Exchange Rate Strategies Research Articles

Network Analysis of International Trade: Shocks, Connections, and Implications

This paper delves into the intricate interplay between idiosyncratic shocks, network connections among economic agents, and the ensuing implications for international trade dynamics. Drawing upon economic theory and empirical evidence, it scrutinizes how localized supply shocks, such as those induced by natural disasters, reverberate through global trade networks. Two models are deployed to elucidate the relationships between exogenous shocks and fluctuations in international trade, offering insights into the mechanisms through which shocks propagate or dissipate. By examining the distribution of suppliers and the network structures of various goods, the paper uncovers nuances in the transmission of shocks and their impact on aggregate outcomes. Moreover, it explores the evolving role of countries within the global trade network, particularly in the context of energy trade. The findings underscore the significance of network analysis in understanding the resilience of international trade amidst disruptions and underscore the policy implications for trade and exchange rate strategies. Future avenues for research are also delineated, emphasizing the need for deeper investigations into the dynamics of trade networks and policy responses to shocks.

A Comparative Analysis of Selected Monetary Policy Indicators in Northern Macedonia and Albania in the Last Decade

This paper intends to explore and describe some of the main monetary policy indicators in the Albanian economy and Northern Macedonia. The countries under study have some general similarities as follows: both are countries with a transition economy operating in the open market economy for no more than 30 years; both countries have been part of communist regimes for a very long time; both of these countries are a potential candidate to be part of the European Union. The target exchange rate strategy is the monetary policy pursued by the Central Bank of Northern Macedonia in fixing the local currency exchange rate within the Euro to maintain a certain level or within a specific interval the exchange rate of that country. According to the economist, one of the most important reasons a country has financial stability is the efficiency of monetary policy instruments in the short and long run. In the international economic sphere, both countries under analysis are exposed to the risks of appreciation or devaluation of the exchange rate, trade barriers, and any other risk related to financial crises that may affect the region's countries.

Regulation of Exchange Rate and Economic Growth and Its Effect on Chinese Economy

Recently, China has become the world’s second largest economy behind only the United States of America. Until 1994, China used the fixed exchange rate and dual pricing system. A sharp fall in global oil prices aggravates the global downturn. Our key data were gotten from Macrotrends expertise in economic development and exchange rates. GDP Growth rate was more fluctuating pattern (variance 0.014, standard deviation 0.122) than exchange rate (Variance 0.004, standard deviation 0.07). From 1990-2019 both variables were analyzed. That means these do not vary systematically over time. In other words, they are time invariant. Regressing two series that are non-stationary likewise, yields a spurious (or nonsense) regression. So, to check it lets check the rule of thumb. We found a Durbin Watson Statistic of 0.612 and R square of 0.117. If we look the calculated t statistic with critical values at 5% significance level only Domestic Demand shows a significant relationship (4.00 >2.756) with GDP of China. A variety of analytical studies suggest that Competitive Exchange Rate strategies are suitable for economic development. We also argued that, considering some constraints on usable policy alternatives, there are theoretical origins in a policy approach such as an ideal strategy. 

Pricing of illicit drugs on darknet markets: a conceptual exploration

Purpose Trading illicit drugs on cryptomarkets differs in many ways from material retail markets. This paper aims to contribute to existing studies on pricing by studying the relationship between price changes in relation to changes in nominal value of the cryptocurrency. To this, the authors qualitatively study product descriptions and images to expand the knowledge on price formation. Design/methodology/approach The authors analysed 15 samples based on visual and textual scrapes from two major drug markets – for Dream Market between January 2014 and July 2015 and for Tochka between January 2015 and July 2015. This longitudinal study relates changes in process to variations in the Bitcoin exchange rate and selling strategies. The analysis of the marketing of drugs online also addressed the development of the vendor profile and product offers. Findings Product prices change in relation to variations in the Bitcoin exchange rate. This points to the application of mechanisms for automatic price adaptations on the market level. Real prices of the drug offers constantly increase. The authors assert that there is a bidirectional relationship. Vendors structure price and discounts to encourage feedback. And feedback in combination with signals of commitment and authenticity inform pricing. Product descriptions are an important feature in the successful marketization of goods, whereas product images are predominantly used as an aspect of recognisability and feature of the vendor’s identity. Research limitations/implications Findings suggest that there is great potential for further qualitative research into the relationship between the online and offline identity of drug vendors, as well as price setting when entering the market and subsequent changes for offered products. Practical implications Findings also suggest that further investigation into the constitution and management of vendor’s identity on the cryptomarkets would allow a better understanding of vendors and their interactions on cryptomarkets. Social implications A better understanding of drug trading on cryptomarkets helps to more effectively address potentials for harm in the online drug trade. Also targetting crime would benefit from a better understanding of vendor idenities and pricing. Originality/value The findings represent a valuable contribution to existing knowledge on drug trading on cryptomarkets, particularly in view of pricing and vending strategies.

MILTON FRIEDMAN IN CHILE: SHOCK THERAPY, ECONOMIC FREEDOM, AND EXCHANGE RATES

We analyze Milton Friedman’s two visits to Chile, in March 1975 and November 1981. We rely on a number of sources, including Friedman’s archives, press archives in Chile and the rest of the world, interviews, and the papers and recollections of some of those who accompanied Friedman during his meeting with Pinochet. Although Friedman’s 1975 visit has been widely discussed, his 1981 visit has been largely neglected. However, this visit was particularly important as it preceded a severe currency and banking crisis, stemming from an overvalued fixed exchange rate. The crisis put at risk the influence of the “Chicago Boys” and the political and economic liberalization process. We analyze Friedman’s views regarding Chile’s pegged exchange rate strategy followed between 1979 and 1982, and his position on economic and political freedom.

Excange Rate Fluctuation and Real Sector Performance in Nigeria: A Disaggregated Analysis

The Nigerian real sector is facing serious challenges due to exchange rate volatility. All the past efforts of the Central Bank of Nigeria to make naira have high international competitiveness had not yielded much result. In view of this, this study investigates the relationship between exchange rate fluctuation and the performance of the real sector in Nigeria while looking at disaggregated components of agricultural, industrial, building and construction, wholesale and retail trade, and services with a scope spanning thirty-two years, covering the period from the commencement of SAP in 1986 up to 2017. The study adopts the modified Mundell-Fleming IS-LM framework using Autoregressive Distributed Lag (ARDL) technique. The bounds tests suggest that the variables of interest are bound together in the long run with the aggregate real output (the dependent variable). This same pattern exists between the sectoral outputs and their independent variables, with the exception of Agriculture Output. The study also reveals a long-term inverse and significant relationship between exchange rate and both aggregate output and the outputs of each of the five sectors of the Nigeria real economy. The study further establishes that the sectors of the economy responded heterogeneously to exchange rate change. However, the pattern of each sector’s response to exchange rate change is far from pure homogeneity, affirming the disparity in terms of size, magnitude. The major implication of the findings is that exchange rate strategies adopted by government could not spur the desired improvement in the performance of real sector in Nigeria. The study, therefore, recommends that the monetary authorities should re-assess, monitor, and enforce the existing exchange rate policies in Nigeria with a view to stimulating increased performance of the real sector of the economy. The government should also develop an extensive programme of development of domestic industries to stimulate exports, cut non-productive imports, and create employment. There is also the need to put in place and implement coordinated macroeconomic policies that would attract foreign private investment, reduce poverty level, and stimulate exchange rate stability.

USE OF (HARD AND SOFT) PEGGED EXCHANGE RATE REGIMES ON THE PATH TO EUROPEAN INTEGRATIONS IN TERMS OF CRISIS

Important aspect of ongoing discussions on the choice of exchange rate regime is its reaction to crisis as a strong and unexpected external shock; such was the case of Great Recession from 2008.-onwards. It is generally accepted that pegged exchange rate regimes are more sensitive to external shocks that might cause their long-term destabilization. Still, the soft pegged regimes (also entitled intermediate regimes) have fewer limits, with rules that allow more maneuver space for national strategy. The group of soft pegged regimes is wider, both in structure and scope, then those of hard pegged regimes. While countries with more flexible regimes might use exchange rate fluctuations as automatic stabilisator, (hard and/or soft) pegs impose some limitations. In the first place, there is stability goal that, in combination with strict regulatory rules, limits the monetary and exchange rate policy, demanding the use of other strategies, such is the internal devaluation. Secondly, these countries do not use wide scope of instruments and their crisis strategy is more rigid than those of other regimes. Finally, there are dilemmas on the optimality of exchange rate strategy during the pre-eurozone membership period, including the euro introduction strategy. These dilemmas deepen in terms of crisis. This paper focuses on comparison of hard and soft pegged regimes (the latter also entitled intermediate regimes) in selected European union accession countries, using „de facto“classification scale developed by International Monetary Fund. Despite the crisis, there have not been dramatic turbulences in terms of exchange rate policy in observed countries, but the general economic indicators clearly show the real depth of crisis and slow recovery. The question open for further discussion is whether such regimes should be obtained or abandoned during the crisis and what is their contribution to national economy. Furthermore, there are pros and cons of possible strategies, considering the European integration process.

Stabilizing Valences of an Optimum Monetary Zone in a Resilient Economy—Approaches and Limitations

Following De Grauwe (2016), this research advances the idea according to which economies that are part of a monetary union issue debt in a medium of exchange they cannot control: financial markets develop the capacity to impose default on such economies. We are interested in how previous research analyzed the notion that, when economies are autonomous and they employ the exchange rate as a vehicle to handle asymmetric shocks, they confront comparable constraints on the performance of exchange rate strategies. When a monetary union is affected by significant asymmetric shocks, the member economies have to deal with tough adjustment issues. Empirical and secondary data are used to back the assertion that, in a monetary union, economies that are affected by long-lasting asymmetric demand shocks demand wage elasticity and labor flexibility to rectify for them, and if the latter generate substantial budget deficits, financial markets tend to intensify the consequences of the asymmetric shocks, boosting the demand for severe regulation of wages and labor flexibility. Our article makes conceptual and methodological contributions to the view that member economies of a monetary union are exposed to varying market reactions, generating more volatility in the business cycle: an economy undergoing a recession and a rise in the budget deficit might be affected by wide-ranging transactions of its government bonds, causing a liquidity crisis and superior interest rates, and possibly coercing the government of that economy to adopt budgetary austerity measures, thus intensifying the recession.

Exchange rate regime switching in Malaysia and Singapore in response to China’s move to a basket peg: A DSGE analysis

Motivated by the observation that when China broke from its US dollar peg in 2005, Malaysia and Singapore likewise loosened their currency ties to the US dollar, this paper considers how these two countries might best respond to a hypothetical transition by China to a new basket peg regime. We specify five alternative exchange rate strategies that encompass fixed, basket, and floating regimes and gradual versus sudden transitions. To project outcomes for macroeconomic variables under these alternative regimes, we apply a dynamic stochastic general equilibrium (DSGE) model of a small open economy and incorporate exogenous shocks as actually occurred from 2005 Q1 to 2014 Q4. We then compare the strategies based on values of a cumulative loss function defined on the output gap, the inflation rate, and the real effective exchange rate. The exercise reveals that a gradual adjustment to a basket peg with long-term optimal weights is the first-best policy for both countries, where optimal weights are derived to minimize the loss function. Further, both a sudden shift to a basket peg with optimal weights and a sudden shift to a floating rate regime are superior to maintaining the dollar peg in Malaysia, but not to maintaining the existing basket peg in Singapore.

(De)Stabilizing Exchange Rate Strategies in East Asian Monetary and Economic Integration

The East Asian monetary integration process is at the crossroads. Given very benign liquidity conditions in the US, the prevailing common US dollar peg has contributed to growing macroeconomic and financial instability in the region. This has sparked demands to embark on an independent monetary integration process in East Asia. The paper shows that, however, neither the Japanese yen nor the Chinese yuan can challenge the US dollar as anchor currency in the region. Large fluctuations of the Japanese yen against the US dollar have undermined the potential of the Japanese yen to become a regional anchor currency. Exchange rate stability of the Chinese yuan against the US dollar has enhanced intra-regional exchange rate stability and growth, stressing the potential of the Chinese yuan to emerge as a regional anchor currency. Yet, it is shown that underdeveloped Chinese capital markets and financial repression originating in US low interest rate policies constitute an insurmountable impediment for the Chinese yuan to gain anchor currency status in East Asia. Empirical estimations provide evidence in favor of positive growth effects of the exchange rate stability against the US dollar in East Asia.

An Exploration of New Internet Measurement on International Trade: Does Population Also Matter?

This study explores new Internet measurements to examine the impact of the Internet diffusion on international trade across ten different countries. We find the strong evidence that the Internet stimulates international trade for all countries. Growth of trade volumes changes over time with heteroscedastic responses. Global population or human resources affect international trade insignificantly as well as the geographic distance. Furthermore, the results of trade elasticities show the Internet moves ahead of those from international trade. The positive influences of the growth of GDP are diluted by greater effects from population, and the dilution is much greater than the positive effect from GDP, which gives investors tracking routes for exchange rate strategies.

Politiques de stabilisation en Europe de l'Est : ancrage par le change ou ciblage d'inflation ?

Les economies d’Europe de l’Est ont utilise depuis le debut de la transition de nombreuses strategies d’ancrage pour lutter contre l’inflation. Cela va du regime de currency board au flottement libre, des ancrages monetaires au ciblage d’inflation, en passant par des parites glissantes ou des bandes de fluctuation. Cet article etudie l’impact de ces strategies sur les performances en termes d’inflation pour un panel de 14 pays de l’Est. Il apparait qu’en debut de transition, l’ancrage du change a ete la strategie la plus efficace pour briser la dynamique inflationniste. Cependant, sur la periode recente, dans un contexte d’inflation moderee, les politiques de ciblage d’inflation semblent plus performantes.

Macroeconomic Policy Coordination in a Competitive Real Exchange Rate Strategy for Development

Fil: Rapetti, Martin. CEDES. Centro de Estudio de Estado y Sociedad, Area de Economia. Consejo Nacional de Investigaciones Cientificas y Tecnicas (CONICET); Argentina

Macroeconomic Policy Coordination in a Competitive Real Exchange Rate Strategy for Development

Recent research has documented a positive relationship between real exchange rate (RER) levels and economic growth in developing countries. The literature has interpreted this correlation as causality running from RER levels to growth rates; i.e., more competitive RER levels tend to favor growth. Little effort has been made, however, on the analysis of the policy instruments required to implement a successful competitive RER strategy. An exchange rate policy targeting a permanent change in the RER may run into difficulties: it is well documented that nominal and real exchange rate movements are correlated almost one for one in the short run but such co-movement vanishes in the long run. Targeting instead a transitory RER undervaluation can have long-lasting effects on economic performance if RER competitiveness is stable and durable enough to provide incentives for modern tradable activities to expand. The ability to provide such an environment may be beyond the scope of exchange rate policy. This paper aims to shed light on the complementary policies that facilitate the success of an exchange rate policy that temporarily increases competitiveness. A formal model is developed to analyze these issues. The main conclusion is that a currency depreciation is more likely to accelerate growth if it is simultaneously implemented with domestic demand management policies that prevent non-tradable price inflation and wage management policies that coordinate wage increases with tradable productivity growth.

Managed floating by stealth: the case of Taiwan

Taiwan is among the world's largest holders of international reserves, having accumulated US $350 billion of foreign exchange as of end 2009. Despite its significance, since it is not a member of the IMF, Taiwan has been relatively under-studied compared to many of its other Asian counterparts. As such, the aim of this paper is to shed a little light on Taiwan's exchange rate policies and strategies. Our results reveal a regime that can be characterized as involving some degree of management of the New Taiwanese dollar (NTD). More significantly, we can confirm the existence of an asymmetry in central bank foreign exchange intervention responses to currency appreciations versus depreciations in Taiwan, particularly in the case of nominal effective exchange rates (NEERs). This in turn rationalizes the relative exchange rate stability as well as the sustained reserve accumulation in Taiwan.

THE STORY OF EXCHANGE RATE MOVEMENT BY CHINA AND ITS IMPACT ON USA ECONOMY

Exchange rate is an important element of the country’s economic health. It is one of the most scrutinized, anatomized and manipulated economic dimension. The purpose of this study is to examine the impact of exchange rate of China on the US trade, employment and on its currency as well. The approach to this paper is to answer the questions such as the mechanism selected by China for its exchange rate determination? What are the interests of China in adopting the fixed exchange rate strategy? How this step of China is affecting the U.S.? What steps are taken by USto abandon China’ policy? This paper concludes that US economy is badly affected; China snatches the jobs of US, exports of China rushes towards US economy while imports from US towards China did not come with that pace. This happens because of exchange rate and trade mechanism adopted by China. Moreover this policy of China is beneficial for its economy but not for the well being of the Chinese people. This paper is beneficial for the researchers, students, policy makers, politicians and economists related to international finance area.

Exchange rate and wage policies in Central and Eastern Europe

After the eastern enlargement of the European Union (EU) and due to increasing labor market integration, wage determination in Central and Eastern Europe (CEE) has become a key issue in European economic policy making. In addition, a controversial discussion concerning the monetary integration of CEE countries into the EMU has emerged. Both issues have earned particular academic and political interest because Eastern and Western Europe are at different stages of economic development and volatile international capital flows seem to require either a higher degree of wage or exchange rate flexibility. Based on the Scandinavian model of wage adjustment by Lindbeck (1979), we analyze the role of exchange rates in the wage determination process of the Central and Eastern European countries to identify which exchange rate strategy contributes to faster wage convergence in Europe. Panel estimations suggest that workers in countries with fixed exchange rates are likely to benefit in the long run from higher wage increases.

Exchange Rate Regimes and Supply Shocks Asymmetry: The Case of the Accession Countries

This paper reviews the pros and cons of an early EU enlargement towards Central and Eastern European Countries (CEECs hereafter). Firstly, the Maastricht criteria, which cannot be literally assessed during the catching up process, but that nevertheless mirror the huge efforts undertaken in order to (i) stabilise the economies, (ii) converge towards the EU, and then (iii) participate in the EMU, are analysed. Secondly, real convergence is observed to occur at different rates, depending upon the initial conditions faced and the productivity gains realised by each country. Thirdly, computing the correlation of demand and supply shocks in a sample of Euro countries, such as Ireland, Portugal and Spain, at the time when they were entering the EU and the CEECs, gives some indication of the similarity of the business cycles and economic structures of the CEECs on the one hand, and the EU on the other. However, we argue that looking at static correlation only (averaged over the last decade) is too simplistic, as these averages will be blurred by the transition process. Using the Kalman filter, we are able to compute time varying correlation, hence differentiating between the transition and the most recent period. Our results emphasise an ongoing process of demand shocks convergence, but supply shocks divergence. Various exchange rate strategies are then discussed.

From Social Contract to ‘Social Contrick’: The Depoliticisation of Economic Policy-Making under Harold Wilson, 1974–75

The 1974–79 Labour governments were elected on the basis of an agreement with the TUC promising a redistribution of income and wealth known as the Social Contract. However, the government immediately began to marginalise these commitments in favour of preferences for incomes policy and public expenditure cuts, which has led the Social Contract to be described as the ‘Social Contrick’. These changes were legitimised through a process of depoliticisation, and using an Open Marxist framework and evidence from the National Archives, the article will show that the Treasury's exchange rate strategy and the need to secure external finance placed issues of confidence at the centre of political debate, allowing the government to argue that there was no alternative to the introduction of incomes policy and the reduction of public expenditure.

Bilateral Trade Balance, Exchange Rates, and Income: Evidence from Malaysia

This study attempts to examine the effects of real bilateral exchange rates on Malaysia's bilateral trade balances with its three major trading partners: the USA, Japan, and Singapore. The results suggest that the bilateral trade balance, real exchange rate, domestic and foreign incomes are cointegrated. In the long-run, Malaysia's bilateral trade balances are found to be responsive to the changes of bilateral exchange rate in the cases of the USA and Singapore but irresponsive for Japan. There is a clear evidence of the J-curve effect only in the case of Malaysia's trade balance with the United States. The results also indicate that devaluation tends to be recessionary. The findings suggest that Malaysia could use undervalued exchange rate strategy to improve its trade balances with the United States and Singapore but not Japan.