Exchange Rate Movements Research Articles

Exchange Rate and Covid-19 Pandemic: The Empirical Evidence from Indonesia

This study aims to analyze the influence of various internal and external factors on the movement of the IDR exchange rate. These factors include the Covid-19 pandemic, inflation, interest rates, the money supply and world oil prices. The method used in this study uses Autoregressive Distributed Lag (ARDL) analysis using time series data. The results of this study indicate that the Covid-19 pandemic has a positive effect on the IDR/USD exchange rate in the short and long term. Inflation and interest rates have no effect on the IDR/USD exchange rate in the short or long term. The money supply has an effect in the short term in the current period, one previous period (t-1) and three previous periods (t-3). The influence of the money supply is two-way (positive and negative), while in the long term the money supply has no effect on the IDR exchange rate. World oil prices have a positive effect in the short term in the two previous periods (t-2) and the previous four periods (t-4), as well as in the long term.

Does the Central Bank of Peru respond to exchange rate movements? A Bayesian estimation of a New Keynesian DSGE model with FX interventions

This paper assesses the role played by the exchange rate and FX intervention in setting monetary policy interest rates in Peru. We estimate a Taylor rule that includes inflation, output gap and the exchange rate using a New Keynesian DSGE model that follows closely Schmitt-Grohé and Uribe (2017). The model is extended to include an explicit sterilized FX intervention rule as in Faltermeier, Lama, and Medina (2017). The main empirical results show that the model that features a Taylor rule which does not respond to changes in the nominal exchange rate and considers an active use of FX interventions by the Central Bank of Peru clearly outperforms other model specifications in terms of the marginal log density. We also find that the coefficient associated with the response of the Taylor rule to inflation is close to 2 and the one associated with the output gap is greater than 1. Additionally, we find that FX interventions have become more responsive to exchange rate fluctuations during the IT period. Finally, the estimated IRFs show that FX interventions has contributed to reducing the volatility of GDP in response to productivity and terms of trade shocks in Peru.

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.

Intervention Analysis for Modeling and Forecasting Exchange Rates Rupiah Against Yen

The Rupiah exchange rate against the Yen is one of the most important exchange rates in Indonesia since the agreement between the two countries to conduct investment and trade transactions using local currency. Exchange rate movements tended to strengthen during 2019. In 2020 there was a COVID-19 intervention and there was a significant weakening. An intervention is an event that causes a sharp increase or decrease in time series data. Intervention analysis is an analysis used on the data affected by the intervention by measuring the magnitude of the change in value and the duration of the intervention. Intervention analysis research on data on the rupiah exchange rate against the yen is still very rarely done. This study aims to apply intervention analysis in modeling and forecasting the Rupiah against the Yen exchange rate by considering the impact of the COVID-19 intervention. Research shows that the COVID-19 intervention on the Rupiah exchange rate against the Yen has had a long impact with the best intervention model being ARIMA (4,2,0) with an order of intervention (0,1,0). The level of forecasting accuracy using the model is very good with a MAPE value of 2.69%.

Examining the Impact of Covid-19 on Rupiah Exchange Rates and Joint Stock Price Index: A Comprehensive Analysis using Paired Sample T-Test and Vecm

This research aimed to determine the simultaneous and partial impact before and during the occurrence of COVID-19 on the movement of the rupiah exchange rates and the Joint Stock Price Index (IHSG), both in the long and short term. A descriptive quantitative approach was used while data were collected through documentation. Moreover, the analytical method used was Paired Sample t-test and Vector Error Correction Model (VECM). The results indicated there was a significant simultaneous and partial change in the impact of the rupiah exchange rates and the Jakarta Composite Index (JCI) before and during the long-term COVID-19 pandemic.

Missing: A correlation between exchange rate misalignment and GDP growth

AbstractThe impact of real exchange rate movements on growth is a hotly debated issue in policy and academic circles. We provide evidence that this association is very weak for a broad panel of countries. Controlling for initial GDP, country and time fixed effects, a more depreciated currency is associated with higher growth only if the savings rate is not included as a control. Further, even if the latter is not added to the estimation, the correlation becomes insignificant when outliers or very small countries are left out. Importantly, this also holds for the specific subsample of emerging economies.

Strategic Decision-Making on Mining Sector Company Stock Prices and Economic Variable (State Space Model Application)

Energy sector is not excluded from the recession in global economics. However, one can be stable during such outbreak was gold prices which showed incredible stable prices and relatively increasing. That also affected on daily stock prices for the gold producing companies such as PT Aneka Tambang (issuer code: ANTM) that showed conversely increasing than other mining sector companies. This study aims to investigate causal relationships between ANTM stock prices and Indonesian exchange rates in order to have strategic decision-making for investors by employing State Space model and to provide forecasting daily data for both variables. The study found that the State Space model confirmed their dynamic relationship, in which ANTM was not only affected by itself but also by the movement of exchange rates. The forecasting graphs then provide the insight of strategic decision-making for investors to strongly invest on gold-based company as they have an increasing projection for the next 20 days.

<p>Black Market Exchange Rate Movement in Nigeria: Does Cryptocurrency Matters?</p>

The movement of exchange rates generally had demonstrated unpredictable patterns over time as a traditional mode of payment, particularly the black or parallel exchange market that is already fueled by demand pressure. However, cryptocurrency and the parallel or black exchange market are global phenomenon traded outside the government strict regulations in Nigeria, hence, their economic implications and understanding by many persons, banks, policy-makers, governments, and companies remain a priori unclear. Therefore, this study investigates the impacts of cryptocurrency on black or parallel exchange rate market movement in Nigeria from Jan, 2021 to April, 2023 using the autoregressive distributive lag (ARDL) regression analysis and Granger causality test to affirm the hypothesis that, cryptocurrency do not have significant impacts on black market exchange rate movement in Nigeria. The result of the ARDL shows that cryptocurrencies trading are core determinants of the black or parallel market exchange rate movement in Nigeria during the study period. Therefore, we concluded that cryptocurrency has a negative and significant impact on black market exchange rate movement in Nigeria from Jan. 2021 to April, 2023 and recommend that the government as a matter of urgency regulate cryptocurrency in order to curb the excesses that come with it just like in Japan, China, and Australia, since Nigeria still engages foreign currency controls as monetary policy tools, so as to improve on consumers’ confidence on the domestic currency.

The Dynamics of Exchange Rate Movements and Economic Growth in Nigeria: Does the Mundell–Fleming Model Stand?

The purpose of this study is to examine if exchange rate fluctuations have an impact on Nigeria’s economic performance using annual time series spanning from 1986 to 2020. The Generalised Autoregressive Conditional Heteroscedasticity (GARC) model was used as the study’s analytical technique. The result shows that in the long-run, exchange rate depreciation, inflation and the monetary policy rate have a significant long-term impact on the nation’s economic performance. By implication, the Naira/USD exchange rate fluctuation affects the economy negatively. Therefore, an appreciation in the value of the Naira relative to the USD will enhance Nigeria’s economic performance and vice versa. The net effect of this finding is that a persistent exchange rate fluctuation is detrimental to Nigeria’s economic stability and overall performance. With this finding, this study suggests the intervention of the monetary authority to reduce the level of fluctuation and ensure short-term and long-term stability in the exchange rate system. From the fiscal policy perspective, the government should consider trade interdependence and flexibility of production factors when formulating exchange rate policies. Keywords: Exchange Rate Fluctuations, Monetary Policy Rate, Inflation Rate, Economic Growth, Mundell-Fleming Model, & Nigeria JEL: C1, F4, F31 DOI: 10.7176/JESD/14-10-06 Publication date: May 31 st 2023

China in Terms of Exchange Rate, Inflation and Interest Rate (Based on Database 2018)

This research model looks at the long-term relationship between exchange rates, interest rates, and inflation using Autoregressive Distributed Lag (ARDL) co-integration analysis based on database 2018. This study aims to ensure stability in the exchange regime through the structurally nexus of interest rates and inflation volatility and its targets. The data used is historical data on the country of China from 1987-2017. The results of the estimates show that inflation and interest rates in the previous period had a significant effect on the movement of the Chinese exchange rate, while the movement of the exchange rate of the previous period did not affect the movement of the exchange rate of the next period. Although there is a long-term cointegration between the independent variables, namely interest rates and inflation (CPI) against the dependent variables i.e. exchange rates, the long-term relationship between independent variables does not significantly affect the dependent variables.

THE RELATIONSHIP BETWEEN EXCHANGE RATE VOLATILITY AND STOCK INDEX RETURN: EVIDENCE FROM TURKEY

Exchange rate fluctuations do not affect only the companies and individuals that engage in foreign currency-based transactions. As economic exposure features, even entities with no foreign currency assets and obligations are affected from the movements in exchange rates. Exchange rates, in fact, are closely related with several macroeconomic variables including stock prices and returns. Investigations into the relationship between exchange rate fluctuations and stock returns are widely observed among financial participants and academic circles. This study aims at exploring the link between exchange rate volatility and stock returns by investigating the US Dollar/Turkish Lira (USD/TRY) exchange rate volatility and Borsa Istanbul 100 Index (BIST-100) returns. In the study, 406 days of data for the period 11.03.2020-28.10.2021 were included in the analysis. Augmented Dickey-Fuller (ADF) unit root test was used to analyze the stationarity of the variables. As a result of the test, it is seen that the series are stationary at the I(0) level. After performing the stationarity test, ARMA (2,2) from linear stationary stochastic models and EGARCH (2,2) from general autoregressive conditional variable variance models were estimated to model exchange rate volatility. Then, Granger causality test was used to see if there is a relationship between exchange rate volatility and stock returns. The findings put forward the existence of bidirectional causality relationship between the variables. As the time span of the data period overlaps with the pandemic period, it appears that causality relationship obtained by the study is like the ones that held in the studies in the pre-pandemic period.

Analysis Of Factors Affecting Price Movements Indonesia Stock Exchange Industrial Classification

This study aims to analyze the impact of movements in exchange rates, world gold price, world crude oil price and Covid-19 cases on Indonesia Stock Exchange Industrial Classification (IDX-IC). This study uses Vector Autoregression/ Vector Error Correction Model with daily data from January 26, 2021, to April 28, 2022. The results of this study show that exchange rate has a positive effect on industrial, transportation and logistics sector. Then, world gold price has a negative effect on several sectors, namely energy, industry, health and finance. Covid-19 case has a negative effect on transportation and logistics sector. The impulse response function test results show that each sector responded differently to shocks to exchange rates, world gold prices, world crude oil prices and Covid-19 cases. However, all sectors responded to these shocks in the second period and returned to a stable point in the fifth. The results of forecast error variance decomposition test show that the sectoral stock price index contributes the most for itself, followed by world gold prices, exchange rates, Covid-19 cases and world crude oil prices.

The Analysis of Inflation, Exchange rate, and Benchmark Interest Rate (BI rate) Influences on the Indonesia Composite Index (ICI)

This study analyzes the correlation and influence rates of inflation, Bank Indonesia, and the Dollar Exchange (USD/IDR) on the Indonesia Composite Index(ICI) in Indonesia from 2001 to 2021. The type of study used explanatory research with quantitative approach. The research data is in the form of secondary data based on the period in the form of ICI, benchmark interest rate, inflation, and rupiah exchange rate on the US dollar (KURS) obtained from Bank Indonesia (BI), the Indonesia Stock Exchange (IDX), and the Central Statistics Agency (BPS). This study's data complements the latest month's data from the inflation rate, BI Rate, USD/IDR Exchange rate, and combination of the Stock Price Index(ICI) for 2001 to 2021. The analysis method in this study used multiple linear regression models and Ordinary Least Squares (OLS). The results showed that the Ordinary Least Square (OLS) relies on the overall movement of exchange rates in the interest rate based on the Composite IDX.

Convenience yield and real exchange rate dynamics: A present‐value interpretation

AbstractIn this paper, we empirically investigate the relationship between the convenience yield of government bonds and the real exchange rates using monthly data from 1999 to 2018. We extend the conventional models, based on the present‐value relationship between the real exchange rate and economic fundamentals, while explicitly considering the role of the convenience yield. Empirical results suggest that our present‐value models can capture the dynamic properties of the real exchange rate documented in the literature, including high persistence, excess volatility and excess co‐movement compared with real interest rate differentials. We also find that the sum of expected convenience yields significantly drives real exchange rate movements. Moreover, we find that foreign exchange swap market friction also plays a role in explaining real exchange rates. Finally, we find that monetary policy at the zero lower bound may be essential in real exchange rate modelling.

Twin Deficits in Vietnam: Signs of Return and Some Recommendations

When a country’s current account and government budget run into deficits at the same time, the country’s economy falls into a twin deficit. The current account surplus since 2011 has helped Vietnam temporarily get rid of a twin deficit continuously for many years. The appearance of a scattered current account deficit from 2015 to now signals the possibility of a return of a twin deficit. This is seen more clearly when analyzing the imbalance of savings and investment, economic crisis and exchange rate movements in the market. The paper makes a number of policy recommendations to prevent the return of a double deficit, limit its negative effects, and promote macroeconomic stability in Vietnam.

The effect of energy price shocks on commodity currencies during the war in Ukraine

The ongoing geopolitical crisis that has emerged due to the war in Ukraine has created economic winners and losers. We adopt the DS-ARDL and Cross-Quantilogram approaches to examine the effect of higher energy prices on commodity currencies during this war. Our findings based on 4-h time frame data between January and November 2022 indicate a significant positive effect of energy price hikes on the value of the Australian dollar relative to the Japanese yen, Euro, and British pound. The comparison of the effects of gas and oil price hikes on the exchange rates reveals that these exchange rate movements have been mostly due to gas price shocks. Considering the effects of this war on the international economy, the most critical policy implications to improve the financial health of the economies are provided.

Why is dollar debt Cheaper? Evidence from Peru

In emerging markets, a significant share of corporate loans are denominated in dollars. Using novel data that includes loan-level currency and the cost of credit, in addition to several other transaction-level characteristics, we re-examine the reasons behind dollar credit popularity. We find that a dollar-denominated loan has an interest rate that is 2 percentage points lower per year than a loan in local currency. Expectations of exchange rate movements do not explain this difference. We show that this interest rate differential for lending rates is closely matched by the differential in the deposit market. Our results suggest that the preference for dollar loans is rooted in the local depositors preference for dollar savings, and a banking sector that is strongly incentivized to closely match its foreign-currency assets and liabilities. Cross-borrower variation points to competitive pressure among banks to explain the significant pass-through of this differential.

The Impact of Fiscal Policy on the Current Account Balance in the Case of Bosnia and Herzegovina

This paper aims to investigate and determine the relationship between the budget, changes in GDP, price indices, and movement of the real exchange rate on one hand, and the state of the mud balance in Bosnia and Herzegovina during the period of 2005-2019. The paper covers literature related to this field, empirical knowledge, case studies of various international types of research, and certain econometric methods. The research results indicate the presence of a negative correlation between the budget deficit, reduction in prices and the real exchange rate, and improvement of the current balance. The outcomes vary depending on whether it is in the short-term or long-term horizon.

Fractional Derivative and Financial Instruments: Waiting Time Distributions for the Exchange Rate Movement of US Dollar to Japanese Yen

Fractional Derivative and Financial Instruments: Waiting Time Distributions for the Exchange Rate Movement of US Dollar to Japanese Yen

Factors Influencing the Prices of Rice, Maize and Wheat Prices in Nigeria

This study examines the impact of agricultural Gross Domestic Product (GDP) and imports on Nigeria’s food commodity prices using annual data from 1981 to 2018. Data obtained were analysed using the unit root test, cointegration test and Autoregressive Distributed Lag (ARDL) model to evaluate the long-run and short-run effects of the hypothesized variables on the food commodity prices. The results reveal that maize import value and exchange rate significantly affect the price of maize in the short-run. In contrast, the lagged price of maize, maize output and the past value of maize imports are the factors that influenced the current price of maize within the review period. Also, the lagged price of rice, rice output and the lagged value of rice imported in the immediate year exerted significant influences on the price of rice in Nigeria. Furthermore, the study indicates that the lagged price of wheat, the import value of wheat and the lagged wheat import value were statistically significant in influencing wheat price in Nigeria. Hence, policies for flexibility in the harmonization of exchange rate movements strengthen domestic agricultural performance.