Exchange Rate Regime Research Articles

The impact of external shocks on volatility persistence and market efficiency of the foreign exchange rate regime: evidence from Malawi

The impact of external shocks on volatility persistence and market efficiency of the foreign exchange rate regime: evidence from Malawi

FX resilience around the world: Fighting volatile cross-border capital flows

The volatility of cross-border capital flow (CF) has become higher in the last two decades. We use a sample of advanced and emerging market economies in the last two decades, with a focus on portfolio fund flows (equities and bonds). We find that the impact of portfolio CF volatility on exchange rate (FX) volatility is diminished in the short-term if specific economic fundamentals of the country are stronger, especially when these fundamentals pass certain threshold levels. The finding is controlled for different exchange rate regimes and the level of capital control. We further introduce an intuitive FX resilience measure that can be used to assess the stability of exchange rates in the context of heightened CF volatility. The decomposed FX resilience measure shows that the major contributing fundamentals to FX resilience are from the finance channel, including short-term interest rate, fiscal surplus, and financial development.

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.

Hysteresis and the long shadow of the exchange rate regime

This paper offers empirical evidence consistent with hysteresis, which is the idea that temporary demand shocks can have long-lasting effects on the economy. I rely on the fact that fixers (i.e., countries with fixed exchange rates) were on average hit harder by the 2008 global financial crisis than non-fixers. Fixers continue to underperform non-fixers more than a decade after the crisis. This holds for the period 2008–2019, but also for sub-periods such as 2010–2019 and 2012–2019, which is indicative of hysteresis and even super-hysteresis effects. If hysteresis is real, it has important implications for macroeconomic stabilization policies and, by extension, the choice of exchange rate regime.

Does Exchange Rate Undervaluation Have a Symmetric or Asymme-tric Effect on Economic Growth?

This paper investigates the asymmetric pass-through of real exchange rate undervaluation (Underval) on economic growth. The study using the autoregressive distributed lagged (ARDL) and non-linear autoregressive distributed lagged (NARDL) models reveals the complex and asymmetric effects of Underval on economic growth across different economies for the period 1984-2022. In developing countries, particularly those with floating exchange rate regimes, undervaluation can enhance economic performance by boosting exports and attracting foreign investment. However, in developing countries with fixed exchange rate regimes, undervaluation poses significant challenges and can lead to negative economic outcomes due to the rigidity and financial burdens associated with maintaining a fixed exchange rate. Conversely, developed countries and emerging markets exhibit a more muted response to underval, reflecting their greater economic stability and resilience. These findings highlight the importance of tailoring exchange rate policies to each country's specific economic context and exchange rate regime to optimize their impact on economic growth.

Exchange-rate regime and sectorial profitability in a small open economy: evidence from Argentina’s recent experience

This paper studies, both theoretically and empirically, tradable ( T ) and non-tradable ( N ) profit rates dynamics in a small, price-taker peripheral economy under foreign exchange controls and parallel exchange rates (ER). Using a state-space econometric representation of the Argentine economy for the period 2016–2023, we found evidence to support three main hypotheses derived from the theoretical models. First, an official exchange rate depreciation increases tradable goods profit rates but has no short-term effect on non-tradeable goods profitability. Second, the rise of the parallel exchange rate increases sector N ’s profit rate but has no effect on T ’s. Moreover, this effect depends on the magnitude of the ER gap in a positive, but non-linear way. Third and finally, over sufficient time, both profit rates tend to influence each other, through the action of competition. This means that, eventually, and increase (depreciation) in the official exchange rate exerts its influence on sector N ’s profit rate; while, if sufficiently persistent and big enough, a rise in the financial ER ends up affecting sector T ’s profit rate too.

The Research on a Currency Board System: The Case of Hong Kong Region

The Currency Board System is a relatively old topic. But due to the successive increases of interest rates by the US Federal Reserve in 2022, the topic has received attention again. This paper will analyse the Currency Board System through a typical example-Hong Kong region. Firstly, the background of Currency Board System will be described. Then three conditions for the success of the Currency Board System will be analysed in the third part. After that, the suitable types of economy to apply the Currency Board System will be pointed out. Finally, it is recommend that different countries with different economic environment are better rationally implement the suitable exchange rate regime.

CURRENT EXCHANGE RATES AND MANAGEMENT POLICIES IN VIETNAM

In the age of inflation, the monetary policy management of national central banks has been challenging in stabilizing the economy. The exchange rate is an economic variable that affects most of the aspects of the economy's activities, but the effect of the exchange rate on many activities is very different. In particular, the impact of exchange rates on trading activities is clear and quick. Therefore, the majority of countries use the exchange rate as an effective tool to adjust their import and export activities of goods and services. In Vietnam, although the State Bank of Vietnam (SBV) has managed the exchange rate relatively stable, in the coming time, the exchange rate may continue to be under pressure due to high inflation and political conflicts between countries; there are still no signs of ending… Potential risks affecting investment, production – business activities, and the exchange rate fluctuations in the foreign exchange market. Researching and making practical proposals will help the State Bank apply exchange rate regimes and appropriate exchange rate management mechanisms.

Better two eyes than one: A synthesis classification of exchange rate regimes

Better two eyes than one: A synthesis classification of exchange rate regimes

Macroeconomic Analysis and General Economic Equilibrium of Kazakhstan

The paper studies general equilibrium in the economy of Kazakhstan. The purpose of the study is to estimate the equilibrium real interest rate for the economy within current frameworks. The IS-LMBP curves are plotted based on corresponding regression models of the real output measured by GDP. The exogenous variables are taken for the regressions according to the theoretical propositions. The quarterly data for 2008Q1-2022Q4 published in the datasets and bulletins of the Committee for Statistics and the National Bank of the Republic of Kazakhstan were used. Some consequences of the change in the exchange rate regime and in macroeconomic policy framework on macroeconomic relationships were revealed. Effectiveness of using interest rate as an instrument in maintaining inflation targeting policy is still ambiguous for the case of Kazakhstan. This study demonstrates the general equilibrium state of the national economy and specifications of the curves listed above. The results can be used to assign further the nominal interest rate using Taylor type rules

The Evolution of the International Monetary System: Impacts on Multinational Firms and Global Trade

The International Monetary System is a global system that regulates money transfers between different nations. It includes currency exchange rates, regulation of international payments, legislations on capital movements, and worldwide financial organizations, including the IMF. The paper analyses how the change over time of the International Monetary System (IMS) affects the international trade and MNCs. Thus, from the Bretton Woods new exchange regime established in 1944–1971 to the current floating exchange rate system, it has been analyzed in regard to the IMS's historical development. Because of the increasing volatility in the currency rate, this has consequently had an impact on the stability of international transactions and trade volumes. The IMS study investigates exchange rate systems, capital flow regulations, and the role of international financial organizations, including the IMF. For its methodology, the study resorted to a mixed-method approach, combining numbers analysis-that includes regression models and time- series data on exchange rates, amounts of international trade, and MNC performance-with analysis of the historical record and inspection of IMF policy documents. The study shows that trade goes down during big financial troubles, like the Asian Financial Crisis in 1997 and the Global Financial Crisis in 2008. It also shows that changes in exchange rates make global trade smaller, especially during these crises. Also, while IMF help, such as structural adjustment programs, often causes short-term problems for multinational companies (MNCs), like less foreign direct investment (FDI), these policies usually help stabilize economies and lead to recovery in the long run. The outcomes indicate how the IMS, international trade, and multinational corporations are intertwined. Acquainting oneself with the fluctuating money system is very crucial because it enables a person to make informed decisions about the world economy. Keywords: International Monetary System (IMS), Exchange Rate Volatility, Multinational Corporations (MNCs), International Trade, International Monetary Fund (IMF)

Does official development assistance (ODA) cause the Dutch disease in developing countries

PurposeThis paper aims to investigate whether official development assistance (ODA) inflows to developing countries (lower-middle and low income) can cause the symptoms of Dutch disease or not.Design/methodology/approachThis study applies the methodology of dynamic panel data estimation with a one-step system generalized methods of moment (GMM) for the sample of 59 developing countries from 2001 to 2019.FindingsThe results indicate that ODA (as a percentage of gross domestic product (GDP)) rises by 1%, the real effective exchange rate (REER) appreciates by 0.252%. This finding reveals that these selected developing countries have faced the symptoms of Dutch disease. The countries with the higher ODA ratio have a higher effect of the Dutch disease, and the managed floating exchange rate regime is the lowest impacted, when compared to the fixed and flexible exchange rate.Practical implicationsThe selected countries are recommended to use ODA inflows right and efficiently. These ODA inflows should be invested in productive sectors or support for production rather than in consumption. The managed float exchange rate regime is applied to reduce the symptom of Dutch disease for the selected countries. The good cooperation of monetary and fiscal policies is important to absorb the huge ODA inflow and sterilize the adverse effects of the disease.Originality/valueThe paper contributes to the literature and empirical of the Dutch disease. An adverse effect of the huge ODA inflow to the developing countries appreciated of the real exchange rate and caused the symptom of the dutch disease.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/IJSE-12-2022-0777

Investigation of biomolecular dynamics by sensitivity-enhanced 1H–2H CPMAS NMR using matrix-free dynamic nuclear polarization

Molecular dynamics of functional groups contain valuable information about structural properties and functional activities in biomolecules. NMR spectroscopy is a sensitive tool for the investigation of molecular dynamics over a wide range of timescales and thus may deepen the understanding of the biomolecules of interest. Here, we present an approach to use DNP-enhanced 2H NMR to study dynamics of selectively deuterated methyl groups in insoluble proteins such as amyloid beta (Aβ) fibrils. We adopted and optimized the matrix-free DNP approach by varying the amount of added polarizing agent as well as the rehydration level of model proteins. We show that the DNP enhancement obtained in 1H–2H cross-polarization (CP) MAS spectra may increase the sensitivity for selectively deuterated Aβ fibril samples by more than one order of magnitude, accelerating the collection of spin-lattice relaxation data in the DNP-accessible temperature range between 100 and 150 K by up to 400-fold. However, below the coalescence temperature, which describes the transition from the fast to the slow exchange regime, the experimentally obtained relaxation time constants suffer from a paramagnetic relaxation enhancement effect due to the presence of the polarizing agent. This seems to be a general effect for biomolecules as it is also confirmed for two other protein model systems. Our demonstration opens the possibility to extend the scope of 2H NMR for dynamics measurements to effective concentrations and/or temperatures below what is currently accessible; however, the observed interplay between paramagnetic relaxation and molecular dynamics also emphasizes the necessity for a better understanding of relaxation effects in DNP-enhanced NMR.

Exchange rate flexibilization and macroeconomic determinants: Evidence from MENA region

Many emerging economies have significantly changed their economic policies by adopting floating exchange rate regimes. This article aims to investigate the relationship between exchange rate variations and key macroeconomic indicators in the MENA region, focusing specifically on Egypt, Tunisia, and Turkey. The study employs regression analysis to explore how macroeconomic factors such as inflation, interest rates, trade balances, foreign exchange reserves, etc. influence exchange rate movements in these economies. By conducting a comprehensive regression model, we aim to provide insights into the complex dynamics of exchange rate fluctuations and their implications for economic stability and policymaking in the MENA region.

Does RMB exchange rate regime reform decrease corporate risk-taking? Evidence from China

This paper investigates the impact of the RMB exchange rate regime reform on corporate risk-taking, utilizing Chinese non-financial firm-level data from 2000 to 2022. The results show that the RMB exchange rate regime reform helps decrease corporate risk-taking by decreasing the RMB exchange rate expectations uncertainty, enhancing capital allocation efficiency, and stabilizing the investor structure. These results remain robust to changing variable measurements and estimation methods, removing policy shocks and endogeneity concerns. Our findings highlight the significance of currency liberalization in stabilizing corporate risk attitudes and promoting the improvement of market efficiency.

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.

The Economic Impact Of The 1997 And 2008 Financial Crisis On Asia

This study investigates the factors that made Asian economies more resilient during the 2008 Global Financial Crisis (GFC) compared to the 1997 Asian Financial Crisis (AFC). The research addresses the question: What made Asian economies more resilient during the Global Financial Crisis than the Asian Financial Crisis? Through a comparative analysis, the research highlights the proactive reforms implemented after the AFC, such as the adoption of adaptable exchange rate regimes, enhanced banking supervision, and the development of deeper capital markets, which collectively fortified the region's financial systems. In this respect, it is observed that such reforms provided an enabling environment that, together with strong current account balances and large foreign exchange reserves, helped the Asian economies weather the GFC. The research has also attempted to explain how strategic international cooperation and financial policies updated were helpful in sustaining financial stability. Despite these successes, the research underscores ongoing vulnerabilities, such as high levels of corporate and household debt, that require attention to safeguard against future crises. The findings offer valuable insights into the importance of readiness, flexibility, and regional cooperation in ensuring economic stability and growth.

Capital controls in China: A necessity for macroeconomic stability

This paper investigates the crucial role of capital controls in maintaining macroeconomic stability in China. We develop an open macroeconomic model integrating capital controls within a managed floating exchange rate system. Our model shows that capital controls enhance the effectiveness of foreign exchange interventions by restricting capital outflows and providing a broader array of policy options, though they may also create discrepancies between domestic and foreign asset holdings. Simulations using quarterly time-series data reveal that capital controls are essential for the success of both sterilized and non-sterilized interventions. These results indicate that the combined use of capital controls and foreign exchange interventions can reduce macroeconomic volatility in China. Moreover, our analysis of fixed versus floating exchange rate regimes suggests that an inappropriate regime choice can increase volatility in capital flows. Therefore, China should adopt a balanced financial approach within its managed floating system to stabilize the macroeconomy.

Impact of Exchange Rate Regime Change on Bangladesh RMG Exports to the USA and the EU

Abstract Bangladesh adopted floating exchange rate system in May 2003. After that regime change, the country has faced a relatively higher volatility of nominal exchange rate than previous regime. Economic theories on volatility suggests that trade flow is adversely affected in response of fluctuation of the exchange rate. Bangladesh is the second largest readymade garments (RMG) exporter in the world and it is the main export product of the country. In this research, Difference in Difference (DID) model introduced by Card and Krueger (1994) is used for the yearly data of 1983 to 2022 to discern this impact of volatility on the RMG exports of Bangladesh. The result shows that RMG exports is negatively affected due to the exchange rate volatility and the estimated figure shows that on Bangladesh‘s average RMG exports has been lessened to the USA and EU regions by US$1.04 billion and 1.02 billion, respectively, owing to the volatility incurred by the regime change. Therefore, as volatility obviously has hindered RMG exports, the central bank of Bangladesh should stay alert to avoid high volatility of the nominal exchange rate to keep the RMG exports flow uninterrupted.

EXCHANGE RATES AND STOCK MARKET DYNAMICS: ISLAMIC VERSUS CONVENTIONAL FINANCIAL SYSTEMS

This study investigates the changes and persistence in dynamic connectedness between stock market performance and exchange rate fluctuations, comparing conventional and Islamic financial systems. With an eye on a global financial landscape characterized by the integration of capital markets and the adoption of floating exchange rate regimes, it examines the effects of exchange rate variations on the dynamics of the stock market in nine different countries - the United Kingdom, Australia, Japan, Singapore, Canada, China, India, Korea, and South Africa. The study employs daily data spanning from November 2015 to July 2023 and uses a comprehensive analysis of three-step methodology, including nonparametric causality-in-quantiles tests, asymmetric slope Conditional Autoregressive Valueat-Risk (CAViaR), and Time-Varying Parameter Vector Autoregressive (TVP-VAR) Connectedness measure. Our results underline the asymmetric impact of exchange rate fluctuations on stock markets and highlights the distinctive characteristics of Islamic financial markets. Comparing Islamic and conventional stock markets in the context of exchange rate fluctuations, this study not only serves to fill a gap in the existing literature but also emphasizes the significance of currency exchange rate swings for global investors, policymakers, and practitioners trying to understand the intricacies of global financial markets.