Factors Affecting Exchange Rate Research Articles

Factors Affecting Exchange Rate Variability in Sri Lanka: An Autoregressive Distributed Lag Approach

A free float in the exchange rate has been recorded in the Sri Lankan rupee over the past few years affecting the Sri Lankan economy to a significant extent. This study intended to examine the factors affecting the exchange rate variability in Sri Lanka during the period from 1991 to 2020. For the study secondary data were obtained from the World Bank and the Central Bank of Sri Lanka. The exchange rate was considered as the dependent variable while inflation rate, merchandise trade, Gross Domestic Product (GDP) growth, foreign direct investments, balance of payments and external debt were considered as independent variables. Augmented Dickey Fuller (ADF) test was used to examine the stationary of the time series data, and Autoregressive Distributed Lag (ARDL) was adopted to figure out the long-run and short-run relationship between the variables. The results of ARDL bound test confirmed that there is a co-integration relationship between the variables, and the results of the error correction model revealed the significant impact of inflation rate, merchandise trade, Gross Domestic Product growth, foreign direct investments, balance of payments and external debt on exchange rate in both short run and long run. In the short run, balance of payment and GDP have no significant impact on the changes in exchange rate, and the results confirmed that there is a Exchange rate indicates negative relationships with external debt, inflation, and merchandise trade. Finally, the results confirmed the exchange rate is in a negative relationship with FDI and GDP in the long run.

Dynamics of Exchange Rate Fluctuations in Turkey: Evidence from Symmetric and Asymmetric Causality Analysis

This study examines the factors affecting exchange rate fluctuations in Turkey by employing the quarterly data from 2008 to 2020. In this context, linear and nonlinear unit root tests were used to determine the stationarity levels of the variables. Then, symmetric and asymmetric causality analysis was preferred to ascertain the relationship between the variables. Symmetric causality analysis results indicated a causality relationship from the exchange rate to the long-term debt stock, from the credit default swap (CDS) to the exchange rate, and from the exchange rate to the uncertainty index. The asymmetric causality analysis showed a causality relationship from positive shocks in the short-term debt stock to negative shocks in the exchange rate. Also, it was proven that there exists a causality relationship from negative shocks in the short-term external debt stock to positive and negative shocks in the exchange rate. Another result demonstrated a causality relationship between positive shocks in the exchange rate to negative shocks in the long-term debt stock. In addition, it was found that negative shocks in net capital investment were the cause of negative shocks in the exchange rate, while it was determined that there was a causality relationship from positive shocks in the net reserves to positive shocks in the exchange rate. In conclusion, the asymmetric causality relationship from positive shocks in CDS to positive shocks in exchange rates was detected.

The Development and Determinants of Foreign Exchange Market in Ghana

This study seeks to examine the determinants of real exchange rate and its overall performance on Ghanaians economy from 1998 to 2016. The study extracted secondary data from the World Development Indicators (WDI) of the World Bank and Bank of Ghana (BoG) websites respectively. The following variables, namely trade openness, public debt, inflation, terms of trade, political stability were used as an independent variable while real exchange rate was the dependent variable. Simple linear regression model with ordinary least method (OLS), was used to analyze the results. The study revealed that trade openness and GDP are the main factors affecting exchange rate in Ghana. Also, the study finds that public debt, terms of trade, political stability had impact but were not statistically significant on real exchange rate. This study recommends Bank of Ghana put efforts to harmonize monetary policies and then proceed to connect these policies with trade and economic growth policies.

Factors affecting exchange rate policies in Asian countries

Purpose - The unique features of each exchange rate system, the advantage and disadvantage of them play a decisive role on the financial stability of the country's economy. Therefore, the choice of the right exchange rate system is important for the economic performance of the countries. This study aims to examine the factors affecting the choice of exchange rate of Asian countries. Methodology - The factors affecting exchange rate selection of Asian economies will be studied within a theoretical framework. In the light of IMF reports, exchange rate policies of Asian countries will be given and relevant literature will be evaluated. Findings- Both national and international factors are effective in the exchange rate selection. While economic policies, institutions and regimes are among national factors, international factors include US policy, international institutions and financial crises. Conclusion- In the choice of the exchange rate, Asian economies prefer to take appropriate positions according to the changing conditions of time. The increase in global economic and political relations affects exchange rate systems, and therefore encourages the implementation of competitive exchange rates.

Determinants of exchange rate volatility: empirical evidence for Turkey

Purpose- In the literature the effect of exchange rate volatility on various macroeconomic variables has been extensively studied but there are not enough studies about the reasons of exchange rate volatility. The aim of the research is to present the theoretical framework about the determinants of exchange rate volatility and to determine the factors affecting exchange rate volatility in Turkey for a period from 1974 to 2016. Methodology- In this research the stationary analysis of the series is determined by the Augmented Dickey Fuller Test (ADF) and the PP (Phillips-Perron test) unit root tests. In addition the GARCH model is used to calculate the real effective exchange rate volatility. The Johansen cointegration test is used to determine whether there is a long-term relationship between variables. The coefficients of the long-run relationship between the variables are estimated by the FMOLS method. Findings- The ADF and PP unit root test results show that the series are stationary at first difference. According to Johansen cointegration test results, it has been found that there is a long-run relationship between the variables involved in the analysis. Results from the FMOLS method for determining the direction and severity of the long-term relationship between the variables reveal that LGFCF, LMONEY and LTRADE positively affects significantly, while LFDI, LGDPC, LGGEXP negatively affects real effective exchange rate volatility. Conclusion- The rise in domestic investment (LGFCF), money supply (LMONEY) and trade openness (LTRADE) increases the real effective exchange rate volatility, while the rise in foreign direct investment (LFDI), output (LGDPC) and government expenditures (LGGEXP) also reduces the real effective exchange rate volatility.

An Investigation on Factors affecting Exchange Rate Fluctuations in Sri Lanka

Staff Studies is the bi-annual (March and September) peer-reviewed journal of the Central Bank of Sri Lanka. The Journal aims at stimulating innovative research for the analysis of current macroeconomic issues and policy challenges faced by central banks while providing a forum to present recent theoretical and empirical research.

Factors affecting Exchange Rate and its Impact on Economy of India

Present study investigates the impact of various economic variables on Rupee-USD exchange rate. The effect of exchange rate changes on GDP is also studied through a separate model. Results indicate that money supply, short run yield differentials, CAD, and inflation differential aren't statistically significant determinants of exchange rate. The R-square (goodness of fit) of the regression model comes out to 86.5%. Further, impact exchange rate on economic growth is examined using GDPmp as the parameter to judge the economic growth. Exchange rate increase does not cause a big increase in GDP this is because exchange rate has a positive impact on import and export both. The GDP will increase by a big amount only when the rupee depreciation will cause an increase in export and decrease in import. But since the import is found to have a positive correlation with exchange rate the net export value has decreased (but positive).

Exchange rate volatility and oil prices shocks and its impact on economic sustainability

Article history: Received September 18, 2014 Accepted 10 December 2014 Available online December 15 2014 Impact of exchange rate volatility has received a great attention from the last century, its importance is certain in all sectors of the economy and it affects welfare as well as social life of the economy. Exchange rate between two currencies tells the value of one currency in terms of others one. Depreciation/Appreciation of exchange rate affects economic growth in terms of trade and shifts income to/from exporting countries from/to importing countries. The factors affecting exchange rate are inflation, interest rate, foreign direct investment, government consumption expenditure and balance of trade. This research study examines the impact of oil prices and exchange rate volatility on economic growth in Germany based on 40-year annual data. Cointegration technique is applied to check the impact of macroeconomic variables on exchange rate in the long run and short run. It is estimated that imports, exports, inflation, interest rate, government consumption expenditure and foreign direct investment had significant impacts on real effective exchange rate in the long run and short run. Sin addition, Engle Granger results indicate that relationship was significant for the long run and its error correction adjustment mechanism (ECM) in short a run is significant and correctly signed for Germany. Growing Science Ltd. All rights reserved. 5 © 201 Exchange rate volatility Gross domestic product Co integration

Oil Prices Fluctuations & Its Impact on Russians Economy; An Exchange Rate Exposure

Countries suffering from a shortage of oil reserves or importing oil are trying to reduce the oil consumption. But this can be only possible if alternatives of oil reserves are available. The factors affecting exchange rate are inflation, interest rate, foreign direct investment, government consumption expenditure and balance of trade. This paper seeks to identify the impact of oil prices and risk exposure of exchange rate volatility on economic growth in Russian economy on annual data of from year 1971 to 2012. Based on results it is estimated that imports, exports, inflation, interest rate, government consumption expenditure and foreign direct investment has a significant impact on real effective exchange rate in the long run and short run. Secondly, Engle Granger results indicate that relationship is significant in the long run and its error correction adjustment mechanism in short runs is significant and correctly signed for Russia.

Analysis if the factors affecting exchange rate variability in Pakistan

The Paper examines/analyzed the factors contributing exchange rate vitality in Pakistan. The study was conducted on some major factors contributing to exchange rate volatility, and their relative importance. Annual data for the period 1975-2010 is used, taken from Economic Survey of Pakistan (various issues) and International Financial Statistics. The main variables used to check variability are inflation, Growth rate, imports and exports on exchange rate volatility. Simple Linear Regression model with ordinary least method (OLS) is used to analyze the results. The study revealed that inflation is the main factor affecting exchange rate in Pakistan. The study further show that the second important variable which bring more variation in exchange rate is economic growth, while order of export and import in variation lies at third and fourth position. Based on the finding of the study it is recommended to harmonize fiscal policies with monetary policy first and then make effective link of both these policies with trade policy. For most of the twentieth century, exchange rates have been fixed by government action rather than determined in the marketplace. Before World War I the values of the world's major currencies were fixed in terms of gold, while for a generation after World War II the values of most currencies were fixed in terms of the U.S. dollar. However, some of the world's most important exchange rates change frequently. Equilibrium in exchange rate is determined in the foreign exchange market at a point where demand for and supply of foreign currency equates. Demand for a currency comes from net export while supply of the currency comes from net foreign investment. Any change in demand for and supply of currency effect its value just like a good market that is if demand for a currency increases its value (exchange rate) will be increased while increase in supply of the currency will reduce its value(exchange rate) in the foreign exchange market. Pakistani rupee was linked with British Pound Sterling till 1970 but in 1971 it was linked with US dollar because of the increasing influence of US in the region. Until 1982, The Pakistani Rupee was pegged to the US Dollar. The currency depreciated by 38.5% from 1982-1988, when the government of General Zia-Ul-Haq convert it to Managed float, and again depreciated as a result of bad relationship with donors agencies and trade partners due to nuclear test in 1998. The empirical studies relating to the link between exchange rate variability and its factors are not conclusive. Exchange rates are basically the prices of one currency in terms of other currencies driven by the normal forces of supply and demand. There are a fixed number of Euros, Dollars, Yen, etc issued at any given time (although governments can and do print extra money to buy other currencies and impact their currencies value). As the demand increases or decreases for any single currency, it drives the clearing price for that currency. Zada (2010) studied the factors affecting exchange rate of Pakistan for the period 1979 to 2008. The study used multiple regression model in which exchange rate was taken as dependent variable while Inflation, interest rate, Foreign exchange reserves, trade balance, money supply and Gross Domestic Product were the independent variables. The study showed that Inflation, interest rate and foreign

Can Higher Reserves Help Reduce Exchange Rate Volatility?

This paper studies the role of an increase in foreign exchange reserves in reducing currency volatility for emerging market countries. The study employs a panel of 28 countries over the period 1986-2002. Several control variables are introduced in the regressions to account for other factors affecting exchange rate volatility (monetary and external indicators as well as conventional macroeconomic fundamentals). The paper controls for the endogeneity induced by the role of the exchange rate regime, since the regime can affect both the level of reserves and exchange rate volatility. The results provide ample support for the proposition that holding adequate reserves reduces exchange rate volatility. The effect is strong and robust; moreover, it is nonlinear and appears to operate through a signaling effect.

Structural Factors Affecting Exchange Rate Volatility: A Cross-Section Study

The paper examines factors affecting exchange rate volatility, with an emphasis on structural features of the foreign exchange regime. It draws for the first time on detailed survey data collected by the IMF on foreign exchange market organization and regulations. Key findings are that decentralized dealer markets, regulations on the use of domestic currency by nonresidents, acceptance of Article VIII obligations, and limits on banks' foreign exchange positions are associated with lower exchange rate volatility. The paper also provides support for earlier results on the influence of macroeconomic conditions and the choice of exchange rate regime on volatility.

Structural Factors Affecting Exchange Rate Volatility: A Cross-Section Study

The paper examines factors affecting exchange rate volatility, with an emphasis on structural features of the foreign exchange regime. It draws for the first time on detailed survey data collected by the IMF on foreign exchange market organization and regulations. Key findings are that decentralized dealer markets, regulations on the use of domestic currency by nonresidents, acceptance of Article VIII obligations, and limits on banks` foreign exchange positions are associated with lower exchange rate volatility. The paper also provides support for earlier results on the influence of macroeconomic conditions and the choice of exchange rate regime on volatility.

Can Higher Reserves Help Reduce Exchange Rate Volatility?

This paper studies the role of an increase in foreign exchange reserves in reducing currency volatility for emerging market countries. The study employs a panel of 28 countries over the period 1986-2002. Several control variables are introduced in the regressions to account for other factors affecting exchange rate volatility (monetary and external indicators as well as conventional macroeconomic fundamentals). The paper controls for the endogeneity induced by the role of the exchange rate regime, since the regime can affect both the level of reserves and exchange rate volatility. The results provide ample support for the proposition that holding adequate reserves reduces exchange rate volatility. The effect is strong and robust; moreover, it is nonlinear and appears to operate through a signaling effect.