Effect Of Exchange Rate Volatility Research Articles

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.

The nexus between economic growth and conditional exchange rate volatility: evidence from emerging economies

PurposeThe purpose of this paper was to examine the nexus between conditional exchange rate volatility and economic growth in BRICS countries. Further, the dynamic causation between economic growth and exchange rate volatility is also examined.Design/methodology/approachWe employed three techniques, namely, dynamic panel models, static panel models and Dumitrescu and Hurlin (DH) panel causality test to examine the economic growth–conditional exchange rate volatility nexus in BRICS countries.FindingsThe overall results showed that conditional exchange rate volatility has a negative and significant effect on economic growth. Interestingly, the results showed that whenever the exchange rate volatility exceeds the 0–1.54 range, the economic growth of BRICS is reduced, on average, by 5%. Further, the results of the causality test reconciled with that of ARDL wherein unidirectional causality from exchange rate volatility, exports, labour force and gross capital formation to economic growth was found.Research limitations/implicationsThe urgent recommendation is to develop and align fiscal, monetary, trade and exchange rate policies, either through creating a common currency region or through coordinated measures to offset volatility and trade risks in the long run. Further, to offset the impact of excessive exchange rate changes, BRICS economies can set up currency hedging systems, implement temporary capital controls during periods of extreme volatility or create currency swap agreements with other nations or regions. Last, but not least, investment and labour policies that are coherent and well-coordinated can support market stabilisation, promote investment and increase worker productivity and job prospects.Originality/valueResearchers hold contrasting views regarding the effect of exchange rate volatility on economic growth. Some researchers claim that exchange rate volatility reduces growth, and several shreds of empirical evidence claim that lower exchange rate volatility is linked with an increase in economic growth, at least in the short run. However, the challenge lies in establishing the optimal range beyond which exchange rate volatility becomes detrimental to economic growth. The present study contributes to this aspect by seeking to identify the optimal spectrum beyond which excessive shifts in exchange rate volatility negatively affect economic growth, or endeavors to define the acceptable spectrum within which these fluctuations actually boost growth. To the best of our knowledge, this study is the first to analyse the given research area. The present study used a dummy variable technique to capture the impact of permissible exchange rate band on the economic growth.

Asymmetric effects of exchange rate volatility on Turkish-German commodity trade

This study investigates the asymmetric effects of exchange rate volatility on Turkish-German commodity trade using annual time-series data from 1980 to 2022. We analyze 90 industries exporting from Turkey to Germany and 114 industries importing from Germany to Turkey. The empirical results of the nonlinear ARDL model show that the volatility of the real lira-euro exchange rate had short-run asymmetric effects on trade flows for 60 (86) Turkish export (import) industries, which persisted for 46 (52) Turkish export (import) industries in the long-run. The industry-specific results show that an increase (a decrease) in lira-euro volatility increases Turkish exports (imports) to (from) Germany mostly for both small and large industries. The study suggests that export and import sectors that benefit from lira-euro volatility may consider expanding their production and trade activities, while sectors adversely affected by volatility may need to explore alternative strategies. This study highlights the importance of considering exchange rate volatility's asymmetric effects on trade between Turkey and Germany, emphasizing the varying implications across specific industries. The findings contribute valuable insights for policymakers and industry stakeholders in understanding how exchange rate fluctuations impact bilateral trade dynamics.

Do export responses to exchange rate movements differ in micro export flows?

This paper empirically examines how exports respond to exchange rate movements (exchange rate and exchange rate volatility) at the micro and macro levels using Turkey’s bilateral export data with 65 partner countries. Panel data contaninig 65 cross-sectional dimensions and 60 monthly time series dimensions from 2018:01 to 2022:12 are used. The empirical results of the Poisson Pseudo Maximum Likelihood (PPML) technique show that the negative effect of exchange rate volatility on micro export flows is amplified. Moreover, the potential positive effect of the exchange rate on micro export flows is weaker. Our findings are robust against the alternative method of exchange rate volatility and nominal exchange rate volatility. Our results are also intact under alternative robustness tests. The paper provides notable policy implications. Policymakers should be aware of the potential structural differences between micro and macro exports. Therefore, policymakers should also consider other aspects such as cross-border e-commerce when formulating economic policies on microexports.

The impact of the effective exchange rate volatility on the trade balance of Vietnam

The impact of the effective exchange rate volatility on the trade balance of Vietnam

Exchange Rate Volatility and International Trade in Turkey

Purpose: The aim of the study was to investigate the exchange rate volatility and international trade in Malaysia. Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries. Findings: Exchange rate volatility significantly impacts international trade by affecting exporters, importers, and trade volumes. It introduces uncertainty, raises hedging costs, and alters price competitiveness, leading to shifts in trade flows. While policymakers implement measures to manage volatility, their effectiveness is debated. Regional trade agreements can mitigate its impact, but challenges persist. Effective management of exchange rate volatility is essential for fostering stable international trade relationships. Unique Contribution to Theory, Practice and Policy: The theory of purchasing power parity (PPP), the theory of optimum currency areas (OCA) & the balassa- samuelson effect may be used to anchor future studies on the exchange rate volatility and international trade in Malaysia. Implement risk management strategies to mitigate the adverse effects of exchange rate volatility on international trade, including the use of financial derivatives, hedging instruments, and diversification strategies. Design and implement policies that strike a balance between exchange rate flexibility and stability, recognizing the trade-offs between exchange rate volatility and export competitiveness.

Exchange Rate Volatility and Export Performance: Case of Malaysia

Purpose: The aim of the study was to investigate the exchange rate volatility and export performance: case of Malaysia
 Methodology: This study adopted a desk methodology. A desk study research design is commonly known as secondary data collection. This is basically collecting data from existing resources preferably because of its low cost advantage as compared to a field research. Our current study looked into already published studies and reports as the data was easily accessed through online journals and libraries.
 Findings: Exchange rate volatility negatively impacts Malaysia's exports, reducing both volumes and revenues. Stable exchange rates are crucial for export competitiveness and attracting foreign investment. Effective hedging and exchange rate policies are recommended to mitigate volatility's adverse effects. Macroeconomic stability and structural reforms are essential for Malaysia's resilience to external shocks. Managing exchange rate volatility is key for sustaining Malaysia's export-led growth and fostering economic development.
 Unique Contribution to Theory, Practice and Policy: Portfolio balance theory, j-curve theory & competitive devaluation theory may be used to anchor future studies on the exchange rate volatility and export performance: case of Malaysia. Malaysia can provide practical insights into how exporters can effectively integrate risk management strategies into their operations to mitigate the adverse effects of exchange rate volatility. Malaysia can serve as a model for proactive policy responses to exchange rate volatility, offering lessons and strategies that can be adapted by policymakers in other emerging economies.

Effect of Exchange Rate Volatility and COVID-19 on Indonesia-United States Bilateral Trade

Effect of Exchange Rate Volatility and COVID-19 on Indonesia-United States Bilateral Trade

The exchange rates volatilities impact on the stock and real estate markets in South Africa

Purpose Understanding which market to invest in for a well-diversified portfolio is fundamental in economies that are highly vulnerable to fluctuations in exchange rates. Extant literature that has considered phenomenon hardly juxtapose the markets. The purpose of this study is to examine the effects of exchange rate volatility on the Stock and Real Estate market of South Africa. The essence is to determine whether the fluctuations in the exchange rate influence the markets prices differently. Design/methodology/approach The Generalised Autoregressive Conditional Heteroskedasticity [GARCH (1.1)] model was used in establishing the effect of exchange rate volatility on both markets. This study used monthly South African data between 2000 and 2020. Findings The results of this study showed that increased exchange rate volatility increases stock market volatility but decreases real-estate market volatility, both of which revealed weak influences from the exchange rates volatility. Practical implications This study has implication for policy in using the exchange rate as a policy tool to attract foreign portfolio investment. The weak volatility transmission from the exchange rate market to the stock and real estate market indicates that there is prospect for foreign investors to diversify their investments in these two markets. Originality/value This study investigated which of the assets market, stock or housing market do better in volatile exchange rate conditions in South Africa.

The Asymmetric Effects of Exchange Rate Volatility on Domestic Investment in Asia

ABSTRACT: Exchange rate volatility is said to affect domestic investment in either direction. An increase in exchange rate volatility can affect domestic investment negatively since risks are higher, mostly due to volatile prices that are the results of exchange rate volatility. Most previous studies assumed that the response is symmetric. However, one study recently demonstrated that the effects of exchange rate volatility on domestic investment could be asymmetric. We add to this new asymmetry literature by assessing the short-run and long-run effects of exchange rate volatility on domestic investment in eight Asian countries. The linear Autoregressive Distributed Lag (ARDL) approach of Pesaran et al. (2001) is used to estimate the symmetric effects of exchange rate volatility on investment. We then follow Shin et al.’s (2014) approach of asymmetric cointegration and error-correction modelling to estimate asymmetric effects of exchange rate volatility on investment. The advantage of using both the approaches is that the variables could be a combination of I(0) and I(1), ruling out pre-unit root testing since these are the properties of almost all macroeconomic variables. Another advantage is that both approaches yield short-run and long-run results in one step. These advanced methods are applied to data from Hong Kong, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, and Thailand. We find that when a traditional linear and symmetric ARDL investment model was estimated for each of the eight countries in our sample, exchange rate volatility had a significant short-run effects on domestic investment in six countries. The short-run effects lasted into significant long-run effects only in the cases for Malaysia and Thailand. However, when a nonlinear model was estimated, the short-run asymmetric effects of volatility were found in all the eight countries. The short-run effects lasted into the long run only for Hong Kong, Indonesia, and Thailand. Clearly, more significant effects of exchange rate volatility were established by estimating a nonlinear model which must be attributed to the nonlinear adjustment of exchange rate volatility. These findings provide policy guidelines to investors in these countries as to how and in which direction exchange rate uncertainty will affect their investment decisions. They can then hedge against uncertain exchange rate volatility and maintain a stable investment environment.

EXCHANGE RATE AND FIRM-LEVEL INVESTMENTS: EVIDENCE FROM BORSA ISTANBUL

The relationship between exchange rates and firm-level investments of the companies operating in the manufacturing sector listed on Borsa İstanbul (BIST) was investigated over a period of 2008 to 2021 using panel data analysis. A total of 81 companies from 7 industries within the manufacturing sector were examined. Exchange rate and firm-level relationships were identified using the Euro-USD basket standard deviation and real exchange rates index. The findings indicated a negative relationship between firm-level investments and exchange rate volatility for all industries, but a positive relationship between firm-level investments and real exchange rates for most industries. Furthermore, it is found that the effects of exchange rate volatility and real exchange rates on investments are realized with a delay for most industries. Overall, the results suggest that firms are reluctant to invest in times of high exchange rate volatility, but are more willing to invest when the value of Turkish Lira appreciates in real terms.

Effects of real effective exchange rate volatility on export earnings in Ethiopia: Symmetric and asymmetric effect analysis

The exchange rate is one of the key monetary policy instruments used to dictate the economy. However, the effect of exchange rate volatility on macroeconomic outcomes has been a subject of debate in previous research. Thus, this study examined the effects of real effective exchange rate (REER) volatility on Ethiopia's export earnings using quarterly data covering 2007 to 2021. The GARCH model is employed to estimate the volatility of the real effective exchange rate, and its effect is examined at the aggregate and disaggregate levels. Disaggregation is made at commodity and partner country levels. Besides these, the study also examined the symmetric and asymmetric effects of exchange rate volatility on the three categories of export earnings. To estimate the effects, both the linear autoregressive distributed lag (ARDL) and nonlinear ARDL (NARDL) models are employed. The short-run ARDL result shows that the real effective exchange rate and its volatility affect export earnings only in a few cases. Real effective exchange rate appreciation is significant and reduces total export earnings and export earnings from vegetables, meat, and oilseed-related products. Similarly, exchange rate volatility reduces total export earnings and earnings from coffee, vegetables, and meat-related products. At the aggregate level, the NARDL result shows that exchange rate volatility has an asymmetric effect on total export earnings. Positive volatility reduces total export earnings, while negative volatility is not significant. At the commodity level, volatility also has an asymmetric effect on earnings from coffee and meat exports in the short run. However, in the long run, there is no asymmetric effect of exchange rate volatility on total and commodity-level export earnings. In terms of the country of destination, there is no strong evidence of the effect of real effective exchange rate appreciation and its volatility on export earnings. Thus, policies that stabilize the volatility of the exchange rate are needed in Ethiopia in order to enhance export earnings.

Asymmetric Effects of Exchange Rate Volatility on Taiwan-China Trade: A Non-Linear ARDL Analysis of 20 Industries

Abstract This study investigates the long-run and short-run effects of exchange rate volatility on Taiwan's exports to and imports from China across 20 industries, employing a non-linear autoregressive distributed lag (NARDL) approach. The analysis covers the period from January 2004 to December 2022 and highlights industry-specific sensitivities and asymmetric impacts of exchange rate fluctuations. Our findings reveal the critical role of exchange rate volatility in shaping export and import performance across industries, with both positive and negative shocks exerting significant short-run and long-run effects. Asymmetric impacts of exchange rate fluctuations affect 87.96% of Taiwan's total exports to China in the long run and 72.11% in the short run. In contrast, the asymmetric impacts on imports influence 77.12% of Taiwan's total imports from China in the long run and 13.21% in the short run, demonstrating varying sensitivity across industries. These findings accentuate the necessity for industry-tailored trade policies and strategic considerations to better manage the risks and opportunities presented by exchange rate volatility in cross-strait trade. JEL classification numbers: F14, F31, C22. Keywords: Exchange rate volatility, Taiwan-China trade, Non-linear ARDL, Asymmetric effects.

Pathways for China's sustainable energy transition: Examining the effects of exchange rate volatility on renewable energy investment

Pathways for China's sustainable energy transition: Examining the effects of exchange rate volatility on renewable energy investment

Asymmetric effects of exchange rate volatility on the shadow economy: new evidence from OECD countries

ABSTRACT Assessing the shadow economy and its major determinants has been an important part of economic literature over the past few decades. In this article, we analyse the impact of exchange rate volatility on the presence of the shadow economy for the current 38 OECD countries over the period of 1991–2021 in both a linear and nonlinear manner. We provide the opportunity to test whether an exchange rate adjustment may follow a nonlinear path and analyse the asymmetric impact of exchange rate volatility on the shadow economy. We estimate a linear ARDL model for each country and find support that exchange rate variability significantly affects the shadow economy both in the short run and long run in most countries both in linear and nonlinear models. However, by estimating a nonlinear ARDL model, we find an asymmetric exchange rate volatility effect in all 38 countries concluding that exchange rate volatility and risks associated with it significantly affects the shadow economy. Thus, it is crucial that this group of nations adequately implement financial policies to minimize this risk.

Unpacking the asymmetric impact of exchange rate volatility on trade flows: A study of selected developed and developing Asian economies.

Maintaining a stable exchange rate is a challenging task for the world, especially for developing economies. This study examines the impact of asymmetric exchange rates on trade flows in selected Asian countries and finds that the effects of increased exchange rate volatility on exports and imports differ among Pakistan, Malaysia, Japan, and Korea. The quarterly data from the period 1980 to 2018 is collected from the International Financial Statistics (IFS) database maintained by the International Monetary Fund (IMF). We employ both linear and non-linear Autoregressive Distributed Lag (ARDL) models for estimation. The non-linear models yielded more significant findings, while the linear models did not indicate any significant effects of exchange rate volatility on trade flows. The results of the study suggest that in the case of Pakistan, both the linear and non-linear models indicate that increased exchange rate volatility adversely affects exports and imports, while decreased volatility enhances both. This implies that stabilizing the exchange rate would be beneficial for Pakistan's trade. In contrast, the linear model applied to Malaysia shows no long-run effects of exchange rate volatility on exports. However, the result suggests that decreased volatility stimulates Malaysia's exports. Therefore, in the case of Malaysia, stabilizing the exchange rate could contribute to boosting exports. We also found that increased exchange rate volatility boosts exports of Japan. On the other hand, decreased volatility hurts exports of Japan. As for the long-run effects of exchange rate volatility on imports, we found that increased volatility boosts imports of Korea. The study provides various policy implications regarding the impact of exchange rate volatility on trade flows in developing economies. The study highlights the importance of country-specific considerations in understanding the impact of exchange rate volatility on trade flows, and has important policy implications for promoting trade and economic growth in these nations. It emphasizes the need to model exchange rate volatility separately for developed and developing countries and to continue research and analysis to identify ways to mitigate its negative effects on the economy.

The Asymmetric Effects of Exchange Rate Volatility on Pakistan–Japan Commodity Trade: Evidence from Non-linear ARDL Approach

The Asymmetric Effects of Exchange Rate Volatility on Pakistan–Japan Commodity Trade: Evidence from Non-linear ARDL Approach

Study the Effect of Exchange Rate Volatility on House Price in Iran (Exponential GARCH and Quantile Regression Approach)

Study the Effect of Exchange Rate Volatility on House Price in Iran (Exponential GARCH and Quantile Regression Approach)

Impact of International Trade on Economic Growth: Evidence from Nigeria

The paper investigates the impact of international trade on economic growth in Nigeria from 2000Q1- 2020Q4. The choice of the period was informed by the economic recessions which the country experienced within the period. The paper employed an autoregressive distributed lag model (ARDL) and error correction model (ECM) to estimate the short run and long run relationships among the series. The findings of the paper reveal that exports demand has significant and positive short run and long run relationship with economic growth, while imports demand and exchange rate volatility have short run and long run negative relationships with economic growth in Nigeria during the study period. The paper recommend that Nigerian government should intensify efforts towards expanding the country’s export based in order to improve its external competitiveness for the enhancement of the aggregate external demand and foreign exchange earnings that will mitigate the adverse effect of exchange rate volatility. By expanding the exports based, the country will likely reduce its import demand particularly in consumer goods thereby saving millions of dollars to boost the nation’s reserve which will attract more foreign investors that will boost the country’s economic activities to achieve higher and inclusive economic growth in the country.

Is there an asymmetric effect of exchange rate volatility on exports and imports in the Central, East and Southeast European countries?

ABSTRACT The main objective of this paper is to assess the asymmetric effect of exchange rate volatility on the exports and imports of 17 Central, East and Southeast European (CESEE) countries. For this purpose, the linear and non-linear autoregressive distributed lag (ARDL) model and annual data for the 1995–2020 period were used. Empirical results of the assessment showed an asymmetric effect of exchange rate volatility on exports in nine countries and a symmetric effect on exports in four countries. Similarly, an asymmetric effect of exchange rate volatility on the imports of 10 countries and a symmetric effect on the imports of five countries were found. Research implications of this study are important to enable policy makers to understand that results obtained in earlier studies through the linear model may lead to incorrect views about the effect of exchange rate volatility on the exports and imports of CESEE countries.