Exchange Rate Issues Research Articles

A neural network model for predicting price changes of the exchange rate EUR/USD

With the rapid development of the global economy, economic exchanges and cooperation between countries have become increasingly frequent, and the importance of the foreign exchange market has become increasingly prominent. As a link between international trade, foreign exchange plays a crucial role in formulating relevant financial policies and the risk management of multinational enterprises. However, accurately predicting foreign exchange changes is very challenging because the foreign exchange market is characterized by non-linear and dynamic changes and exchange rate fluctuations are also affected by historical data. The analysis method based on time series has always been an effective solution for studying exchange rate issues, and the model trained by the deep learning model based on time series data can further simulate and predict the exchange rate. Therefore, this article uses the BP neural network algorithm based on the time series model to predict the price change of the exchange rate EUR/USD. This article first uses the historical exchange rate data of the euro against the US dollar as a training set and performs data preprocessing. Secondly, the activation function and learning rate of the model are tuned, and the performance of the model is compared by evaluating indicators to improve prediction accuracy. The final experimental results show that the neural network model is highly accurate and predictive in predicting EUR/USD exchange rate price changes.

What drives TFP long-run dynamics in five large European economies?

The aim of this paper is to study the long-run cointegrating relationship of TFP in a panel of five large European economies, namely France, Germany, Italy, Spain, and UK. We test whether TFP is determined by the so-called “capital misallocation effects, scale effects, and labor market effects”. By considering aggregate data, over the period 1983–2017, we employ dynamic panel cointegration techniques to identify the long-run component of TFP. We get two main results. First, the interest rate, the real compensation and the real exchange rate have a positive impact on TFP. Then, the incidence of temporary employment (a proxy of labor market flexibility) has a negative effect on TFP. Moreover, for robustness, we run a panel VECM to check for causalities among the variables. Notably, this further excercise confirms the existence of a strong and positive long-run relationship between TFP and prices. We conclude that coordinated policies on the issue of interest rate, exchange rate, labour cost and regulation, may allow to reassemble the productivity slowdown puzzle and strengthen the European economic structure.

The Stability of Money Supply in the View of Monetary Unification

This study is focused on the effect of the money unification process of Albania and mainly in the effect of this process into the money supply. During the recent discussions about integrating our country into the European Monetary Union, a money illusion was conceived without taking into the consideration the rational effects of this process into the savers of the economy. Beyond this illusion— after analyzing the advantages and disadvantages of the unification process— this paper aims to look up into the main obstacles this process bears; for instance this article carefully observes the misalignment issue of inflation and exchange rate after the possible currency conversion in Albania. The main indicators on which our analysis is based are: money supply, interest rates, targeted inflation, GDP and velocity of money velocity. Further this paper aims to examine the relationship between money supply, GDP and targeted inflation. Based on this study we drive these following issues to a solution on the reference of Fisher’s Quantitative Theory of Money. Based on an empirical analysis, we expect to find a controversial behavior of money supply after the currency substitution. This research paper opens a new lieu of discussion in terms of academic and decision making debates.

Pengaruh Kurs Rupiah Dan Right Issue Terhadap Harga Saham PT Telekomunikasi Indonesia Tbk Yang Listing Di Jakarta Islamic Index

This study discusses the effect of rupiah exchange rate and right issue on stock price of PT. Telekomunikasi Indonesia Tbk listing in Jakarta Islamic Index (JII). The purpose is to determine the effect between the rupiah exchange rate and the right issue against the stock price of PT. Telekomunikasi Indonesia Tbk and to find out which factors have the most influence on stock prices of PT. Telekomunikasi Indonesia Tbk. Data collection method uses time series secondary data obtained from the official website of Bank Indonesia and PT. Danareksa Sekuritas. The data collected are from January 2013 to December 2016. Multiple linear regression is used as an analytical technique. The results showed that the variables of the rupiah exchange rate against the Dollar and the right issue variable jointly affect the stock price of PT. Telekomunikasi Indonesia Tbk. From result of regression analysis known that right issue have stronger influence than rupiah exchange rate to share price of PT. Telekomunikasi Indonesia Tbk.

EXCHANGE RATE VOLATILITY: AN EMPIRICAL STUDY FOR STATE OF KUWAIT

As an oil exporting nation Kuwait suffers from the well-known issue called the Resource Curse given the high reliance on oil revenues for economic growth and development. Traditionally research on small open economies such as Kuwait focus on versions of the Solow /Harrod/Domar growth models which are predominantly closed models which focus on exogenous growth issues such as saving ratios and the Solow Residual. For an open economy without core problems on capital accumulation, such as Kuwait, it is interesting to disentangle exchange rate volatility issues from key open economy fundamentals such as GDP growth, trade openness, inward foreign investment and exchange rate issues. The purpose of this study is to empirically examine the impact of gross domestic product, trade openness and foreign direct investment on the exchange rate volatility of Kuwait. We have used several advanced statistical tools to better estimate different kinds of relationships. Results show that all factors are significant in determining exchange rate volatility.

BOOK REVIEW: “Managing the Macroeconomy — Monetary and Exchange Rate Issues in India”

BOOK REVIEW: “Managing the Macroeconomy — Monetary and Exchange Rate Issues in India”

Book Reviews

R.K. Pattnaik of SP Jain Institute of Management and Research reviews “Managing the Macroeconomy: Monetary and Exchange Rate Issues in India,” by Ramkishen S. Rajan and Venkataramana Yanamandra. The Econlit abstract of this book begins: “Provides an empirical assessment of some of India's crucial policy challenges regarding its monetary and external sector management. Discusses a macroeconomic overview of the Indian economy; the effectiveness of monetary policy in India--the interest rate pass-through channel; understanding exchange rate and reserve management in India; the impact of exchange rate pass-through on inflation in India; rupee movements and India's trade balance--exploring the existence of a J-curve; and external financing in India--sources and types of foreign direct investment.”

对人民币汇率影响因素的实证分析

随着中国经济的发展和人民币加入SDR货币篮子，人民币汇率问题已日益成为关注的焦点。影响人民币汇率的因素有很多，例如：中国经济发展状况，购买力平价，利率平价，国际收支，本文根据上述影响因素分别选取了GDP，中美相对消费价格指数，中美利差，进出口差额增长率这几个因素，运用简单计量经济学知识，建立一元线性回归方程，并对该模型分别从经济意义，统计意义和计量经济学三方面进行检验，判定上述因素对人民币汇率的影响，再根据近期专家和各类机构的预测结合自己的分析对人民币的未来走势做出预测和提出相关政策意见促进汇率的稳定和机制的改革。 As China’s economic develops rapidly and Chinese Yuan has joined in SDR, the issue of RMB ex-change rate has come to the forefront. The fluctuation of exchange rate is associated with a multi-tude of factors such as the growth of the economic in China, the purchasing power parity, the inter-est rate parity, the balance of international payment, etc. According to the factors mentioned above, four varieties including Gross Domestic Production (GDP), the relative consumer index of China and the U.S, the Interest Rate spread of China and the US and the growth rate of the balance of trade are selected in this article. Combined with some knowledge of econometrics, these factors will be con-structed into a simple linear regression. Then the regression equation will be tested via the meth-ods of economic, statistics and econometrics accordingly to find out how these factors influence the exchange rate. Lastly, the paper will forecast the future tendency of RMB exchange rate and put forward some suggestions to promote the exchange stability.

Imperfect adaptation: how the WTO and the IMF adjust to shifting power distributions among their members

How do international institutions adjust to shifting power distributions among their members? We argue that institutional adaptations to the rise of emerging and the decline of established powers are different from what power transition theories (PTTs) would lead us to believe. Institutional adaptations are not impossible, as pessimist PTT variants hold; and they are rarely easy to attain, let alone perfect, as optimist PTT variants imply. To bridge the gap between these versions of PTT, we propose an institutionalist power shift theory (IPST) which combines insights on the conditions and mechanisms of institutional change from functionalist, historical and distributive variants of rational institutionalism. IPST claims that institutional adaptations will succeed or fail depending on whether or not emerging powers are able to undermine the international institution and to make credible threats to this effect. To demonstrate IPST’s plausibility we analyze: (1) how India and Brazil gained the agreement of established powers to their membership in the WTO core negotiation group (“Quad”), which had previously been dominated by developed countries; and (2) how China reached agreement with established powers on (more) even-handed surveillance of IMF members’ financial stability, which, up to then, had focused on developing countries and exchange rate issues.

Econometric analysis of exchange rate in Serbia and its influence on agricultural sector

This paper attempts to empirically estimate equilibrium exchange rate level of Serbian dinar. In that purpose reduced form equilibrium real exchange rate approach (ERER) is used, developed by IMF's Consultative Group on Exchange Rate Issues (CGER). The research was made by using ARDL approach in the single-country analysis. It has been started from dynamic model which has described relation between real effective exchange rate and a set of fundamental variables. Bound test has been provided due to determination of the long-term relationship existence between variables. F-statistics has been used for long-term relationship testing between dependent variable and set of indicators. Since assumptions were met, least squares method was used for coefficient estimation. The results have shown constant dinar's overvaluation over medium term.

Washington dissensus: ambiguity and conflict at the International Monetary Fund

During the 1990s, the International Monetary Fund failed to develop clear exchange rate policy norms for developing countries, despite the fact that oversight of the internationalmonetary system is central to itsmandate. Explaining this behaviour requires revising theories of autonomous agenda-setting and ‘ceremonial conformity’ in international organizations (IOs). I argue that IOs often adopt a posture of strategic ambiguity when confronted with a combination of divisions among major member states and a lack of consensus in the profession that provides the organization’s source of expert legitimacy. However, while the ambiguity helps avoid conflict in the short run, it undermines organizational governance capacity in the medium run, resulting in coordination failures. The empirical analysis relies on internal records of Fund meetings on the exchange rate issue, interviews with former IMF officials and analysis of the organization’s governance role during currency crises in Mexico, Russia, Brazil and Argentina.

Current Account and Real Effective Exchange Rate Misalignments in Central Eastern EU Countries: An Update Using the Macroeconomic Balance Approach

Using the IMF Consultative Group on Exchange Rate Issues methodology, we make an assessment of the current account and price competitiveness of the Central Eastern European Countries that joined the EU between 2004 and 2014. We present results for the “Macroeconomic Balance” approach, which provides a measure of current account equilibrium based on its determinants together with misalignments in real effective exchange rates. We believe that a more refined analysis of the misalignments may useful for the Macroeconomic Imbalance Procedure. This is especially the case for these countries, which have gone through a transition phase and boom/bust periods since their independence. Because such a history may have influenced a country’s performance, any evaluation must take account of each country’s particular characteristics. We use a panel setup of 11 EU new member states (incl. Croatia) for the period 1994-2012 in static and dynamic frameworks, also controlling for the presence of cross-sectional dependence and checking specifically for the role of exchange rate regimes, capital flows and global factors.We find that the estimated coefficients of the determinants meet with expectations. Moreover, the foreign capital flows, the oil balance, and relative output growth seem to play a crucial role in explaining the current account balance. Some global factors such as shocks in oil prices or supply might have played a role in worsening the current account balances. Having a pegged exchange rate regime (or being part of the euro zone) affects the current account positively. The real effective exchange rates behave in accord with the current account gaps, which clearly display cyclical behaviour. The current accounts and real effective exchange rates come close to equilibria in 2012 in most of the countries and the rebalancing is completed for some countries that were less misaligned in the past, such as Poland and Czech Republic, but also for Lithuania. When foreign direct investments are introduced as a determinant for these countries, the misalignments are larger in the boom periods (positive misalignments) whereas the negative misalignments are smaller in magnitude.

The Repercussions of Realignment: United States-China Interdependence and Exchange Rate Politics

Analysts generally believe that a weaker currency primarily benefits a country's manufacturing and primary goods sectors. However, many of these industries—and the elected officials who represent them—frequently oppose legislation designed to combat the dollar's overvaluation relative to the Chinese yuan. I argue that legislators hesitate to take aggressive action on the exchange rate issue because doing so could lead to a disruption of the broader United States–China economic relationship. The threat of an economic conflict emerges as a particularly important consideration in the context of currency bills, where proposed legislation is linked to trade policy and other areas of international economic regulation. A Bayesian statistical analysis of legislative behavior on two recent exchange rate bills in the US Congress provides overall support for my hypotheses. Legislators with ties to business interests that rely heavily on the Chinese economy were more likely to oppose the bills, while the strongest support came from legislators representing import-competing domestic producers. The results highlight the ways that economic interdependence shapes bilateral exchange rate politics in particular, and United States–China interactions more generally.

HOW DOES INTERNATIONAL TRADE REGULATION ADDRESSES EXCHANGE RATES MEASURES?

ABSTRACT This is study seeks to analyze the international trade regulatory framework regarding exchange rate measures that bear an impact on trade. The present article will explore how the exchange rate issue relates to the WTO and affects its instruments and principles and, in the following, will look for provisions under the WTO agreements that could address the exchange rate issue and rebalance the impacts caused by misaligned currencies on trade.

Asian Monetary Integration: A Japanese Perspective

This paper discusses Japan's strategy for Asian monetary integration. It argues that Japan faces three major policy challenges when promoting intraregional exchange rate stability. First, there must be some convergence of exchange rate regimes in East Asia, and the most realistic option is for the region's emerging economies to adopt similar managed floating regimes — rather than a peg to an external currency. This requires major emerging economies — particularly the People's Republic of China (PRC) — to move to a more flexible regime vis-a-vis the US dollar. Second, given the limited degree of the yen's internationalization and the lack of the renminbi's (or the prospect of its rapid) full convertibility, it is in the interest of East Asia to create a regional monetary anchor through a combination of some form of national inflation targeting and a currency basket system. Emerging economies in the region need to find a suitable currency basket for their exchange rate target, such as a special drawing rights-plus (SDR ) currency basket — i.e., a basket of the SDR and emerging East Asian currencies. Third, if the creation of a stable regional monetary zone is desirable, the region must have a country or countries assuming a leadership role in this endeavor. There is no question that Japan and the PRC are such potential leaders, and the two countries need to collaborate closely with each other.To assume a leadership role, together with the PRC, in creating a stable monetary zone in Asia, Japan needs to make significant efforts at the national and regional levels and further strengthen financial cooperation. Practical steps that Japan could take include (i) restoring sustained economic growth through Abenomics; (ii) transforming Tokyo into a globally competitive international financial center; (iii) further strengthening regional economic and financial surveillance (Economic Review and Policy Dialogue and ASEAN 3 Macroeconomic Research Office) and regional financial safety nets (Chiang Mai Initiative Multilateralization) and creation of an Asian currency unit index; and (iv) launching serious policy discussions focusing on exchange rate issues to achieve intraregional exchange rate stability.

An Analysis of Core Factors Contributing U.S – China Trade Imbalance

This paper aims to highlight the trade imbalance between the United States and China based on the analysis of core factors contributing to the imbalance. These factors are comprised of trade inequality, exchange rate issues, differences in the basic economic structure of both countries, and the methodology of calculating trade figures. This paper also highlights where both the countries differ in their point of view on their bilateral trade and why? Without a doubt, this imbalance leads the United States to face a huge deficit and China to enjoy a giant surplus in mutual trade. Now, how can we adjust the figures and narrow down the differences? The paper is also discussing the other issues which have reasonable implications for the U.S -China's trade relations. It also enumerates the future consequences on their bilateral trade keeping in view the current scenario. The importance of this paper is further enhanced as the trade imbalance is also counted as one of the factors of the 2008 recession which is not yet fully over because there is a very slow recovery in developed countries and relatively faster in developing countries. The analysis is based on the U.S trade data from 2001 to 2010.

Comment on “Industry‐specific Real Effective Exchange Rates and Export Price Competitiveness: The Cases of Japan, China, and Korea”

Sato et al. (2013) represents a significant contribution to the literature. The novelty of their paper lies in the construction of a new dataset on industry-specific real effective exchange rates (REER) on a monthly basis from January 2005 to the present. The authors have convincingly demonstrated that REER differs not only between countries, but also across industries, a finding that would have slipped through the net of aggregate data analysis. The authors have used the industry-wise producer price index (PPI), instead of consumer price index (CPI), not only because the latter includes nontradables, but also because the former tends to vary across industries, reflecting interindustry differences in costs arising from differences in their exposure to exchange rate changes. In this context, industries with large import content are more sensitive to exchange rate changes than those with a large domestic content. It, thus, makes considerable sense to use the industry breakdown PPI data. However, exchange rate changes, in purchasing power parity (PPP) terms, can only be explained by the inflation differential. According to PPP, a currency with a relatively lower inflation rate would appreciate vis-a-vis currency with a higher inflation rate. Seen in these terms, one might still argue that CPI is more relevant for explaining exchange rate appreciations and depreciations, be they in nominal or real terms. The spotlight on the electric machinery industry is revealing. The results show that the Japanese electric machinery REER exhibits the largest depreciation among Japanese industries. This finding suggests that Japanese electric machinery should be enjoying substantial export price competitiveness. On the contrary, the Japanese electric machinery firms are suffering from worsening business performance and tougher competition in the export market. The explanation given by the authors is that Japan’s competitors in the electric machinery industry, especially the Korean firms, enjoy a much larger REER depreciation, and hence stronger export price competitiveness. This is further supported by the results of a factor decomposition analysis that attributes the Korean electric machinery export price competitiveness to a significant drop in domestic producer prices in Korea during the won appreciation period.

Globalisation, cost competitiveness and international trade: The evolution of the Italian textile and clothing industries and the growth of trade with China

Amongst developed countries, Italy is unusual in that it has maintained a specialisation in traditional industries such as textiles and clothing (TCI). Explanations of Italy’s unusual industrial profile mainly emphasise the role of endogenous economic and cultural resources. Globalisation in the 1990s and 2000s saw slow growth and a significant decline of these formerly resilient industries. Analyses of trade and unit value data support accounts of the lateness of the Italian TCI’s movement in the direction of Outward Processing Traffic (OPT) and the subsequent rise of a pan-Euro-Mediterranean system. More recently, however, this system has declined as a result of new competitive challenges from China and other emerging economies that have eroded the position of Italian enterprises on export and domestic markets and adversely affected their Euro-Mediterranean suppliers. As district and value-chain theories show, the geography of industrial activities is a result of enterprise strategies and the environment in which they operate. To embrace recent trends these theories must, however, be extended to give greater weight to exchange rate, trade, market, demand-side and related institutional issues.

An Analysis of Core Factors Contributing to U.S. - China Trade Imbalance

This paper aims to highlight the trade imbalance between United States and China based on the analysis of core factors contributing the imbalance. These factors are comprise of trade inequality, exchange rate issue, difference in basic economic structure of both the countries, and methodology of calculating trade figures. This paper also highlights that where both the countries differ in their point of view on their bilateral trade and why? Beyond doubt this imbalance leads the United States to face huge deficit and China to enjoy the giant surplus in mutual trade. Now, how can we adjust the figures and narrow down the differences? The paper is also discussing the other issues which have reasonable implication on U.S -China trade relations. It also enumerates the future consequences on their bilateral trade keeping in view the current scenario. The importance of this paper is further enhanced as the trade imbalance is also counted as one of the factors of the 2008 recession which is not yet fully over because there is very slow recovery in developed countries and relatively faster in developing countries. The analysis is based on the U.S trade data from 2001 to 2010.

China's Currency Devaluation and WTO Issues

INTRODUCTION The value of China's currency, the renminbi (RMB), and the conduct of China's exchange rate policy have generated intense debate in academic and international policy circles. The RMB was pegged from 1994 until mid-2005 at 8.28 yuan to the US dollar. China shifted in 2005 to a policy of loosely pegging the RMB to a basket of major currencies. Since then, the RMB has appreciated against the dollar, and the current RMB/dollar exchange rate stands at roughly 6:30. Over the same period, RMB generally depreciated against the Euro, falling from 10.06 in June 2005 to 10.79 in June 2008. With the 2007/2008 financial crisis, however, the Euro has depreciated and the RMB/Euro exchange rate presently stands at 8.99. Throughout this period, China has intervened actively in foreign exchange markets to prevent the RMB from appreciating faster by selling RMB and buying other major currencies (mostly US dollars). A number of economic commentators argue that China's policies amount to market-distorting manipulation. For example, C. Fred Bergsten of the Peterson Institute for International Economics recently suggested that the RMB must appreciate by approximately 40 per cent against the dollar to correct current and urged the United States to take multilateral, and if necessary unilateral action, to pressure China to change its ways. (1) Michael Mussa and Arvind Subramanian have expressed similar views. (2) Politicians have become involved. Trade officials from both the US and Europe have argued that Chinese practices unfairly distort trade, amounting to the equivalent of a subsidy to exports and a tariff on imports that would violate World Trade Organization (WTO) rules if imposed directly. US President Barack Obama stated in November 2009, for example, that China's current trade surplus is directly related to its manipulation of its currency's value. He concurrently promised to use all diplomatic means at his disposal to achieve change in China's manipulation of the value of its currency, a practice that contributes to massive global imbalances and provides Chinese companies with an unfair competitive advantage. (3) During the 2012 US elections season, Mr. Mitt Romney, one of the two presidential candidates, promised--while bashing President Obama, his opponent, of failing to act against China's currency manipulation--that if he was to be elected, he would label China a currency manipulator from day one. (4) Over the past few years, various proposals for action against China have been put forward in the US Congress. These range from insisting that the Treasury Department refer the matter to the International Monetary Fund (IMF), to requiring that the US Trade Representative bring a formal complaint to the WTO, treating China's alleged manipulation as a source of dumping or countervailable subsidies that would permit the imposition of antidumping or countervailing duties on Chinese imports. IMF case studies have shown that the IMF has never identified a certain member engaging in exchange manipulation, or indicated that the acts of any of its members amount to foreign exchange manipulation. Theoretically, the RMB exchange rate issue can become the subject matter of WTO dispute settlement proceedings only when China's trade partner(s) (e.g., the US and/or the European Union) lodge a complaint against China in the WTO dispute settlement body. Before moving to an action in the WTO, the governments of China's trade partners must take into consideration the translation of China's exchange rate policies (and specifically the magnitude of its exchange rate misalignment) into equivalent real trade policies that could then be more readily evaluated under the rules of the WTO, e.g., under Article XV of the General Agreement on Tariffs and Trade (GATT) 1994, Article XXIII of the GATT or Article 3 of the Agreement on Subsidies and Countervailing Measures (SCM). …