Exchange Rate Uncertainty Research Articles

Navigating uncertainty and negotiating trust in judicial deliberations

Autonomy and independence are key features of legal decision-making. Yet, decision-making in court is fundamentally interactional and collective, both during the information gathering phase of hearings, and in evaluations during deliberations. Depending on legal system and type of court, deliberations can include different constellations of lay judges, jurors, or judge panels. In this article, we explore the collective dynamic of knowledge acquisition in legal decision-making, by analysing their emotional undercurrents. We show how judges balance uncertainty and certainty in legal deliberation, elaborating on (1) trust; (2) uncertainty exchange, and; (3) certainty as an agile emotion. Theoretically, the article combines an emotive-cognitive judicial framework, which understands emotion and reason as intersecting and continuous, with social interactionist theory. The analysis builds on extensive ethnographic fieldwork in Sweden, including shadowing and interviews with judges as well as observations during court proceedings and deliberations. The article actualizes the joint accomplishment of legal independence, and contributes with a nuanced account of how the decision-making process unfolds in legal deliberations.

Macroeconomic Uncertainty and Sectoral Output in Nigeria

The paper examined the impact of macroeconomic uncertainty on the ten largest subsectors of the Nigerian economy using quarterly data from Q1 1981 to Q4 2023. The rationale behind selecting the subsectors is that these sectors constitute about 89 percent of the entire productive activities in the economy. To achieve the objectives, the paper created an index for macroeconomic uncertainty using exchange rate uncertainty, interest rate uncertainty, inflation uncertainty, and real gross domestic product (GDP) uncertainty to create this index. Furthermore, the paper explored the impacts of macroeconomic uncertainty and these individual economic uncertainty indexes on sector output. The study employed the novel dynamic autoregressive distributed lag (novel dynamic ARDL) technique to estimate the results and used the canonical cointegrating regression (CCR) and fully modified ordinary least square (FMOLS) techniques as robustness on the main findings. The findings demonstrated that during periods of recession, macroeconomic uncertainty tends to heighten or reach its peak in Nigeria. Furthermore, the paper showed that the sectors react homogenously to macroeconomic uncertainty. In addition, the impulse response results from the novel dynamic ARDL estimation show that macroeconomic uncertainty can predict robust negative movements in sector output for Nigeria. Indeed, these findings are insightful as they show the importance of macroeconomic uncertainties as key drivers of sector output in Nigeria. The paper argues that the policy authorities should improve their efforts to reduce macroeconomic uncertainty and foster a stable real sector/sectoral output to enhance the macroeconomic environment for Nigeria to aim for higher levels of growth.

Food security in Pakistan: Investigating the spillover effect of Russia-Ukraine conflict

This is study investigates inter-connectedness of Russia-Ukraine conflict with wheat prices in Pakistan through oil prices, exchange rate, economic policy uncertainty. This objective is realized by employing cross-quantilogram, rolling window multiple correlation, and TVP-Var approaches on weekly data from 7 to 1–2021 to 9–3–2023. The estimated results of cross-quantilogram, rolling window multiple correlation reveal significant positive co-movement between Russian and Ukraine conflict and wheat prices. The major variables responsible for the spillover effect are oil prices, depreciation of exchange rate, and economic policy uncertainty. The finding urges to stabilize exchange rate and economic policy uncertainty along with finding alternative cheap energy sources.

The impact of real exchange rate uncertainty on exports by technology classification in emerging economies

The impact of real exchange rate uncertainty on exports by technology classification in emerging economies

Trade Balance, Real Exchange Rate and Trade Policy Uncertainty in Türkiye: Evidence from the SVAR Approach

Trade Balance, Real Exchange Rate and Trade Policy Uncertainty in Türkiye: Evidence from the SVAR Approach

Extreme risk spillovers in RMB exchange rates: The role of categorical economic policy uncertainties

Extreme risk fluctuations of one exchange rate can spill over to other exchange rates, and exploring the impact of economic policy uncertainty (EPU) on the spillover effect remains a limited but crucial issue. In addition, do different types of EPUs impact exchange-rate risk spillovers consistently, and at which frequencies are they the most significant? To answer this puzzle, categorical EPUs, namely fiscal policy uncertainty (FPU), monetary policy uncertainty (MPU), trade policy uncertainty (TPU), and exchange rate and capital account policy uncertainty (ECPU), are introduced to explore the role that each type of EPU plays in the RMB exchange rate extreme risk spillovers. Moreover, our investigation is also conducted in multiple time-frequency domains through the implementation of the wavelet transform approach. The results indicate that the MPU exerts the most significant impact on total spillovers, while the TPU exhibits the weakest impact. For the net spillovers of each RMB exchange rate, the HKD/CNY and the AUD/CNY are more sensitive to EPUs, particularly in the long-term time horizon. These findings provide potential implications for policymakers in terms of market stabilization and for investors with foreign currency assets.

Effect of exchange rate uncertainty, energy prices and sectoral spending on agriculture value added, household consumption, and domestic investment

The agricultural value chain is underpinned by the interdependence of agricultural value added, household consumption and domestic investment. Understanding the complex interactions between these microeconomic outcomes and the uncertainties in the macroeconomic variables of exchange rates, energy prices and sectoral spending remains under-researched. Therefore, this study examines the impact of exchange rate, energy prices and sectoral spending on agricultural value added, household consumption and domestic investment in Nigeria from 1981 to 2020. Using Kernel regularized least squares (KRLS), the results show that the average pointwise marginal effects of exchange rate and agricultural spending are positive, while the average pointwise marginal effect of energy price is significantly negative for the agricultural value-added model. The results also show that the exchange rate, energy prices and agricultural expenditure all have a positive effect on household consumption. Regarding domestic investment, the effect of the exchange rate is positive and statistically insignificant, while the effects of energy prices and agricultural expenditure are negative and statistically significant. The study recommends the need to strengthen the social safety nets currently in place in Nigeria to support households that are vulnerable to exchange rate fluctuations. In addition, incentives should be given to households and farmers to help use renewable energy sources such as solar or wind power for agricultural activities. Also, investment in value chains and agribusiness initiatives should be encouraged rather than just in crop production.

Determinants of bank efficiency in developed (G7) and developing (E7) countries: role of regulatory and economic environment

AbstractEfficiency is one of the key factors promoting the long-term performance and sustainability of the banking industry. In this context, this paper investigates the implications of the regulatory environment, macroeconomic factors, monetary conditions, and uncertainty for the banking sectors’ operating as well as investment efficiencies. Using data from G7 and E7 countries from 2001 to 2020, we employ a set of empirical techniques, including Fixed Effects, Random Effects, Panel Fully Modified Least Squares, Panel Dynamic Least Squares and Generalized Method of Moments. Our key findings show that leverage, capital adequacy, monetary conditions, economic growth, price stability as well as exchange rate stability and uncertainty have substantial effects on bank efficiency, with notable differences between impact on operational and investment efficiencies and developed (G7) and developing (E7) economies.

The Impact of a Common Currency on the European Union

This study examines the ramifications of adopting a common currency within the European Union (EU), focusing on introducing the euro. Initially prompted by optimistic expectations of economic stimulation and balanced budgets, the research critically assesses the economic, trade, and policy dimensions associated with a unified currency. Utilizing Mundell's optimal currency regions concept, the methodology establishes prerequisites for a successful monetary union, emphasizing vulnerability to macroeconomic shocks, labor market flexibility, and intra-regional commerce. Findings reveal that while a common currency eliminates foreign exchange expenses, reduces uncertainty in bilateral exchange rates, and facilitates investments, member states must sacrifice autonomy in monetary and exchange rate policies. The advantages include streamlined cross-border payments, enhanced trade, and improved movement of labor and products, while the drawbacks involve rigid monetary policies and limitations on policy tailoring to specific economic conditions.
 To maximize benefits, the research proposes measures such as deepening economic integration, ensuring macroeconomic stability, and promoting political unity. The study emphasizes the importance of sound economic policies to complement the adoption of a common currency and mitigate potential challenges. In conclusion, the research offers a comprehensive understanding of the advantages and disadvantages associated with a common currency in the EU, providing a roadmap for effective navigation and suggesting interventions to ensure successful implementation.

Asymmetric Effects of Economic Policy Uncertainty on Food Security in Nigeria

This study investigates the asymmetric effects of economic policy uncertainty (EPU) on food security in Nigeria, utilizing annual time series data from 1970 to 2021. The study used descriptive statistics, unit root tests, the nonlinear autoregressive distributed lag (NARDL) model and its associated Bounds tests to analyze the data. The analysis reveals that adult population, environmental degradation, exchange rate uncertainty (EXRU), financial deepening, food security (FS), government expenditure in agriculture uncertainty (GEAU), inflation, and interest rate uncertainty (INRU) exhibit positive mean values over the period, with varying degrees of volatility. Cointegration tests indicate a long-term relationship between EPU variables (GEAU, INRU, and EXRU) and food security. The study finds that cumulative positive and negative EPU variables have significant effects on food security in the short run. Specifically, negative GEAU, positive INRU, positive and negative EXRU have significant effects in the short run. In the long run, negative GEAU, positive and negative EXRU have significant effects on food security. Additionally, the research highlights asymmetric effects, showing that the influence of GEAU and EXRU on food security differs in the short- and long-run. The study underscores the importance of increased government expenditure on agriculture, control of exchange rate and interest rate uncertainty, and the reduction in economic policy uncertainty to mitigate risks in the agricultural sector and enhance food security. Recommendations include strategies to stabilize exchange rates to safeguard food supply and overall food security.

The asymmetric impact of input prices, the Russia-Ukraine war and domestic policy changes on wholesale electricity prices in India: A quantile autoregressive distributed lag analysis

This paper investigates the presence of asymetry in the long-run relationship between wholesale electricity prices (ep) in the day-ahead market and fossil fuel (coal, oil and gas) prices, the exchange rate (er) and economic policy uncertainty (epu) in India, and how the Real-Time Market introduced on 01/06/2020, and the Russia-Ukraine war have affected these relationships. Using daily data from 28/06/2008 to 30/04/2023, and both the quantile auto-regressive distributed lag and the quantile regression methods, we find asymmetric long run relationships, with pronounced and asymmetric impacts in the upper quantiles of ep. Results with the full sample suggest that increases in er and coal significantly raise ep in the upper quantiles; vol and epu have a negative long-term effect on ep. Furthermore, the Real-Time Market has reduced price distortions and brought efficiency to the day-head market. The war increases ep because of supply-chain shockwaves in the input markets. Our results suggest introducing policies aiming at reducing inefficiency to mitigate external shocks.

Exchange rate uncertainty and economic fluctuations in typical emerging economies

This paper examines the role of Exchange Rate Uncertainty (ERU) in driving economic fluctuations in emerging economies using a VAR with stochastic volatility in the mean. We use the quarterly data of three typical emerging economies from 1972Q3 to 2009Q4 within a VAR model. We show that ERU plays a vital role in driving the business cycles of emerging economies. First, an ERU can provoke risks in the financial market and the real economy. Second, ERU hurts equity prices and the output growth of emerging economies. Further investigation shows that the adverse effects of ERU on output are more severe under the fixed exchange rate regime than under the flexible exchange rate regime. This finding implies that adopting the flexible exchange rate regime can help emerging economies mitigate the adverse effects of uncertainty shocks.

The Effect of Exchange Rate and Exchange Rate Uncertainty on Domestic Consumption in SAARC Member Countries from 2005 to 2020

The exchange rate and its uncertainty are the key economic variables that influence other macroeconomic variables through various channels. Domestic consumption will be influenced by the exchange rate and its uncertainty. This research investigates the impact of the exchange rate and its uncertainty on the private sector consumption of the member countries of the South Asian Association for Regional Cooperation (SAARC) from 2005 to 2020. The data has been extracted from the World Bank websites, the Asian Development Bank, and the Ministry of Finance of Afghanistan. The uncertainty of the exchange rate data has been extracted using the ARCH method, and the research model has been estimated using the GLS method. The research results indicate that the exchange rate and its uncertainty have a significant and positive effect on private-sector consumption. The positive relationship between the exchange rate and its uncertainty with consumption is consistent with the theory of currency pass-through. Additionally, the impact of income on domestic consumption is positive and statistically significant, while the impact of government consumption expenditure on private-sector consumption is negative and significant.

Impact of Macroeconomic Determinants on Foreign Portfolio Investment in Nigeria

Foreign capital inflows, including foreign portfolio investments (FPI), significantly contribute to filling Nigeria's domestic saving gap and are important sources of capital formation, technological development, innovative capacity, skills building, and organizational improvements. However, exchange rate fluctuations have controversially impacted FPI flows. Some studies found exchange rate changes increased Nigerian FPI, while others determined a negative relationship. This study examined macroeconomic determinants of FPI in Nigeria from 2011-2022 using quarterly data. Applying OLS modeling after confirming variables were integrated at levels and first differences, results showed exchange rates, inflation, and GDP significantly influenced FPI flows. Specification tests validated model stability. Analysis revealed exchange rate fluctuations substantially drove capital inflow and divestment decisions. Suggesting exchange rate uncertainty discourages long-term FPI, findings imply the need for fiscal policies supporting security and business environment certainty to attract foreign investors. Additionally, raising benchmark interest rates above inflation could ensure positive real returns and promote investments. Overall, creating macroeconomic stability through coordinated fiscal, monetary, and exchange rate policies appears critical for Nigeria to reap the development benefits of sustained foreign portfolio inflows. It therefore, suggested that, Fiscal Authority should create an enabling environment, especially by providing adequate security in the country in order to attract and retain foreign investors in Nigeria. Also, the monetary authority should increase the interest rate (MPR) which is the anchor rate in order to have positive rate of return after considering the rate of inflation in the country. In conclusion, the study recommended for further study especially on foreign direct investment in Nigeria.

The Asymmetric Effects of Exchange Rate Volatility on Domestic Investment in Asia

ABSTRACT: Exchange rate volatility is said to affect domestic investment in either direction. An increase in exchange rate volatility can affect domestic investment negatively since risks are higher, mostly due to volatile prices that are the results of exchange rate volatility. Most previous studies assumed that the response is symmetric. However, one study recently demonstrated that the effects of exchange rate volatility on domestic investment could be asymmetric. We add to this new asymmetry literature by assessing the short-run and long-run effects of exchange rate volatility on domestic investment in eight Asian countries. The linear Autoregressive Distributed Lag (ARDL) approach of Pesaran et al. (2001) is used to estimate the symmetric effects of exchange rate volatility on investment. We then follow Shin et al.’s (2014) approach of asymmetric cointegration and error-correction modelling to estimate asymmetric effects of exchange rate volatility on investment. The advantage of using both the approaches is that the variables could be a combination of I(0) and I(1), ruling out pre-unit root testing since these are the properties of almost all macroeconomic variables. Another advantage is that both approaches yield short-run and long-run results in one step. These advanced methods are applied to data from Hong Kong, Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore, and Thailand. We find that when a traditional linear and symmetric ARDL investment model was estimated for each of the eight countries in our sample, exchange rate volatility had a significant short-run effects on domestic investment in six countries. The short-run effects lasted into significant long-run effects only in the cases for Malaysia and Thailand. However, when a nonlinear model was estimated, the short-run asymmetric effects of volatility were found in all the eight countries. The short-run effects lasted into the long run only for Hong Kong, Indonesia, and Thailand. Clearly, more significant effects of exchange rate volatility were established by estimating a nonlinear model which must be attributed to the nonlinear adjustment of exchange rate volatility. These findings provide policy guidelines to investors in these countries as to how and in which direction exchange rate uncertainty will affect their investment decisions. They can then hedge against uncertain exchange rate volatility and maintain a stable investment environment.

Economic Policy Uncertainty, Accounting Robustness and Commercial Credit Supply - A Big Data Analysis Based on Accounts Receivable

Abstract In this paper, a two-dimensional panel data model of economic policy uncertainty is investigated based on the individual fixed effects of panel quantile regression, and a nonparametric panel model with individual fixed effects is established. The unfolding of nonparametric penalized spline and the introduction of Bayesian in stratified quantile are utilized to construct regression models applicable to accounting robustness, respectively. In the empirical study, the economic policy uncertainty index, accounting robustness and commercial credit supply are measured respectively. The annual data of China’s Shenzhen and Shanghai A-share listed companies during the period from 2012 to 2021 were selected as the research basis, and Bayesian quantile regression was made on the basis of correlation analysis. The coefficient of commercial credit supply is found to be -0.0821, and the variable RD1 is negatively correlated with economic policy uncertainty. This regression result confirms hypothesis H1 of this paper, suggesting that private firms invest less in innovation when economic policy uncertainty is higher. In the test of economic policy uncertainty by type, the regression coefficients of RD2, EPU, and SIZE are negative, respectively -0.0368, −0.2124, and -0.1458, which indicates that fiscal policy, monetary policy, and exchange rate and capital account policy uncertainty are negatively correlated with the supply of business credit to enterprises. Based on this correlation, this study provides guidance for the development of business credit for enterprises.

Hedging Training for Export and Import Business

Globalization causes changes and provides convenience in trading activities between countries, exports, and imports. This community service program was conducted for a company engaged in the field of iron trading, which deals with imported products from Japan, America, Europe, China, and Taiwan. The main problem faced by this community service partner was the profit uncertainty due to fluctuations in the foreign exchange market. As a way to avoid currency exchange rate uncertainty, companies can hedge. One of the hedging activities carried out by company management in dealing with fluctuations in foreign exchange rates is the alternative use of derivative instruments. The method for implementing the community service activities was in the form of onsite training which was divided into two sessions. In the first session, the community service team gave a lecture on a general overview of hedging. In the second session, the community service team carried out a simulation of calculating the costs of hedging using appropriate tools. This community service program provides results in the form of developing partner's know-how that provides benefits to mitigate risk through hedging capabilities. Based on the simulation results using the hedging cost calculation tool, partners can see that hedging in the money market is more profitable than forward contracts.

The effects of economic and financial shocks on private investment: A wavelet study of return and volatility spillovers

This paper examines the linkage between private investments and shocks in economic and financial indicators. Using data from India, we study the return and volatility spillovers from crude price, credit availability, real exchange rate, inflation, output gap, government spending, and economic policy uncertainty to private investments. We combine the ARMA-GARCH model with wavelet multiresolution analysis to capture the multiscale features of return and volatility spillovers among the time series. Our findings uncover spillovers in the time-scale decomposed series that are otherwise not observable in the original data, thereby throwing new light on the private investment-macroeconomic shock relationship. Private investment receives return spillovers from all variables at lower frequencies. Volatility spillovers from credit availability, exchange rate, output gap, and public investment exist at higher frequencies. The findings are robust to different forecast horizons, window sizes, frequency of data observation, and methodology of volatility extraction.

Exchange Rate Uncertainty and India’s Bilateral Trade: A Gravity Model Approach

Through a gravity model, the paper attempts to analyse the impact of exchange rate uncertainty on India’s gross bilateral trade flows between its top five trading partners and its SAARC partners. Categorising the industries into five segments, namely, agricultural raw materials, chemicals, textile and clothing, metals and all other commodities, over 18 years (2000–2018), a panel data technique has been applied to examine the effect. The empirical result suggests that even though an exchange rate uncertainty shrinks the bilateral trade flows of agricultural raw materials for SAARC members, it enhances the trade flows across all industry verticals for the top five trading partners. Following the gravity model of trade, the study further suggests that the volume of bilateral trade between countries is proportional to the product of each country’s economic growth and inversely proportional to the distance between them. JEL: F10, F14,O24,D81

Oil price uncertainty, financial distress and real economic activities: Evidence from China

This paper studies the transmission of oil price uncertainty (OPU) shock to real economic activities by focusing on the role of financial condition. We find that financial stress is an important link in the propagation of OPU shock based on China’s macro- and firm-level data. We document significant decrease in real economic activities as oil price uncertainty increases by using SVAR, and further suggest that the contractionary effect of oil price uncertainty is more pronounced under high financial stress. Firm-level evidence consistently shows that heightened financial distress cost – resulted from oil price uncertainty – suppresses investments. OPU shock may cause financial distress through mechanisms of credit crunch, firm volatility and exchange rate uncertainty.