Effects Of Exchange Rate Shocks Research Articles

The RMB Debate: Empirical Analysis on the Effects of Exchange Rate Shocks in China and Japan

For a better understanding of the ongoing debates on the RMB, this paper investigates the effects of exchange rate shocks on output and the current account for China and Japan. We use structural vector auto-regression models and find that yen appreciation reduces current account surpluses while having no strong effect on output in Japan. RMB appreciation, on the other hand, has an insignificant effect on the current account, although it tends to reduce output in China. For China, dollar pricing with vertical trade integration seems responsible for the insignificant effect on the current account.

Multi-Product Firms and Exchange Rate Fluctuations

This paper studies the effect of exchange rate shocks on export behavior of multi-product firms. We provide a theoretical framework illustrating how firms adjust their prices, quantities, product scope, and sales distribution across products in the event of exchange rate fluctuation. In response to a real exchange rate depreciation, firms increase markups for all products, but markup increases decline with firm-product-specific marginal costs of production. We find robust evidence for our theoretical predictions using Brazilian customs data containing destination-specific and product-specific export sales and quantities. The sample period covers the years 1997-2006, during which Brazil experienced a series of drastic currency fluctuations.

Monetary Policy and Exchange Rate Shocks in Brazil: Sign Restrictions versus A New Hybrid Identification Approach

This paper analyzes the impacts of monetary policy, exchange rate, demand, and supply exogenous disturbances on the Brazilian economy using a structural vector autoregression model identified by two alternative methodologies. The first uses sign restrictions on impulse responses based on an open-economy macroeconomic model. The second (hybrid) is a new methodology that combines the first with restrictions on the contemporaneous causal interrelationships among variables, derived by Directed Acyclic Graphs. A comparison of the results shows that while the effects of exchange rate shocks are nearly the same, the effects of monetary policy shocks depend on the methodology adopted. There is a strong response of the exchange rate to demand shocks and to shocks originating in the foreign exchange market. Exchange rate shocks have an important role in explaining short-run fluctuations of prices and output. We conclude that the exchange rate is an independent source of shocks and a shock absorber.

Inflation targeting and the exchange rate: Does it matter in Turkey?

This paper investigates the monetary policy reaction functions of the Central Bank of Republic of Turkey (CBRT) over the periods 1987:01–2001:12 and 2002:01–2009:05. We specifically attempt to shed light on question to what extent exchange rate developments still continue to influence monetary policy, even under inflation targeting. This study seeks to investigate how the monetary policy responded to the exchange rate shocks before and after adoption of inflation targeting regime. How large the effect of exchange rate shocks is accounted for in forecast error variances decompositions for monetary policy as compared to other shocks? Using the VAR model, this study shows that there has been strong pass-through during whole period. Moreover, in the postcrisis period, exchange rate has been the main reaction variable for the CBRT.

The effect of exchange rate shocks on the volatility of Australian sector excess returns: a note

The study uses GARCH-M methodology to examine the effect of exchange rate shocks on the volatility of excess returns for the nineteen sectors of the Australian stock market. The data covers the period December 1979 through April 1994. The evidence suggests that news on exchange rates can improve the volatility forecasts of certain Australian stock market sector excess returns. The findings have implications for the professional investor looking to diversify risk and, in addition, give some support to asset pricing models that place information on the state of the economy as central to the process determining equity returns.

Contagion and the Asian Currency Crisis

This study attempts to examine relationships among exchange rates in the Asian region using cointegration methods and to isolate country‐specific effects of contagion using an error correction model. Monthly data covering the period from July 1992 to December 1997 are used. Dynamic simulations of exchange rates with and without short‐run effects of exchange rate shocks are performed. The results indicate that stable long‐run relationships exist among exchange rates in the region. Simulation results for some countries indicate that these countries’ exchange rates would have depreciated in the long run even in the absence of the short‐run effects of potential contagion from other countries, while for other countries the opposite is true.

Exchange Rate Variations and Capacity Utilization. A Specific Factors, Temporary Equilibrium Analysis / Wechselkursschwankungen und Kapazitätsauslastung. Eine Analyse kurzfristiger Gleichgewichte in einer Ökonomie mit sektorspezifischen Faktoren

Summary We identify the non-Walrasian, fix-price, flex-quantity, temporary equilibria of a specific factors economy that has a traded and a nontraded sector. In this framework, we investigate the effects of exchange rate shocks on capacity utilization and employment of labor. We find that the asymmetry between the specific factors and the mobile factor that obtains in the Walrasian equilibrium also extends to non-Walrasian temporary equilibria: in a Walrasian (non-Walrasian temporary) equilibrium, the specific factors' prices (employment levels) move in a direction opposite to the one in which the price (employment level) of the mobile factor changes.