Exchange Rate Determination Research Articles

The Effect of Exchange Rate on the Growth of the Nigerian Economy

This study examined the effect of exchange rate on the economic growth of Nigeria. It specifically looked at effect of exchange rate on gross domestic product (GDP), as a proxy of economic growth with interest rate and inflation rate as determinant of exchange rate. Secondary data from the Central Bank of Nigeria Statistical Bulletin were collected for a period of thirty-seven years, 1986 to 2023. Ex-post facto research design was utilized. While some pre and diagnostic tests were carried out to confirm the integrity of the data and their relatedness in both short- and long-term basis, Autoregressive Distributed lag (ARDL) model was employed in the analysis of hypotheses. It was found that while exchange rate and interest rate had significant effect on RGDP, while inflation rate was found to be not significant on RGDP. This implies that exchange rate and interest rate significantly determine economic growth in Nigeria. The study concludes that exchange rate should be handled with utmost concern by experts in the field to avoid unnecessary fluctuations that may inflict unbearable economic consequences on the Nigerian people. The study recommends, among others, the adoption of policies measures that will affect economic growth in Nigeria in such a way that the welfare of the people can be upgraded.

High-throughput determination of exchange rates of unmodified and PTM-containing peptides using HX-MS.

Despite the widespread use of MS for hydrogen/deuterium exchange measurements, no systematic, large-scale study has been conducted to compare the observed exchange rates in protein-derived, unstructured peptides measured by MS to the predicted exchange rates calculated from NMR-derived values and how neighboring residues and post-translational modifications influence those exchange rates. In this study, we sought to test the accuracy of predicted values by performing hydrogen exchange measurements on whole cell digests to generate an unbiased dataset of 563 unique peptides derived from naturally-occurring protein sequences. A remarkable 97% of observed exchange rates of peptides are within two-fold of predicted values. Using fully deuterated controls, we found that for approximately 50% of the peptides, the amino acid sequence and, consequently, the intrinsic exchange rate, are the primary contributors to back exchange. A meta-analysis of the remaining peptides' physicochemical properties revealed multiple features that contribute either positively or negatively to back exchange discrepancies. Employing our workflow for comparable measurements on synthetic peptide mixtures containing post-translational modifications, and their unmodified counterparts, we show that lysine acetylation has a strong effect on the observed exchange rate, whereas serine/threonine phosphorylation does not. Our automated workflow enables high-throughput determination of exchange rates in complex biological peptide mixtures with diverse properties.

Analysis of Factors Affecting The Rupiah Exchange Rate Against The US Dollar

This study aims to identify and analyze the main factors that influence the Rupiah exchange rate against the US Dollar. The exchange rate is an important indicator that affects various sectors of the Indonesian economy, including international trade, inflation, and foreign investment. The method used is quantitative analysis with a multiple linear regression approach, using secondary data from Bank Indonesia, financial markets, and other related sources. The results of the study indicate that internal factors, such as inflation and BI interest rates, as well as external factors, such as the Fed interest rate and global commodity prices, play a significant role in determining exchange rate fluctuations. Higher inflation and an increase in the Fed interest rate tend to weaken the Rupiah, while an increase in the BI interest rate and foreign exchange reserves strengthen the Rupiah. In addition, global commodity prices also affect the stability of the Rupiah, especially through the impact on the trade balance. This study highlights the importance of appropriate monetary policy, foreign exchange market intervention, and foreign exchange reserve management in maintaining exchange rate stability. Understanding these factors is expected to help policymakers in dealing with global market dynamics and maintaining the stability of the Indonesian economy.

Open Economy Macroeconomics: Developments in Theory and Policy Using the TOPSIS Methodology

Open economy macroeconomics examines the complex interplay between a nation's economic policies and global financial markets. This field of study addresses critical issues such as exchange rate determination, balance of payments, and the effects of trade and capital flows on a country's economic performance. The increased integration of economies through globalization has made it essential to understand how domestic economic policies, such as monetary and fiscal policies, interact with international economic environments. This paper explores the key concepts and models in open economy macroeconomics, including the Mundell-Fleming model, purchasing power parity, and the dynamics of exchange rate regimes. The study of open economy macroeconomics has gained prominence with the growing interconnectedness of global markets. Unlike a closed economy, where all economic transactions occur within national borders, an open economy engages in trade and financial transactions with other countries. This openness introduces new challenges and opportunities for policymakers, as domestic economic conditions are increasingly influenced by external factors such as foreign exchange rates, international trade agreements, and global capital flows. Open economy macroeconomics seeks to understand how these external factors affect key economic variables, such as output, inflation, and employment.The significance of studying open economy macroeconomics lies in its profound implications for both national and global economic stability and growth. As economies become increasingly interconnected, understanding the mechanisms by which international trade, capital flows, and exchange rates influence domestic economies is essential for effective policymaking. This field of study is particularly relevant in today’s world, where financial crises, trade wars, and global economic shocks can have ripple effects across borders, impacting nations' economic well-being regardless of their size or level of development.. Free Trade Agreements, Currency Pegging, Capital Controls, Trade Tariffs, Exchange Rate Floating. GDP Growth Rate (%),Trade Balance (Billion $), Inflation Rate (%),Unemployment Rate (%). The results indicate that Free Trade Agreements achieved the highest rank, while Capital Controls had the lowest rank being attained. The value of the dataset for Corporate Open Economy Macroeconomics according to the topsis Method, Integrated Pest Management achieves the highest ranking.

Analyzing a New Portfolio Balance Model with Micro and Macro Determinants of Exchange Rate when Expectations are Rational

Analyzing a New Portfolio Balance Model with Micro and Macro Determinants of Exchange Rate when Expectations are Rational

Macroeconomic Stability in Bangladesh: Unraveling the Nexus between Exchange Rate, Inflation, and Export Dynamics through Nonlinear Modeling

This study explores the effects of exchange rate and inflation on the export of goods and services in Bangladesh. Applying Nonlinear Autoregressive Distributed Lag (NARDL) model and using data from 1987 to 2021, in the case of a negative shock, this study finds a significant negative long-run association of exchange rate and inflation with export. Besides, in the case of positive shock, we see a meaningful positive relationship between inflation and exports. Following the findings, this study suggests exchange rate and inflation to ensure stability in Bangladesh’s economy through the issuance of new policies considering the reduction of inflationary pressures, formulation of contractionary monetary policy, recapping exchange-traded funds, and modification of exchange rate determination.

Determinants of Inflation Rate Fluctuations in Five ASEAN Nations

This paper examines the key relationships between independent variables and inflation fluctuations in the ASEAN-5 countries, which include Malaysia, Indonesia, Singapore, Thailand, and the Philippines. Using annual data from 2001 to 2020, a static panel data regression model is employed. The empirical results reveal that at least two independent variables significantly impact inflation rates in these five ASEAN nations. Specifically, the unemployment rate has a significant negative correlation with inflation fluctuations, while economic growth shows a significant positive correlation. Overall, this study provides valuable insights into how exchange rate determinants influence inflation fluctuations, highlighting the importance of balanced policies to address the interactions between unemployment, economic growth, and inflation.

The Hedging Channel of Exchange Rate Determination

Abstract We propose the currency hedging channel that connects countries’ external imbalances to their exchange rate behavior. We present a model in which investors increase their currency hedging during periods of financial distress in proportion to their net foreign asset exposure. This behavior coupled with constrained financial intermediation explains observed relationships between gradually adjusting external imbalances and volatile spot and forward exchange rates. We find empirical support for the hedging channel in both the conditional and unconditional moments of exchange rates, option prices, and countries’ uses of Federal Reserve swap lines. (JEL E44, F31, F32, F41, G11, G15)

A simple model of internal and external balance for resource‐rich developing countries

AbstractWe present a simple model of internal and external balance that incorporates key features of resource‐rich developing countries (RRDCs). The main result is that ‘government take’—the ratio of fiscal resource revenue to resource output—is a key determinant of the equilibrium real exchange rate (ERER) in these countries. Examining the case of Papua New Guinea, which has grappled with foreign exchange restrictions since 2015, we find that about half of the RER overvaluation estimated at 26% in 2019 would disappear if the current low level of government take was to be lifted to its long‐term average. The analysis has two key takeaways for RRDCs. First, changes in the government take require adjustments to the RER and fiscal policy to maintain internal and external balance. Second, economic adjustments to falls in the take are difficult; therefore, policies seeking to stabilise the take over time to promote macroeconomic stability are recommended.

Impact of asymmetry on exchange rate determination: The role of fundamentals

This study tries to take a new look at the exchange rate determination model by employing recent developments in time series estimation methodologies. For this purpose, the validity of the sticky price monetary exchange rate model has been searched for the Turkish lira / US dollar case. Estimation results considering both linear and non–linear modeling approaches highly support the theoretical foundations and reveal explicitly the asymmetric nature of the model. The paper infers that since the nominal exchange rate seems to be determined through the economic fundamentals, it should not be used as a policy tool with a long–term perspective.

The macro driving factors of co-movement of RMB with other currencies in FX markets

The co-movement of the RMB exchange rate with other currencies highlights the global standing of the RMB and its significance in FX markets. This paper employs the rational expectations present-value model of exchange rates to identify the macroeconomic factors influencing this co-movement. Our finding reveals a general increase in the RMB's co-movement with other currencies, especially after the 2015 reform of the RMB exchange rate regime, known as the “811 Reform”. Factors such as the synchronizations of output and monetary policy, as well as global market sentiment significantly, can affect this co-movement significantly. However, this explanatory power is relatively weaker compared to trade linkage. The market-oriented reforms in the RMB exchange rate regime and the liberalization of capital account in China have indeed strengthened this co-movement. Additionally, various international cooperation policies taken by the Chinese government have demonstrated promotional effects. This study echoes the traditional exchange rate determination theory and offers some policy implications for the internationalization of the RMB.

Determinants of the choice of exchange rate regime in oil-exporting countries

This study examines the factors that determine exchange rate regime choice in oil-exporting countries. We run ordered logit regressions for an unbalanced panel dataset of 138 countries covering 1974–2021 and confirm that oil-exporting countries are more likely to adopt a fixed exchange rate regime than other countries. The main reason for this is that, given the volatility and uncertainty of oil revenues, traditional monetary policy tools are ineffective, resulting in the exchange rate serving as a nominal anchor. This is supported by our findings on the distinct roles of output volatility, government spending, fiscal cyclicality, and central bank independence in determining exchange rate regimes in oil-exporting countries.

Determinants of Exchange Rate Jumps in Türkiye

This study examines the exchange rate jumps in Türkiye between 2013 and 2021 and the factors influencing these jumps. The Turkish Lira experienced a consistent depreciation against other currencies during this period. A closer examination of the depreciation timeline revealed that the Turkish Lira's depreciation was occasionally abrupt and exceedingly pronounced. The primary objective of this research is to identify these episodes of spikes, which can be characterized as jumps in exchange rates amid regular increases. To achieve this, the Pruned Exact Linear Time (PELT) algorithm was employed to detect sudden shifts in the exchange rate. Taking these points as dependent variables, a rare event logistic regression model was utilized to determine the probability of an exchange rate jump. The findings indicate that increased dollarization raises the likelihood of an exchange rate jump, while higher deposit rates and central bank reserves reduce the probability of a jump.

The Monetary Model of Exchange Rate Determination for South Africa

The disconnect between the exchange rate and its macroeconomic fundamentals has been extensively discussed in the literature. It nonetheless continues to pose theoretical and empirical challenges in the literature. This study examines the relationship between the exchange rate and its fundamentals. This study used the monetary model of exchange rate determination developed in the 1970s. The study used the TAR to estimate the exchange change rate behaviour in response to variations in monetary variables. We found that the exchange rates respond to the interest rate differential, consistent with the predictions of the monetary model of exchange rate determination. Furthermore, in all the regimes, the sizes of coefficients are different, which shows that the exchange rate behaviour is non-linear (asymmetric). While the impact of the interest rate differential in regime 1 and 2 leads to exchange rates appreciating although in regime 2 the results are insignificant, this occurs when the exchange rates fluctuate below 0.87 percentage points. In regime 3, on average, a marginal increase in interest rate deferential leads to an exchange rate depreciation. In some instances, the exchange rates respond to the monetary variables’ changes in line with the predictions of the monetary theory of exchange rate determination. An increase in interest rates in some instances leads to an improvement in the value of the exchange rate. However, the conditions are not constant—they vary depending on the state of exchange rate fluctuation.

Analysis practice of exchange rate determinants: a case study of foreign exchange operators in trading rooms

Analysis practice of exchange rate determinants: a case study of foreign exchange operators in trading rooms

Exchange Rate Disconnect and the Trade Balance

We propose a model with costly international financial intermediation that links exchange rate movements to shifts in the demand for domestically produced goods relative to the demand for imported goods (trade rebalancing). Our model is consistent with stylized facts of exchange rate dynamics, including those related to the trade balance, which is typically overlooked in the literature on exchange rate determination. In a quantitative assessment, trade rebalancing explains nearly 50 percent of exchange rate fluctuations over the business cycle, whereas exogenous deviations from the uncovered interest rate parity—the primary source of exchange rate fluctuations in the literature—account for just above 20 percent. Using data on trade flows or the trade balance is key to properly identifying the determinants of the exchange rate. Thus, our model overcomes the sharp dichotomy between the real exchange rate and the macroeconomy embedded in other models of exchange rate determination.

Assessment of exchange rate determination in a mono-resource economy: A case of Nigeria

<p style="text-align:justify"><span style="font-size:16px"><span style="font-family:Times New Roman,Times,serif"><span dir="ltr" lang="EN-US"><span style="color:black">This study examined the determinants of the exchange rate in a mono-resource economy, during the period of currency and oil price fall in Nigeria. The aim of the study is to ascertain the potentiality of economic diversification (non-oil export) in saving the falling value of the domestic currency, as well as, its stability. The study employed the use of monthly data from the Central Bank of Nigeria and Nigeria National Petroleum Corporation from January 2008 to December 2020 using the ARDL and NARDL models to achieve the stated objectives. In the literature, several empirical studies analyzed the relationship between exchange rates, oil price, and oil export and came to the logical conclusion that a rise in the price of oil would bring about a rise in the exchange rate, all things being equal while the reverse is the case. To add to the existing body of knowledge this study did not only look at the relationship between the variables but also examined the determinants of the exchange rate in a mono-resource economy and ascertained the potentiality of economic diversification in bringing succor to the falling exchange rate in the midst of falling oil price. The NARDL result corroborates the findings of previous studies on the relationship between exchange rate, oil price, and the performance of non-oil export. It maintains that positive changes in oil prices would lead to the appreciation of domestic currency while negative changes in oil prices would lead to the depreciation of the domestic currency. With this analysis, the study recommends the diversification of the economy and revitalization of the non-oil sector. Since import proves to have a negative impact on the exchange rate, the revitalization of the non-oil sector stimulates domestic consumption and thus reduces import bills which raise the demand for the dollar and weakens the naira.</span></span></span></span></p>

Do Exchange Rates Respond Asymmetrically to Crude Oil Market Shocks? Insights from BRICS and Pakistan

Abstract The shocks in the crude oil market are unlikely to have symmetric impacts on exchange rates, especially over various time periods. Furthermore, in low- and high-volatility regimes, exchange rates are predicted to respond differently to oil market shocks. By employing Markov-switching model and state-space model, this research empirically investigates whether oil market shocks exert asymmetric impacts on exchange rates, across the time and across different levels of volatility. In doing so, the study utilizes monthly data from January 1994-September 2017 for BRICS countries and Pakistan. The findings indicate that although oil supply shocks are mostly insignificant, oil price shocks appear statistically significant to affect the exchange rates whereas aggregate demand shocks are most volatile and are more likely to cause exchange rate fluctuations. The study concludes that various forms of oil shocks have a wide range of consequences on exchange rate determinations. Nonetheless, exchange rates’ response to oil shocks differ dramatically through low- and high-volatility states, implying that oil shocks exert a time-varying impact on exchange rates. Finally, the findings provide credence to the phenomenon of asymmetry in exchange rate responses to oil market shocks.

Analysing the Factors Behind Exchange Rate Fluctuations in India

Abstract: The study gives an overview of the various determinants of the exchange rate movements in India. Out of the multiple factors affecting the Rupee-Dollar value the impact of Interest rate differential, Trade deficit of India, Foreign Net investment inflows to India, Oil prices, and Gold prices (in the short term) on the exchange rate has been studied using Regression analysis and correlation and the role they played by the above mentioned variables in determining the exchange rate during the Global Financial Crisis of 2008-2010 and during the Covid-19 Period from 2020-2023. Exchange rate fluctuations play a crucial role in shaping the economy of a country, and India is no exception. The exchange rate of the Indian rupee against major world currencies is subject to constant fluctuations, influenced by a multitude of domestic and global factors. These fluctuations have significant implications for various stakeholders, including businesses, consumers, investors, and policymakers. Several factors contribute to the exchange rate fluctuations in India. One of the primary factors is the demand and supply dynamics of foreign exchange. Factors such as trade balance, foreign direct investments, portfolio investments, remittances impact the demand for and supply of foreign currency, Crude oil prices, Gold prices, and thereby affecting the exchange rate. In addition, macroeconomic variables like inflation, interest rates, and economic growth also play a crucial role in determining exchange rate movements. For instance, a high inflation rate in India compared to trading partner countries can lead to a depreciation of the rupee. Global economic conditions and geopolitical events are other significant factors influencing exchange rate fluctuations in India. Economic developments in major trading partners, changes in global commodity prices, and geopolitical tensions can all impact investor sentiment and capital flows, leading to fluctuations in the exchange rate. For example, uncertainties related to Brexit or trade tensions between major economies can trigger volatility in currency markets. Monetary policy decisions by the Reserve Bank of India (RBI) also play a crucial role in influencing exchange rates. Interest rate changes, open market operations, and forex interventions by the central bank can impact the value of the rupee visa-vis other currencies. The RBI often intervenes in the foreign exchange market to stabilize the rupee or prevent extreme volatility. Apart from these factors, market speculation, investor sentiment, and technological advancements in the financial markets can also contribute to exchange rate fluctuations. High-frequency trading, algorithmic trading, and the use of complex financial instruments by market participants can amplify exchange rate movements and increase volatility

An Approach for Determining Exchange Rates: The Mixture of the Purchasing Power Parity Model and the Chartist Model

An Approach for Determining Exchange Rates: The Mixture of the Purchasing Power Parity Model and the Chartist Model