Effects Of Exchange Rate Changes Research Articles

Exchange Rate Pass-Through to Provincial Consumer Prices: A Geographical-Goods Level Analysis

This study investigates exchange rate pass-through (ERPT) to provincial consumer prices in Canada from a geographical and goods-specific perspective. ERPT refers to the extent in which changes in the exchange rate influence domestic price movements. For example, a depreciation of the Canadian dollar relative to the U.S. dollar may increase the price of imports into Canada from the U.S., thereby raising consumer prices in Canada. Using extensive datasets from 2000 to 2023, this research quantifies the magnitude and speed of ERPT across various provinces and consumer price index (CPI) categories. The methodology employs a regression model framework, building upon the approach of Savoie-Chabot and Khan (2015) to estimate the impact of short-run and long-run exchange rate fluctuations on consumer prices. The findings highlight significant regional and categorical variation in ERPT. For example, Alberta exhibits the highest short-run ERPT for energy consumer prices where a 1% increase in the exchange rate leads to a 0.60% increase in prices. In contrast, Quebec exhibits the lowest short-run ERPT for energy consumer prices where a 1% increase in the exchange rate leads to only a 0.18% increase in prices. Price responses in each of these provinces differs from the short-run ERPT of Canada which is 0.32%. Furthermore, energy prices exhibit the highest sensitivity to exchange rate fluctuations, while most often categories excluding energy show minimal impact. These results emphasize the importance of region-specific economic policies to address distinct provincial price responses to exchange rate fluctuations. This study offers valuable insights for policymakers to develop strategies that mitigate any adverse economic effects of exchange rate changes and promote regional economic stability and growth.

Effects of Exchange Rate Changes on Real Estate Prices in Russia During the Russian-Ukrainian War

Effects of Exchange Rate Changes on Real Estate Prices in Russia During the Russian-Ukrainian War

The asymmetric effects of exchange rate volatility on UK–Pakistan trade flows: New evidence from nonlinear ARDL approach

Using the nonlinear autoregressive distributed lag (NARDL) method, the current study explores the effects of exchange rate variations on commodities trade between Pakistan and the United Kingdom. The current study contends that the limiting assumption of symmetry between the exchange rate and the trade flows may have hampered the empirical results, despite the fact that earlier studies primarily used the symmetric cointegration approach. From 1980 to 2020, the study examines the symmetric and asymmetries effects of exchange rate variations on 35 sectors in Pakistan that import from the UK and 35 industries that export to the UK. The findings suggest that there is evidence of a considerable influence of asymmetric exchange rate variations on trade flows in both the short and long term in over half of the importing and exporting industries that participate in trade with the UK. By highlighting the significance of taking into account asymmetry in the analysis and exposing the sector-specific effects of exchange rate changes on trade flows, the study adds to the body of current work.

Symmetric and Asymmetric Effects of Exchange Rate Changes on Stock Prices in Fragile Five Economies: Analysis of the Global Crisis and Pandemic Period

This study examined the symmetric and asymmetric effects of exchange rate changes on stock prices in the economies of India, Indonesia, Brazil, South Africa, and Turkey, collectively known as the "Fragile Five" due to their similar economic dynamics in light of the global financial crisis and pandemic period. The study uses monthly data from July 2000 to July 2022, and panel autoregressive distributive lag and panel nonlinear autoregressive distributive lag models to investigate the effects of exchange rate changes on stock prices in the Fragile Five economies. Prior to the global financial crisis, exchange rate changes have both long- and short-term asymmetric effects on stock prices in the Fragile Five economies. However, after the global financial crisis, exchange rate changes have both short- and long-term asymmetric and symmetric effects. Similarly, exchange rate changes also have asymmetric effects on stock prices during the COVID-19 period.

Symmetric and Asymmetric Effects of Exchange Rate on Indonesia Stock Prices

Understanding the effect of exchange rates on stock prices is essential essential because of how they are tied to various aspects of the economy. This study examines the symmetric and asymmetric effects of exchange rate changes on stock prices in Indonesia using both auto regressive distributed lag (ARDL) and nonlinear ARDL (NARDL) techniques. To determine short run and the long run association between the study variables. This study using Indonesia monthly data collected from January 2022 to December 2022. The study discovered a long-run equilibrium for both the ARDL and NARDL models, showing a symmetric short and longrun relationship between exchange rates and stock prices. Exchange rates have a negative effect on stock prices, which lowers investor trust in the market. Even in linear and nonlinear analysis, inflation has a negative impact on stock prices over the and long terms. High inflation can reduce consumer purchasing power, which can result in a drop in sales and profitability for businesses that significantly rely on consumer spending. authorities and investors require taking consider the relationship between exchange rates and stock prices to manage foreign exchange and stock markets.

Dollar not so dominant: Dollar invoicing has only a small effect on trade prices

This paper estimates and tests three models of the effects of exchange rate changes on export prices. It supports the Goldberg and Knetter (1997) canonical result that exporters adjust their prices by about half of any movement in exchange rates. A new twist is that exchange rate movements against importing countries account for only two-thirds of this price adjustment, while exchange rate movements against a dominant currency account for the other third. The dominant currency is the euro in Europe and Africa and the US dollar in Asia and the Western Hemisphere. The recent claim that the dollar is the most important driver of export prices (Gopinath et al. 2020) is shown to be valid only for the smallest transactions. For the bulk of international trade, the extra effects of the dollar (or the euro) beyond their effects as exporter or importer currencies are relatively modest.

Dominant currencies and the export supply channel

The dominant currency paradigm (DCP) predicts negligible effects of exchange rate changes on export volumes through the expenditure-switching channel (Gopinath et al., 2020). However, exports can still adjust through other supply-side channels. With bilateral trade data at the HS2-product level, panel fixed-effects regressions and an instrumental variables (IV) approach, this paper presents several novel findings: (i), a depreciation of an exporter’s currency against the US-dollar increases total nominal exports between non-US countries, whereas bilateral exchange rates matter very little. (ii), the export response is primarily driven by an increase in export unit values in the exporter’s currency, whereas less than a third of the impact is driven by an increase in export volumes. (iii), there is no statistically significant increase in average export volumes per firm (the intensive margin), while the increase in export volumes is solely driven by entry of exporting firms (the extensive margin). These results are robust across econometric specifications, estimators and definitions of entry and highlight how export supply can adjust to exchange rate changes in a world with dominant currencies and deepens our understanding of aggregate export adjustment.

Impact of Covid 19 on Stock Market and Exchange Rate in Nigeria

The study investigates the impact of COVID–19 on the stock market and exchange rate in Nigeria. To achieve this objective, the impulse response function of the Toda-Yamamoto model (TY Model), and the variance decomposition were applied to all-share index, exchange rate, oil prices and Covid-19 cases. The impulse response function reveals that all-share index and exchange rate respond negatively to COVID-19 shocks. More so, the forecast variance decomposition revealed that the impact of COVID-19 pandemic on stock market was minimal. In general, the study found evidence of poor performance in the stock market and depreciation of exchange rate due to fall in oil prices. The study recommends effective exchange rate management during periods of crisis, and the diversification of the economy to broaden export base to mitigate the effect of exchange rate changes on the stock market and other sectors of the economy.

Revisiting the asymmetry between the exchange rate and domestic production in South Asian Economies: Evidence from Nonlinear ARDL Approach

: Many of the early studies that investigate the impact of exchange rate movements on domestic production report mixed findings in terms of the effect on economic growth. However, the majority of these studies had were limited in that they relied on a prior assumption of linear adjustment of the exchange rate fluctuations toward domestic output. We suspect that a prior assumption of linearity may mask the empirical results. We, therefore, bring nonlinearity into the adjustment process through the partial sum approach to the exchange rate by decomposing the exchange rate into depreciation and appreciation. We investigate both the symmetric and asymmetric effect of exchange rate changes on economic growth of the selected South Asian economies. Our results show significant evidence of the asymmetric effects of exchange rate changes on domestic production both in the short and long run in the case of all the selected economies.

The asymmetric impact of exchange rate changes on bilateral trade balance: evidence from China and its trade partners

The purpose of this paper is to re-examine the impact of exchange rate changes on the trade balance of China and its major trading partners. In the past, many studies have been focussed on the linear effect of exchange rate change, but in this paper, a non-linear Autoregressive Distribution Lag (NARDL) model is proposed. Empirical results show that there are nonlinear and asymmetric effects on the trade balance of exchange rate. In particular, the effect of exchange rate appreciation on Sino-US trade balance is more significant than that of depreciation. A genuine devaluation of the domestic currency would improve the balance of the domestic trade. However, the opposite effect is found in the case of Sino-Japan and the Euro, and the depreciation of the currency will make the trade balance worse. These results provide a solid basis for understanding the relation of exchange rate variation and trade balance. In terms of economic reality, it is also a useful reference for adjusting exchange rate and commercial policy.

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

China’s trade in services and role of the exchange rate: An asymmetric analysis

Nearly all studies in the literature have assessed the impact of exchange rate changes on trade flows for goods. Service industries, however, have not received much attention. Two studies have assessed the effects of exchange rate changes on U.S. service trade with its partners. We add to this literature with a new study that assesses the symmetric and asymmetric effects of changes in the real effective rate of the yuan on China’s trade in 11 service industries with the world. While we find short-run effects on imports and exports for almost all service categories, short-run effects last into long-run asymmetric effects in six Chinese importing service industries and eight Chinese exporting service industries.

Exchange rate fluctuations, labour laws, and gender differences in job flows: Analysis of manufacturing industries across Indian states

India’s disappointing performance in creating productive employment for women, in spite of its increased integration with the world markets, contrasts with the experience of several countries in Asia. A number of studies have analysed the supply and demand side factors responsible for this situation. However, no study has examined the gender differences in job flows – job creation, destruction and reallocation. Net employment changes may conceal large changes in gross job flows and the associated adjustment costs. Using plant level panel data from India’s formal manufacturing sector for the period 1998–2014, this paper estimates the magnitude of job flows and analyses the impact of industry-level changes in exchange rates on job flow dynamics of men and women across state-industries. Even as net employment grew sluggishly for women, we find that, the labour market was characterised by a simultaneous process of job destruction and creation. Our analysis provides evidence for an asymmetric impact of exchange rates on job flows, with depreciation (appreciation) resulting in higher (lower) gross job creation rates with no effect on job destruction rates. Exchange rate depreciation results in higher gross and net job creation rates for both men and women in states with flexible labour laws. In states with inflexible labour laws, however, depreciation causes an increase in gross job creation for women (but not for men) with no effect on net job creation. Exchange rate depreciation also causes women to face higher job reallocation than men, particularly in states with inflexible labour laws. Participation in global value chains and output tariff reductions are found to exacerbate the effects of exchange rate changes on women’s job flows. Firms operating under rigid labour market conditions tend to employ female workers as a ‘buffer’ to adjust the workforce in response to short term fluctuations in export competitiveness.

Asymmetric effect, non-linear ARDL, and the J – Curve analysis among East African community members

When a country’s balance of trade persistently records deficits, the most important policy is to devalue the exchange rate. This article aims to explore the symmetric effect of the exchange rate and its transmission channels on the trade balance. The recently developed method of Non-linear Autoregressive Distributed Lag (ARDL) was utilized for Quarterly data from 1990 Q1 to 2019 Q4 in unexplored areas of East African Community (EAC -5) members. The study found the presence of robust symmetric and asymmetric negative effects of exchange rate changes on trade balance only in Uganda, both in the short-run and long-run. Meanwhile, there was no evidence of robust J-curve phenomena within EAC members. Generally, the application of exchange rate policy in improving trade imbalance is doubted within the EAC region. Keywords: EAC; Exchange rate; J –curve; nonlinear ARDL.

On the link between the real exchange rate and domestic investment in Asia: Are there asymmetric effects?

Previous research that assessed the asymmetric impact of currency depreciation on domestic investment considered experiences of seven industrialized countries, six emerging economies, and eighteen countries from Africa. We add to this new literature by considering the experiences of eight Asian countries. Like previous studies, our asymmetric analysis that required estimating nonlinear models revealed much more significant outcome than the linear and symmetric models. It predicted short-run asymmetric effects of exchange rate changes on domestic investment in all eight countries that lasted into long-run asymmetric effects in Hong Kong, Indonesia, South Korea, Malaysia, and Singapore. Additional analysis revealed that currency depreciation has adverse long-run effects on domestic investment in all five countries.

Effects of Export Orientation, Exchange Rates and Leverage on Firm Productivity: Evidence from Pakistan

This article empirically scrutinizes the effect of exchange rate changes, exchange rate uncertainty and firm leverage on firm-level productivity growth. It also examines the differential effects of these variables, conditional on the levels of exports. Finally, it investigates whether a firm’s heterogeneity in terms of its share of exports in total sales matters in determining the response of a firm’s productivity growth to these variables. The empirical analysis is based on an unbalanced panel data set with annual observations of 222 exporting firms listed on the Pakistan Stock Exchange over the 2009–2017 period. We find that both exchange rate changes and exchange rate uncertainty have significant, negative effects on the firm’s productivity growth, and exporting further makes intense these effects. Yet, we show that export activities are positively related to firms’ productivity growth. We also reveal that there is a significant heterogeneity in the effects of exchange rate changes, its uncertainty and leverage, which is attributed to export intensity. Specifically, we observe that the effects are more prominent in firms that export more shares of their output to foreign markets.

Effects of exchange rates and invoiced currencies on trade: Evidence from South Korea

AbstractThis study examines the relationship between exchange rates and South Korea's trade flows considering invoicing currencies in line with the dominant currency paradigm. We use the trade weight data of South Korea's total and bilateral trade with its major trading partners. Our analysis of the elasticities of South Korea's trade with respect to bilateral exchange rates shows that a strong US dollar—the dominant invoiced currency—is associated with a decline in South Korea's imports, regardless of the country of origin. We also show that the Japanese yen, as the other dominant invoicing currency in bilateral trade between South Korea and Japan, has a similar effect to that of the US dollar. In addition, fluctuations in the invoicing share of dominant currencies improve the statistical significance of the effect of exchange rate changes. We also report the results at the sectoral level. Overall, our results are consistent with the dominant currency paradigm. Finally, according to the South Korea pass‐through results, which show that US dollar rate fluctuations affect both import and consumer prices immediately, South Korean importers seem to react quickly by changing trade quantities and domestic sales prices.

Major exchange rates and value-added exports

This study’s primary concern is that exporting or multinational firms tend to be more reliant on intermediate imports with major currencies. We investigate the effects of exchange rates on value-added exports in the linkage with the exports-FDI feedback for sustainable free trade development in OECD countries. Our bilateral findings are that the exchange rate effects are greater for gross than value-added exports except for Germany and greater for intermediate goods than final goods exports except for Italy. But there are no significant differences in the effects of exchange rate changes on exports regardless of US dollar and other currencies. Meanwhile, foreign income has a positive effect on all exports, and the exports-FDI feedback has a weak positive effect on exports to China due to increased FDI into China while the value-added exports-FDI nexus has a weak positive effect on all FDIs. JEL codes: F31, F32, F40

On the asymmetric effects of exchange rate changes and Thailand's inpayments from and outpayments to its partners

A strand of the literature in international economics includes studies that have assed impact of exchange rate changes on inpayments and outpayments of a country with its trading partners. That strand now has a new direction where the analysis is extended to include asymmetric effects of exchange rate changes. We apply the new advances to bilateral trade data between Thailand and each of its 12 largest partners. Combining our findings from the old and new approaches, we find that a depreciation of baht will increase Thailand's outpayments to eight partners with almost 41% trade share and it will increase its inpayments from seven partners with almost 23% trade share.

Asymmetric effects of exchange rate on money demand in Nigeria: evidence from the new broad money aggregate (M3)

PurposeThis paper is focused on determining the asymmetric effects of exchange rate on money demand function in Nigeria.Design/methodology/approachIt employs the empirical model of Baumol–Tobin. Baumol (1952), which was founded on the opportunity and transaction cost of holding money. Monetary aggregates, M1, M2 and M3, are used for the real money balances based on the nonlinear Autoregressive Distributed Lag bound testing procedure.FindingsThe results indicate that the positive and negative partial sum of exchange rate changes differ in magnitude and size, supporting the hypothesis of asymmetric effects of exchange rate changes on the demand for money in Nigeria.Originality/valueThis is the first paper to consider the new broad money aggregate (M3).