Exchange Rate Valuation Research Articles

Conflict and exchange rate valuation: Evidence from the Russia-Ukraine conflict

The Russian-Ukraine conflict is decisive in determining the course of contemporary global politics. The war has a spillover effect, with potentially considerable direct and indirect consequences on economic activity. Therefore, the study evaluates the causal impact of the Russian-Ukraine conflict on the exchange rate of Russia. The results explore that the conflict has a negative effect on the exchange rate and observed rapid depreciation. The outcomes show a rapid divergence from counterfactual predictions, and the actual exchange rate is consistently lower than would have been expected in the absence of conflict. The point-wise causal effect displays an estimate of the exchange rate depreciation following the conflict. In relative terms, the response variable decrease, suggesting that currency depreciation is observed during the intervention period. The counterfactual prediction provides a robust technique for evaluating the size of shocks and can be used as a reference to estimate the genuine impact of the conflict in various ways.

FOMC minutes sentiments and their impact on financial markets

I develop a semi-automated method that systematically evaluates the information in FOMC meeting documents. This method highlights economic conditions and calculates document sentiment indices that proxy for the FOMC's interest rate tilt. I compare the sentiment indices of FOMC minutes and their corresponding FOMC statements. Using high-frequency data, I then examine how these sentiment indices are associated with the fed funds futures contracts, broad equity, and real estate investment trust indices, and exchange rate valuation of several major currencies against the U.S. Dollar. I find that minutes sentiments have a statistically significant association with the fed funds futures rate and the U.S. dollar's valuation.

Exchange rates and immigration policy

What explains cross-national and temporal variations in migrant rights? This article argues that policymakers implement more exclusionary or inclusive policies toward migrants in response to exchange-rate fluctuations. Since exchange rates affect the real value of remittances, exchange-rate depreciation of the host state’s currency makes migration less valuable for existing and potential migrants, while exchange-rate appreciation increases the degree of migrant pressure on the host state by doing the opposite. This well-documented relationship between exchange rate valuation and migration movements affects how host country governments craft immigration policy. Under exchange-rate depreciation, policymakers will implement more inclusive policies to deter the “exit” of migrants and maintain a stable supply of labor. Under exchange-rate appreciation, increased migration pressures heighten public anxiety over immigration in the host country, in turn causing policymakers to restrict further immigration by implementing more exclusionary policies. Consistent with the argument, the empirical results show that the purchasing-power-parity (PPP) currency values of migrants’ home countries are positively correlated with more pro-migrant policies in host countries.

A New Monetary Era and the Necessity of Exchange Rate Policy Reformulation for Macroeconomic Performance: the Inclusive Nominal Exchange Rate (INEX). Lessons from Indonesia in ASEAN-10

This paper is actually part of a research that was conducted in twenty five countries from the Association of Southeast Asian Nations (ASEAN-10) and the Economic Community of West African States (ECOWAS-15) about the factual correlation between exchange rate and five macroeconomic variables. However, here, we focus on the case of Indonesia, the largest economy of the regional integrated area ASEAN. The study starts from the fact that nowadays, because of the growing openness of national markets, no longer the interest rate but the exchange rate appears to be the single monetary tool that can be used to simultaneously boost economic growth and protect national economic fundamentals against adverse external shocks, but how? That question constitutes the major concern of this article. Using secondary macroeconomic data, this paper has adopted a mixed-methodology approach based on a correlation test and statistical mapping technique analysis which constitutes the novelty compared to previous studies on monetary issues. The paper reveals that Indonesia, under floating exchange rate regime has successfully controlled inflation rate but at the expense of the GDP growth. The major finding of this study is a proposal for new formulation of the exchange rate valuation named: the “Inclusive Nominal Exchange rate” (INEX) which is based on real economic performances of a country and the structure of its economy. An illustration of the INEX showed that in 2014, the macroeconomic fundamentals of Indonesia were better but, the nominal exchange rate failed to capture that performance.

Effects of interest and exchange rate policies on Brazilian exports

Abstract In heterodox literature, the industrial sector is considered strategic for economic development. Consequently, reducing the contribution of this sector in the production of the country before it has reached the stage of economic maturity, affects the productive dynamics and slow technical progress. The appreciation of the real exchange rate is seen as one of the factors responsible for the reduction of the external competitiveness of Brazilian manufactures, and this exchange rate valuation may be occurring due to the differences between domestic and international interest rates. Given this context, the aim of this study is to evaluate the impact of changes in the monetary and exchange rate policy and in the composition of the total exports on the performance of the Brazilian economy using a structuralist model. The results reinforce the importance of the manufacturing sector to economic growth, especially in a competitive exchange rate environment.

Determinants of Foreign Direct Investment

Using a dataset which breaks down FDI flows into primary, secondary and tertiary sector investments and a GMM dynamic approach to address concerns about endogeneity, the paper analyzes various macroeconomic, developmental, and institutional/qualitative determinants of FDI in a sample of emerging market and developed economies. While FDI flows into the primary sector show little dependence on any of these variables, secondary and tertiary sector investments are affected in different ways by countries’ income levels and exchange rate valuation, as well as development indicators such as financial depth and school enrollment, and institutional factors such as judicial independence and labor market flexibility. Finally, we find that the effect of these factors often differs between advanced and emerging economies.

Financial Exchange Rates and International Currency Exposures

In order to gain a better empirical understanding of the international financial implications of currency movements, we construct a database of international currency exposures for a large panel of countries over 1990-2004. We show that trade-weighted exchange rate indices are insufficient to understand the financial impact of currency movements and that our currency measures have high explanatory power for the valuation term in net foreign asset dynamics. Exchange rate valuation shocks are sizable, not quickly reversed, and may entail substantial wealth redistributions. Further, we show that many developing countries have substantially reduced their negative foreign currency positions over the last decade. (F31, F32, G15)

Determinants of Foreign Direct Investment: A Sectoral and Institutional Approach

Using a dataset which breaks down FDI flows into primary, secondary and tertiary sector investments and a GMM dynamic approach to address concerns about endogeneity, the paper analyzes various macroeconomic, developmental, and institutional/qualitative determinants of FDI in a sample of emerging market and developed economies. While FDI flows into the primary sector show little dependence on any of these variables, secondary and tertiary sector investments are affected in different ways by countries’ income levels and exchange rate valuation, as well as development indicators such as financial depth and school enrollment, and institutional factors such as judicial independence and labor market flexibility. Finally, we find that the effect of these factors often differs between advanced and emerging economies.

The Effect of Arab Stock Markets in Economic Growth

Stock markets became very essential subject in Arab countries. It has a vital role in aggregating and channeling national saving and directing them to Arab investment channels. These markets represent an area of accumulating capital as they are able to validate capitals on one hand, and for their strong and important relation with the market economies on the other. In addition to the emergence of exchange rate valuation and interest rate prices on the international level. They often lead to the removing of the barriers of capital flow in the form of various credit and saving instruments as well as to the foreign currency. The development of financial markets has almost followed specially the economic growth and the consuming expenditure and investment expenditure. The emergence of institutions played a role in employing the savings in the economic and productive areas. They are however the connection between individuals and various institutions which save on the one hand and the productive projects in the economy on the other. .

War and exchange rate valuation

This article investigates the extent to which the dominance of the United States dollar as an international currency has been contingent on American diplomacy rather than the prosecution of expensive wars. Four wars are examined, the Korean war (1950-1953), the Vietnam war (1964-1975), the Persian Gulf war (1990-1991), and the Iraq war (2003-present). The historical performance of the dollar is examined in times of war and peace, and the Box-Jenkins forecasting algorithm is employed to make a short-term projection of the dollar coinciding with the Iraq war. The price of gold is used as a measure of the value of the U.S. dollar and investor confidence in the dollar during times of war and peace. The empirical evidence shows a short-term depreciation of the U.S. dollar coinciding with the Iraq war, which is not atypical of the value of the U.S. dollar in a time of war. Problems with the value of the U.S. dollar in times of war lead to the exploration of alternative forms of money, which if very successful, can erode the continued dominance of the U.S. dollar as an international currency.

A New Approach for Determining Exchange-Rate Level Preferences

In research on the political economy of exchange rates, a good understanding of who will endorse and who will oppose certain exchange-rate policies is central to understanding how actual exchange-rate policies are made and how the global exchange-rate system changes over time. Since existing classifications of exchange-rate level preferences have several shortcomings, this article proposes a new and more nuanced strategy for identifying preferences on exchange-rate valuation. This approach takes into account the complex interrelationship between exchange-rate and monetary policy, and the effects of these policies on balance sheets. In addition, the approach accounts for the dynamics of preference formation and change. Comparative case studies of currency crises in Hong Kong, South Korea, Thailand, and Taiwan show that considering actors' vulnerabilities to exchange-rate and interest-rate changes enhances understanding of their exchange-rate level preferences. The case studies also indicate that societal preferences affect policy outcomes. Exchange-rate stability was maintained in countries where private actors' vulnerabilities to depreciation were high. However, when pressure intensified, exchange rates were subsequently depreciated in countries where vulnerabilities to a monetary tightening exceeded the potential costs of depreciation.

Financial Exchange Rates and International Currency Exposures

Our goal in this project is to gain a better empirical understanding of the international financial implications of currency movements. To this end, we construct a database of international currency exposures for a large panel of countries over 1990-2004. We show that trade-weighted exchange rate indices are insufficient to understand the financial impact of currency movements. Further, we demonstrate that many developing countries hold short foreign-currency positions, leaving them open to negative valuation effects when the domestic currency depreciates. However, we also show that many of these countries have substantially reduced their foreign currency exposure over the last decade. Last, we show that our currency measure has high explanatory power for the valuation term in net foreign asset dynamics: exchange rate valuation shocks are sizable, not quickly reversed and may entail substantial wealth shocks.

Currency movements and international border crossings

It is well known that merchandise trade flows respond to exchange rate policy changes over time. This topic, known in the economics literature as the J-curve effect, has been the subject of numerous studies. Exchange rate policies also impact commuter traffic between international metropolitan areas, but there has been much less attention devoted to understanding the effects of currency valuation shifts on border crossings between nations such as the United States and Mexico. While there has been some research conducted with respect to employment impacts on annual crossing volumes, the analysis has been limited to static models. The research at hand attempts to partially fill this gap in the existing literature by examining the response in international commuter flows to exchange rate valuation shifts. In order to gain better appreciation of the temporal aspects of border crossing reactions to policy changes of this nature, all of the analysis is conducted within a dynamic framework.