Foreign Exchange Inflows Research Articles

Global liquidity and monetary policy autonomy: an examination of open-economy policy constraints

This paper examines the monetary policy constraints facing economies on a fixed peg or managed float regime, contrasting the Mundell-Fleming Trilemma view against the Compensation view commonly found at central banks. While the former holds that foreign exchange inflows and outflows affect the domestic money base and constrain monetary policy under non-floating regimes unless capital controls are adopted, the latter purports that endogenous sterilisation of foreign exchange flows invalidates this trade-off. The predictions of both theories are empirically evaluated for five East Asian economies using central bank balance sheets, vector error correction models and impulse response functions. The findings indicate that the dynamics for the economies studied correspond more closely to the Compensation view than the Trilemma view, suggesting that it is a sustained loss of foreign exchange reserves, not the adoption of a non-floating exchange rate regime, that imposes a relevant constraint on autonomy.

Tourism and financial development in small states

Tourism expenditure in Caribbean countries represents the single largest inflow of foreign exchange and is associated with a significant amount of international capital flows. Yet, the relationship between tourism and financial development (FD) has received scant attention in the academic literature. This article focuses on whether tourism promotes FD in Caribbean economies. We do so by using newly constructed data on tourism flows to the region during the period 1980–2013. We find that tourist expenditure, on average, has a positive and significant impact on various measures of FD. At our most conservative estimates, we find that by increasing tourism expenditures per capita by about $1200 (USD), depth in the financial system improves by about 10–15%, while efficiency increases by about 34%. Our results are robust to instrumental variables, system generalized method of moments, and limited information maximum likelihood estimation techniques as well as to a variety of measures of FD. Such findings may have important policy implications related to facilitating growth and development through an increase in efficiency in the system of FD.

Oil Price Volatility and Fiscal Behaviour if Government in Nigeria

This paper examined the fiscal response of government to oil price volatility in Nigeria during the period 1970-2013. This is because no study has analysed the peculiar fiscal behaviour of the government given the unpredictable nature of oil prices. Yet, government fiscal activities had significantly determined and shaped the growth path of the economy. The multivariate vector Auto regression model was explored for the empirical analysis. Our findings showed that real oil prices had driven government expenditure dynamics and a long run relationship between real oil prices and government spending, non-oil growth, inflation and discount rate differential exist; and no asymmetric effect of oil price shocks on the government spending. However, these results are robust to different non-linear transformation of the real oil prices and inclusion of additional variables. Since oil price is highly volatile, it is advised that the government diversify the sources of foreign exchange inflows.

Human Resources – One of the Key Challenges of Tourism Development in the Republic of Croatia

Abstract Tourist activity in the Republic of Croatia is one of the leading and most promising activities. It is our past, present and future. According to the National Bank, the share of revenues from travel - tourism in overall GDP in the first 9 months of 2015 was 22.2%, an increase of 1.2% compared to the same period in 2014. In the third quarter share of revenues from travel - tourism in total GDP amounted to 41.3%, as compared to the same period in 2014, representing a growth of 1.4%. The conclusion is that tourism is one of the leading economic sectors in the Republic of Croatia. Due to realized 78 million and 569,000 overnight stays (6.8% more than in 2014) and more than 8 billion of foreign exchange inflows, the Republic of Croatia on the overall tourism market has been recognized as an important destination whose development potentials have not yet been exhausted. Relevant institutions and predictions underline the fact that tourism is one of the keys for faster integration of Croatia in the entire world economy and the networked society, from which it can be read that Croatia must view this sector in a new way and allow tourism to undergo complete transformation, in order to cope with future competitive challenges more easily. According to estimates by the World Travel & Tourism Council direct and indirect employment in the tourism sector in 2008 was about 300,000 employees, but that number will have increased by additional 100,000 in the next ten years. The Croatian tourism today employs 35-40% of workers. Thus, the tourism industry is a comprehensive and a very important generator of jobs of different profiles - from catering and hotel industry to entertainment and animation. In the light of progress in the development of tourism, and regardless of specific personnel, Croatia still needs a lot of work on the construction of the existing profile of tourism personnel and management and educate the tourist interest in tourism future. In addition, employment in the hospitality and tourism industry has a very high seasonal fluctuation of work, while the proportion of highly educated so-called senior managers is weak due to the contemporary needs of the tourism of the 21st century. The system of education for tourism is not performed well at all levels of education, and the result is inadequate qualifications. On the other hand, salaries of employees in the tourism industry, especially in the hospitality and catering industry, are among the lowest in the Republic of Croatia. With its tourism development strategy, the Republic of Croatia has turned towards building quality destinations (new facilities, renovation of existing and quality services). This paper will analyze how the quality of services, backed by human activity, is the key to the success of any enterprise, with an adopted conclusion about what kind of future we are building in this segment. The research will be carried out through the review and analysis of trends in employment in the tourism industry, the qualifying term structure of employees, their share in the total employees in the Republic of Croatia, the competitiveness in the international labor market for a period of last 5 years.

Foreign Exchange Inflows in Emerging Markets: How Much are they Sterilised?

As some emerging market economies have amassed large quantities of foreign exchange reserves, concern has arisen over the sterilisation of the domestic money stock from these flows. Existing studies focus mostly on narrow (reserve) money, and estimate a high degree of sterilisation. Empirical work on the long-run relationship between money and prices emphasises broad money, yet the long-run effect of foreign exchange inflows on broad money has been almost entirely ignored. Using a sample of quarterly data from 28 countries over the period 1990–2010, it is shown that broad money is sterilised to a significantly smaller degree than reserve money, raising concerns about the implications for financial imbalances and inflation. This pattern of sterilisation is not confined to any particular group of countries and is unrelated to the nature of the flows (e.g. current account versus capital account surpluses). Sterilisation rates have increased in Asia during the recent period of persistent accumulation of foreign exchange reserves.

Uzbekistan: Karimov’s Model of Economy; Dynamic or Paradox A Critical Study

The liquidation of seven decades communist rule in central Asia in 1991, has witnessed an unprecedentedpolitico-economic experiment. The shift from Planned Economy to the revolutionary transition of market economy iscomplicated process for newly installed governments. Uzbek Economic transition in the post- Barrack-type ofSocialist economic system was deemed as unique. The transition policy as proposed by neo-classical economists wasbased on the so-called Washington Consensus focusing on liberalization, privatization macro-economic stabilizationand opening of post-socialist economies. In order to handle the abrupt transition, the new nation-states adopteddifferent approaches, Uzbekistan the exceptional and extraordinary in its approach of gradualism. The approachproved more or less progressive for the Republic in making its robust economic performance in regional andinternational markets. Uzbekistan experienced relatively low output decline compared to other countries in the regionas President Islam Karimov adopted a state-led approach, and devised its own model of economy as ‘Road-Map’ itsmild economic stabilization measures have played a vital role in maintaining foreign exchange inflows and growth.In the mid of 1990’s Uzbekistan join its hands with many international organizations in order to have an economicstability. According to many statistical reports of Asian Development Bank (ADB) and International Monetary Fund(IMF) Uzbekistan has achieved miraculous socio-economic development since independence. Today Uzbekistan isan integral part of the world community and global financial-economic market.

English

This study used extreme value theory to establish if the volatility witnessed in the exchange rate of the Kenya Shilling against the U.S. dollar in the period 1999 to 2013 could have been predicted and also determine if the long-term stability in the exchange rate was violated in the period. The peak over threshold model is applied to the tail of the volatility process of exchange rate returns of the Kenya Shilling against the U.S. dollar. The results showed that despite episodes of extreme volatility, the long-term stability of the exchange rate was maintained during the period. However, implementation of policies that will increase and sustain the level of foreign exchange inflows into the country is necessary to mitigate the vulnerability of the exchange rate to external and domestic shocks. Specifically, policies to promote the export sector and those to increase the level of foreign exchange reserves held by the Central Bank of Kenya should be encouraged. The comparably extreme volatility witnessed in the period 2008 to 2010 showed that political stability is a key component of foreign exchange market stability in Kenya. Key words: Volatility, Extreme Value Theory, Peaks over Threshold model, GARCH model

A quantitative framework for assessing public investment in tourism – An application to Haiti

This study develops a linked regional computable general equilibrium and micro-simulation (RCGE-MS) model to assess the regional economy-wide and poverty impacts of a US$36 million investment in tourism in the south of Haiti. The first social accounting matrix for Haiti with a base year of 2012/2013 was constructed to calibrate the model. This research addresses three key gaps identified in the tourism impact assessment literature. First, a destination-specific tourism demand and value chain analysis was used to calibrate the shocks implemented in the model. Second, the RCGE-MS approach moves beyond the representative household configuration to enable more robust analysis of tourism investment impacts on poverty and income inequality. Third, results of this modeling were used to inform a social cost-benefit analysis to provide greater transparency in the evaluation of trade-offs between investment alternatives. Results of this analysis showed a positive impact on sectoral activity, especially for the hotel and restaurant sector (182.1% in 2040) and a 2.0% increase in Gross Regional Product by 2040. The South's exports fell 4.7% below baseline and imports were 6.1% higher due to the inflow of foreign exchange, the appreciation of the regional real exchange rate, increased demand for most goods and services, and limited regional productive capacity. The rate of unemployment fell from 26% to 23%. The investment helped lift some of the region's poorest out of poverty, reducing the poverty headcount by 1.6 percentage points. Driving this result was an increase in employment, wages and non-labor income. The linked RCGE-MS approach proves to be a powerful tool for assessing how tourism investments affect regional economic activity and revealing the mechanisms through which tourism can contribute to increased employment opportunities and poverty reduction.

Determinants of the Choice of Exchange Rate Regime in Resource-Rich Countries

This research studies the specific determinants of the choice of exchange rate regime in resource-rich countries. We run multinomial logit regressions for an unbalanced panel data set of 145 countries over the 1975-2004 period. We find that resource-rich countries are more likely to adopt a fixed exchange rate regime compared to resource-poor countries. Furthermore, we provide evidence that output volatility contributes to the likelihood of choosing a fixed exchange rate regime positively in resource-rich countries and negatively in resource-poor countries. We believe that in resource-rich countries a fixed exchange rate regime is mainly preferred due to its stabilization function in the face of turbulent foreign exchange inflows. Moreover, our results reveal that the role of democracy and independent central banks in choosing more flexible exchange rate regimes is stronger in resource-rich countries. In resource-rich countries that possess non-democratic institutions and non-independent central banks, the government is less accountable in spending natural resource revenues and fiscal dominance prevails. In this situation, fluctuations in natural resource revenues are more easily transmitted into the domestic economy and therefore a fixed exchange rate becomes a more favorable option.

Reshaping Bengal’s Health Care: Exploring Its Prospects and Challenges

Tourism is one of the basic desires of every human being for experience, education, and entertainment. It is also one of the important areas in the tertiary sector of India. Health care is a subsector under tourism. Health care tourism sector has gained enormous response throughout the world and in India, especially during this post-globalization phase. It is so primarily because of its association with the inflow of foreign exchange through foreign tourist arrival, and foreign direct investment and its impact on the economy—sociocultural, economic, politico-legal, etc. The contribution of domestic tourist also cannot be ignored. The article is aimed to create awareness among various stakeholders of health care tourism in West Bengal and at the same time create more enthusiasm toward the subsector. The article also puts forward some specific recommendations to make the West Bengal health care sector more viable, vibrant, and sustainable.

Determinants of the Choice of Exchange Rate Regime in Resource-Rich Countries

This research studies the specific determinants of the choice of exchange rate regime in resource-rich countries. We run multinomial logit regressions for an unbalanced panel data set of 145 countries over the 1975-2004 period. We find that resource-rich countries are more likely to adopt a fixed exchange rate regime compared to resource-poor countries. Furthermore, we provide evidence that output volatility contributes to the likelihood of choosing a fixed exchange rate regime positively in resource-rich countries and negatively in resource-poor countries. We believe that in resource-rich countries a fixed exchange rate regime is mainly preferred due to its stabilization function in the face of turbulent foreign exchange inflows. Moreover, our results reveal that the role of democracy and independent central banks in choosing more flexible exchange rate regimes is stronger in resource-rich countries. In resource-rich countries that possess non-democratic institutions and non-independent central banks, the government is less accountable in spending natural resource revenues and fiscal dominance prevails. In this situation, fluctuations in natural resource revenues are more easily transmitted into the domestic economy and therefore a fixed exchange rate becomes a more favorable option.

WHEN AND WHY WORRY ABOUT REAL EXCHANGE RATE APPRECIATION? THE MISSING LINK BETWEEN DUTCH DISEASE AND GROWTH

We review the literature on Dutch disease, and document that shocks that trigger foreign exchange inflows (such as natural resource booms, surges in foreign aid, remittances, or capital inflows) appreciate the real exchange rate, generate factor reallocation, and reduce manufacturing output and net exports. We also observe that real exchange rate misalignment due to overvaluation and higher volatility of the real exchange rate lower growth. Regarding the effect of undervaluation of the exchange rate on economic growth, the evidence is mixed and inconclusive. However, there is no evidence in the literature that Dutch disease reduces overall economic growth. Policy responses should aim at adequately managing the boom and the risks associated with it.

Curses, Diseases and Other Resource Confusions

Natural resource rents, development assistance and unrequited foreign exchange inflows such as remittances relax the balance of payments constraint on economic growth. The failure of some governments to translate these resources into successful development has been attributed to an affliction called ‘Dutch disease’, or, more ominously, to a ‘curse’ associated with the availability of natural resources. This paper examines the disease/curse analysis and rejects it in favour of a political economy explanation of the problems associated with resource use. We argue that conventional analysis of resource-rich countries is misleading because its various manifestations are based on inappropriate assumptions and flawed logic. In practice the ‘curse’ and the ‘disease’ are outcomes of policy decisions, rather than manifestations of deep structural weaknesses, and they are more likely to be suffered in countries whose governments pursue neoliberal economic policies.

Measurement of satisfaction level of employees with a special reference to IT sector

Job satisfaction can be influenced by a variety of factors, e.g., the quality of one's relationship with their supervisor, the quality of the physical environment in which they work, degree of fulfillment in their work, etc. The paper tries to measure satisfaction level of employees in IT sector. The IT industry has great scope for people as it provides employment to technical and non-technical graduates and has the capability to generate huge foreign exchange inflow for India. The sample size consists of 100 employees. Out of which 50 are from Oracle financial services software and 50 are from Wipro. There were two major sources of data collection i.e. Primary method and Secondary method. Under primary method, Questionnaire served useful source of information. The questionnaire was filled only by those respondents who have been working there for more than two years. And, under secondary method newspapers, magazines, books and internet provided necessary assistance. To increase the job satisfaction level of the employees the company should concentrate mainly on the incentive and reward structure rather than the motivational session.

Distributional Effects of the Panama Canal Expansion

This paper uses a dynamic macro-micro framework to evaluate the potential distributional effects of the expansion of the Panama Canal. The results show that large macroeconomic effects are only likely during the operations phase (2014 and onward), and income gains are likely to be concentrated at the top of the income distribution. The additional foreign exchange inflows during the construction and operations phases result in the loss of competitiveness of non-Canal sectors (Dutch disease) and in higher domestic prices, which hurt the poorest consumers. In addition, the construction and operation activities increase demand for more educated non-farm formal workers. Although these changes encourage additional labor movement out of agriculture and from the informal to the formal sector, much of the impact is manifested in growing wage disparities and widening income inequality. Using the additional revenues of the Canal expansion in a targeted cash transfer program such asRed de Oportunidades, the Government of Panama could offset the adverse distributional effects and eradicate extreme poverty.

When and Why Worry About Real Exchange Rate Appreciation? The Missing Link Between Dutch Disease and Growth

We review the literature on Dutch disease, and document that shocks that trigger foreign exchange inflows (such as natural resource booms, surges in foreign aid, remittances, or capital inflows) appreciate the real exchange rate, generate factor reallocation, and reduce manufacturing output and net exports. We also observe that real exchange rate misalignment due to overvaluation and higher volatility of the real exchange rate lower growth. Regarding the effect of undervaluation of the exchange rate on economic growth, the evidence is mixed and inconclusive. However, there is no evidence in the literature that Dutch disease reduces overall economic growth. Policy responses should aim at adequately managing the boom and the risks associated with it.

Monetary autonomy in the West African countries: What do the policy rules tell us?

This paper provides an empirical assessment about how the monetary policy has been made in a group of Sub-Saharan African countries that are members of the CFA Franc zone. We question the argument that being a member of the CFA zone has always implied the loss of monetary policy autonomy. We use two definitions of monetary autonomy. In a first sense, we consider the African central bank's' ability to set their policy instruments endogenously, in regard to the local economic situations prevailing in the CFA zone, and not only in accordance with the monetary policy followed by the anchor zone. In a second sense, we interpret autonomy in a narrow sense, meaning that money creation is backed by the inflow of foreign exchange reserves as is usually the case for a currency board. These two definitions are used alternatively to test the hypothesis of monetary autonomy through the estimations of an interest rate and credit growth rules. We focus our attention on the West African Economic and Monetary Union (WAEMU) countries, where the upholding of the CFA zone is today passionately debated among the economists. Our results suggest a mixed evidence of autonomy. On the one hand, by considering the interest rate instrument, we provide some evidence that the BCEAO did not completely import its interest rate policy from France and the Euro zone, up until the 1994 devaluation. In addition to the Bank of France's discount rate and the inflation differential with Europe, the domestic interest rate has also been fixed in regard to variables such as growth, the real exchange rate and changes in foreign reserves. Until 1994, there seems however to be strong signs of loss of autonomy. On the other hand, we examine the responsiveness of credit planning to changes in foreign reserves and conclude against the hypothesis of autonomy over the whole period. Even more, credit policy has become more restrictive since the 1994 devaluation. Copyright © 2009 John Wiley & Sons, Ltd.

Capital Flight Accounting and Welfare Implications in the MENA Region

This research brings together the first estimates of capital flight in the MENA countries from 1970 to 2002. In addition, it explains the nature, volume, determinants and growth impact of capital flight in the resource-based and the resource-poor economies of the MENA region on the basis of their respective structural and institutional characteristics. Our findings suggest that capital flight follows a systematic pattern depending on whether a MENA country is resource-based. The resource-based economies are found to be net creditors to the world economy and have experienced more than 273 billion of 1995 USD in capital flight (average of 9.42 percent of GDP). In these economies, capital flight is assisted by natural resource exporting rents, the outward orientation of most economies and the monarchial character of most of their political systems. In assessing the welfare impact, capital flight is shown to negatively and significantly affect economic growth in the resource-based economies. In contrast, the nonresource economies are shown to have experienced a net inflow of an unrecorded foreign exchange of $215 billion in 1995 USD (average of 9.38 percent of GDP). These inflows are mainly reflected in smuggling of imported goods to avoid trade taxes and regulations and are assisted by the inward-looking strategies, one-party or militarily controlled governments and the relatively significant capital controls in these economies. Interestingly, while capital flight is an outcome of government control in resource-based economies, increasing government control induces unrecorded foreign exchange inflows in the resource-poor economies. However, we find no significant effect of unrecorded inflows on economic growth in these economies. Based on these findings, the research provides policy implications for development in the MENA region.

International Reserve Trends in the South Caucasus and Central Asia Region

In recent years, the South Caucasus and Central Asia countries (CCA-6) have received significant foreign exchange inflows. While a healthy reserve buffer is desirable to selfinsure against external crises, holding international reserves also involves costs. We analyze the adequacy of CCA-6 reserves using widely recognized rules of thumb, and simulate optimal reserve levels applying the Jeanne (2007) model. Both the adequacy measures and the model-based simulations indicate that, with the exception of Tajikistan, CCA-6 reserves had increased to broadly comfortable levels by 2006. More recently, reserve adequacy has been tested in Kazakhstan, which has been affected by the 2007 global liquidity crunch.

Monetary Policy Operations of Debtor Central Banks in Mena Countries

The paper analyses the monetary policy operations of central banks in the Middle East and North Africa (MENA). We distinguish the pattern of monetary policy operations of the liquidity providing central banks of the large industrialized countries (creditor central banks) and the liquidity absorbing central banks of emerging market economies (debtor central banks). Many debtor central banks provide liquidity through foreign exchange intervention in reaction to foreign exchange inflows. If the respective liquidity expansion is regarded as a threat to domestic price and financial stability, liquidity is partly absorbed through sterilization operations. The paper finds that most MENA countries are debtor central banks due to a general pattern of excessive liquidity creation as well as due to country specific reasons.