods if all the players of this group are cooperators. Otherwise, the value of public goods is reduced to r′. It is found that compared with the original version (β=0), the emergence of cooperation is remarkably promoted for β>0, and there exist intermediate values of β inducing the best cooperation. Particularly, there exists a range of β inducing the highest cooperative level, and this range of β broadens as r increases. It is further presented that the variation of cooperator density with noise has close relations with the values of β and r, and cooperation at an intermediate value of β=1.0 is most tolerant to noise.

Depreciation of public goods in spatial public goods games

In real situations, the value of public goods will be reduced or even lost because of externalfactors or for intrinsic reasons. In this work, we investigate the evolution of cooperation byconsidering the effect of depreciation of public goods in spatial public goods games on a squarelattice. It is assumed that each individual gains full advantage if the number of the cooperatorsnc within a group centered on that individual equals or exceeds the critical mass (CM).Otherwise, there is depreciation of the public goods, which is realized by rescaling the multiplicationfactor r to (nc/CM)r. It is shown that the emergence of cooperation is remarkably promoted forCM > 1 even at smallvalues of r, and a global cooperative level is achieved at an intermediate value ofCM = 4 at asmall r. We further study the effect of depreciation of public goods on different topologies of a regularlattice, and find that the system always reaches global cooperation at a moderate value ofCM = G − 1 regardless of whether or not there exist overlapping triangle structures on the regular lattice, whereG is the group size of the associated regular lattice.

The relationship between investment and large exchange rate depreciations in dollarized economies

We use a simple financial friction in an economy with high degree of liability dollarization – and currency mismatch – to show that the negative balance-sheet effect of an exchange rate depreciation may be observable only if the magnitude of the depreciation is large enough. This result justifies the difficulty to find strong empirical evidence for balance-sheet effects and suggests the convenience of including a “large depreciation” term in empirical analyses. We review some of the related empirical literature and provide some new evidence of this large depreciation effect.

Bilateral J-curve between Sri Lanka and its major trading partners

It is widely believed that the short run effect of exchange rate depreciation on trade balance is different from the long run. In the short run, first, the trade balance deteriorates before resulting in an improvement, suggesting a J-curve pattern. Most of the empirical studies have employed aggregate trade data, while recent studies have used bilateral trade data. These studies are mostly between industrial countries, a few developing countries, but none so far for Sri Lanka. Hence, in this study, the impact of real depreciation of Sri Lankan Rupee (SLR) on the trade balance in the short run and the long run has been examined, employing bilateral trade data between Sri Lanka and its six major trading partners using the autoregressive distributed lagged (ARDL) model. The results reveal that the trade balance between Sri Lanka and its trading partners does not support the J-curve phenomenon, and also it does not have any specific pattern in response to depreciation of real exchange rate. DOI: http://dx.doi.org/10.4038/ss.v39i1.3154 <em>Staff Studies</em> Vol.39(1&amp;2) 2009 pp.69-85

Research On Monetary Neutrality: Evidence From Exchange Rate And Trade Balance Of G-7 Countries

&lt;p class="MsoBodyText" style="line-height: normal; margin: 0in 0.5in 0pt;"&gt;&lt;span style="font-family: Times New Roman;"&gt;&lt;span style="font-size: 10pt;"&gt;According to a recent paper by Fisher and Huh (200&lt;/span&gt;&lt;span style="font-size: 10pt; mso-fareast-language: KO;"&gt;2&lt;/span&gt;&lt;span style="font-size: 10pt;"&gt;), in contrast to a long-run neutrality hypothesis, nominal shocks have long-run effects on a country&amp;rsquo;s real exchange rate&lt;/span&gt;&lt;span style="font-size: 10pt; mso-fareast-language: KO;"&gt; and trade balance.&lt;/span&gt;&lt;span style="font-size: 10pt;"&gt; However employing &lt;/span&gt;&lt;span style="font-size: 10pt; mso-fareast-language: KO;"&gt;a &lt;/span&gt;&lt;span style="font-size: 10pt;"&gt;similar method (VAR) with identical restrictions (&lt;/span&gt;&lt;span style="font-size: 10pt; mso-fareast-language: KO;"&gt;long-run neutrality and &lt;/span&gt;&lt;span style="font-size: 10pt;"&gt;short-run recursive&lt;/span&gt;&lt;span style="font-size: 10pt; mso-fareast-language: KO;"&gt; hypotheses&lt;/span&gt;&lt;span style="font-size: 10pt;"&gt;), &lt;/span&gt;&lt;span style="font-size: 10pt; mso-fareast-language: KO;"&gt;this paper &lt;/span&gt;&lt;span style="font-size: 10pt;"&gt;show&lt;/span&gt;&lt;span style="font-size: 10pt; mso-fareast-language: KO;"&gt;s&lt;/span&gt;&lt;span style="font-size: 10pt;"&gt; that the effects on the real exchange rate are much shorter&lt;/span&gt;&lt;span style="font-size: 10pt; mso-fareast-language: KO;"&gt; in this G-7 country study&lt;/span&gt;&lt;span style="font-size: 10pt;"&gt; than what &lt;/span&gt;&lt;span style="font-size: 10pt; mso-fareast-language: KO;"&gt;Fisher and Huh (2002) contend.&lt;/span&gt;&lt;span style="font-size: 10pt;"&gt; Further, the trade balance improves for a short period of time, from which &lt;/span&gt;&lt;span style="font-size: 10pt; mso-fareast-language: KO;"&gt;it can&lt;/span&gt;&lt;span style="font-size: 10pt;"&gt; conclude there is a shorter existence of the depreciation effect in response to &lt;/span&gt;&lt;span style="font-size: 10pt; mso-fareast-language: KO;"&gt;expansionary&lt;/span&gt;&lt;span style="font-size: 10pt;"&gt; monetary shocks, which supports the long-run neutrality hypothesis&lt;/span&gt;&lt;span style="font-size: 10pt; mso-fareast-language: KO;"&gt; in an open macroeconomic framework&lt;/span&gt;&lt;span style="font-size: 10pt;"&gt;.&lt;span style="mso-spacerun: yes;"&gt;&amp;nbsp; &lt;/span&gt;&lt;/span&gt;&lt;/span&gt;&lt;/p&gt;

Euro Area Export Performance and Competitiveness

Concerns about export growth within the euro area peripheral countries due to a lack of competitiveness within the euro area are a key policy issue. Our analysis suggests that: (i) Long-term price elasticities for intra-euro area exports are at least double those for extra-euro area exports, so traditional real effective exchange rate indexes may overstate the effectiveness of euro depreciation in restoring exports growth in the euro area periphery and; (ii) There are surprisingly wide divergences across alternative relative price measures and even when relative price data suggest a steady loss in intra- (and extra-) euro area competitiveness, the pace of deterioration depends on the measure of relative prices used.

Investment incentives and corporate tax asymmetries

Recent facts on the importance of corporate losses motivate more careful study of the impact of tax incentives for investment on firms that lose money. I model firm investment decisions in a setting featuring financing constraints and carrybacks and carryforwards of operating losses. I estimate investment responses to tax incentives allowing effects to vary with cash flows and taxable status. Results suggest that asymmetries in the corporate tax code could have made recent bonus depreciation tax incentives at most 4% less effective than they would have been if all firms were fully taxable. Cash flows have more important effects on the impact of tax incentives. Recent declines in cash flows would predict a 24% decrease in the effectiveness of bonus depreciation. Results thus suggest that tax incentives have the smallest impact on investment exactly when they are most likely to be put in place — during downturns in economic activity when cash flows are low.

Currency depreciation effects on ADR returns: evidence from Latin America

We use seemingly unrelated regressions (SUR) and multivariate regression models (MVRM) in a panel sample of 74 American depository receipts (ADR) programs from Argentina, Brazil, Chile, and Mexico during the period May 1994 to May 2009 to analyze the behavior of ADR returns during the 300-day period surrounding the currency crises breakdown in the originator’s country. Controlling for the underlying stock and local and host country equity indices, we find that ADRs generate significant negative abnormal returns during currency crises, due to translation exposure. Abnormal returns remain statistically significant even in crises triggered by currency depreciations as small as 3.6%. The results persist after including exchange rate returns as a control variable and after an orthogonalization procedure of exchange rate against local country indices. In agreement with ADR literature, our results show that ADR prices are determined primarily by the underlying stock, exchange rates, and host country index, in that order. Moreover, we observe how market integration has become evident in more recent times as the coefficients for the U.S. stock market have increased its contribution to ADR price discovery.

Incentive effects of bonus depreciation

This study examines the effect on capital expenditures of “bonus depreciation,” which was intended to stimulate such spending by allowing businesses to immediately expense a portion of the cost of qualified capital expenditures from late 2001 through 2004. After controlling for many previously documented determinants of capital expenditures, some of our results indicate that capital expenditures during bonus depreciation’s availability were greater than those during the time it was not available, consistent with the expected effect. However, other results indicate that bonus depreciation had an insignificant effect on capital expenditures. These mixed findings generally persist through several sensitivity analyses. We interpret these results as weakly supportive evidence that Congress attained its goal of stimulating capital spending.

Export Relationships among China, Japan, and South Korea

AbstractThis paper examines trades and trade relationships among China, Japan, and South Korea. It shows that China possesses a large comparative advantage in labor‐intensive products, while Japan and Korea maintain large comparative advantages in capital‐intensive products. Using quarterly data from 1981 to 2001, the paper evaluates the effect of yen depreciation on the exports of China and South Korea. Our empirical results prove a positive impact of depreciation of yen on China's exports but a negative impact on Korea's exports. This finding suggests that Japan is competing with South Korea in terms of exports, but not with China.

The J-curve: Malaysia versus her major trading partners

Currency depreciation is said to worsen the trade balance before improving it, hence the J-curve phenomenon. Since introduction of cointegration and error-correction modelling, researchers have tried to distinguish the short-run effects of currency depreciation from its long-run effects. A few studies that have investigated the experience of Malaysia, have relied upon aggregate trade data and have found no strong support for a significant relation between the real value of the ringgit and the Malaysian trade balance. In this article, we disaggregate the data by country and consider Malaysia's bilateral trade balance with her 14 largest trading partners. Using bound testing approach to cointegration and error-correction modelling, we provide some support for the J-curve hypothesis.

The Initial Impact of the Crisis on Emerging Market Countries

To understand the diverse impact of the crisis across emerging market countries, we explore the role of two shocks—the collapse in trade and the sharp decline in financial flows—in the transmission of the crisis from the advanced economies. We first develop a simple open economy model, which allows for imperfect capital mobility and potentially contractionary effects of currency depreciation due to foreign debt exposure. We then look at the cross-country evidence. The data suggest a strong role for both trade and financial shocks. Perhaps surprisingly, the data give little econometric support for a central role of either reserves or exchange rate regimes. We end by presenting case studies for Latvia, Russia, and Chile.

Hedonic pricing with redevelopment options: A new approach to estimating depreciation effects

The standard hedonic model of durable assets is a special case of a more general model that contains two additive terms: (1) use value of the existing hedonic vector and (2) the value of the option to reconfigure hedonic characteristics. One empirical implication is that the two parts of value are related: e.g., use value increases with interior area whereas option value decreases with “intensity,” the ratio of structure value divided by land value. Increases in building age reduce use value but increase option value. Data from Greenwich Connecticut indicate that intensity has the expected negative effect. Coefficients on building age are shown to be better measures of depreciation when intensity variables are included in the regression.

Housing appreciation (depreciation) and owners’ welfare

This paper extends Frank’s (2006) very simple model to analyze the welfare effects of appreciation and depreciation in a world with borrowing, property taxes, and moving costs. It is shown that appreciation can make homeowners worse off but that even when there is a property tax depreciation can not make homeowners who intend to stay in their house worse off. Our model provides a simple framework that can be used discuss the rationale for alternative policies to aid homeowners during periods of both appreciation and depreciation.

Currency Crises, Monetary Policy and Balance Sheet Vulnerabilities

This paper studies how the exposure of a country’s corporate sector to interest rate and exchange rate changes affects the probability of a currency crisis. To analyze this question, we present a model that defines currency crises as situations in which the costs of maintaining a fixed exchange rate exceed the costs of abandonment. The results show that a higher exposure to interest rate changes increases the probability of crisis through an increased need for output loss compensation and an increased efficacy of monetary policy in stimulating output. A higher exposure to exchange rate changes also increases the need for output loss compensation. However, it lowers the efficacy of monetary policy in stimulating output through the adverse balance sheet effects of exchange rate depreciation. As a result, its effect on the probability of crisis is ambiguous.