Foreign Exchange Policy Research Articles

Unveiling the Relationship Between Oil Price and Exchange Rate: New Insight from Time-varying Versus Fixed Coefficient Cointegration

This study provides a brief analysis of time-varying cointegration between the INR–USD bilateral exchange rate and Brent crude oil prices in the post–subprime crisis period. Prior studies established this relationship using the assumption that the long-run relation is intertemporally constant. However, there is much recent evidence demonstrating that this assumption may not be feasible. To address this issue and to go beyond the restrictive time-invariant environment, we employed the time-varying cointegration framework of Bierens and Martins (2010) , which was assessed through orthogonal Chebyshev time polynomials. The result shows that the Rupee was decoupled from oil price shocks in the first two samples. However, the oil price pass-through effect will become stronger in the third and fourth samples. The endogenous structural break test suggests the presence of serious parameter instabilities due to fluctuations in oil prices and the exchange rate over the period under study. This indicates the ability of international crude oil prices to influence domestic economic activities through the exchange rate. Policymakers should consider this factor while making monetary and foreign exchange policies. JEL Codes: E44, G14, G15

АНАЛІЗ ЕФЕКТИВНОСТІ ВИКОРИСТАННЯ ІНСТРУМЕНТІВ ВАЛЮТНОЇ ПОЛІТИКИ В УКРАЇНІ В ПЕРІОДИ КРИЗ 2008–2009 ТА 2019–2020 РОКІВ

The article is devoted to the analysis, comparison and evaluation of the effectiveness of the foreign exchange policy instruments used during the crises of 2008-2009 and 2019-2020 in Ukraine. The main types of instruments of foreign exchange regulation and the priority areas of their application were defined. The authors took under consideration the key features of the construction of the socioeconomic model of Ukraine, the geopolitical situation, and the imposition of cyclical fluctuations during the considered periods. In the course of the study, the exchange rate fluctuations of the national currency against the US dollar were monitored to determine dynamics of the devaluation and revaluation processes within the given time frames. In order to detail the regulatory foreign exchange policy, a separate analysis of the use of NBU tools within the current and long-term strategy was carried out, the differences were identified and the consequences were outlined. The conducted research showed that during both crises the discount policy, namely the change in the discount rate, was most actively used. But the changes were somewhat divergent: more aggressive liberal measures taken to reduce the discount rate during the 2019-2020 crisis appeared to be more effective compared to the crisis of 2008-2009. This is evidenced by data on changes in GDP PPP, indicating the best positive dynamics when exiting the recession during the pandemic. However, in both cases, significant devaluation was observed. In order to determine the causes and consequences of the depreciation of the national currency in relation to the US dollar and other currencies, an analysis of the balance of payments accounts was carried out by individual articles. This made it possible to indicate significant differences in the nature of the origin of these crises. The instruments of motto policy were also used with varying degrees of activity and in the opposite direction. Foreign exchange interventions in 2008-2009, in contrast to the period of 2019-2020, were used very limitedly due to the rather rapid depletion of gold and foreign exchange reserves. Foreign exchange restrictions were strengthened in 2008-2009, and liberalized in 2019-2020. As a result, it allowed to revive investment flows and improve the business climate in the country. It is also noted that against the background of general devaluation during both crises, a period of revaluation of the national currency was also observed in 2019. The analysis showed that in that case it was rather a negative phenomenon, which led to significant losses in the revenue part of the budget due to a decrease in revenues from customs payments, resulted from the inconsistent actions of the NBU and relevant ministries. Other elements of foreign exchange policy were almost not used: the degree of currency convertibility and the exchange rate regime did not change (with the exception of a short period of introduction of the exchange rate band). The same can be said about the instruments of the long-term foreign exchange policy: the order of international settlements was slightly adjusted, but not significantly; the regime of exchange rates and parities remained unchanged; the use of gold and reserve currencies was combined with the diversification of foreign exchange reserves and was mainly related to foreign exchange interventions and the fulfillment of external debt obligations. The conducted analysis allowed to identify the main directions of the foreign exchange policy of Ukraine regarding the stabilization of the economy and the achievement of sustainable economic growth. To solve this problem, it is advisable to gradually introduce foreign exchange liberalization, introduce new reforms and state projects that might improve the investment climate. It is also appropriate to de-dollarize the debts of enterprises through incentives for lending in the national currency. In the long term, it is appropriate to strengthen financial and capital markets to ensure the stability of economic growth.

한국, 일본, 미국의 정책별 불확실성 지수와 변동성지수 간의 연계성

Purpose - The purpose of this paper is to examine the connectedness between categorical economic policy uncertainty (monetary, fiscal, trade and foreign exchange policy uncertainty) indexes and option-implied volatility index in Korea, Japan and the US.
 Design/methodology/approach - This paper employs the Diebold-Ylmaz (2012) model based on a VAR and generalized forecast error variance decomposition. This paper also conducts regression analyses to investigate whether the volatility indexes are explained by categorical policy uncertainty indexes.
 Findings - First, we find the total connectedness is stronger in Korea and Japan relative to the US. Second, monetary, fiscal, and foreign exchange policy uncertainty indexes are connected to each other but trade policy uncertainty index is not. Third, the volatility index in Japan and the US is mainly associated with monetary policy uncertainty while the volatility index in Korea is explained by fiscal policy uncertainty index.
 Research implications or Originality - To our knowledge, this is the first study to investigate the connectedness among categorical policy uncertainty indexes and the volatility index in Korea, Japan, and the US. The empirical results on the connectedness suggest that transparent policy and communication with the market in one type of policy would reduce the uncertainty in other policies.

A multi-objective optimization algorithm based on the identification of risk spillover intensity measurement in Chinese financial markets

Abstract Identifying the intensity of risk spillover in China’s financial market can provide an important empirical basis and information reference for monitoring and preventing financial risks. This paper uses a multi-objective application of particle swarm optimization algorithm under a multi-objective optimization algorithm to induce the MOPSO algorithm. The algorithm identifies and measures the intensity of risk spillover in China’s financial market in two aspects, including the risk spillover from policy instability to the stock market and the two-way risk spillover between the financial industry and the real estate industry. Regarding policy instability, the risk spillover intensities of downside fiscal policy, monetary policy, trade policy, and foreign exchange policy are 14.83%, 53.88%, 7.54%, and 31.06%, respectively. Regarding the two-way risk spillover intensity, the average risk spillover intensity of real estate to finance is 70.28%, which is 5.57 percentage points higher than that of finance. This indicates that the multi-objective optimization algorithm can identify and measure the risk spillover intensity of China’s financial market, providing data support and information reference for preventing financial risks.

Evaluating the Influence of Foreign Exchange Policy Regime on the Construction Sector in Nigeria

In developing economies, foreign exchange policy regime (FEPR) play a critical role in the viability of all sectors of the economy. In Nigeria, the economy is dependent on foreign inputs from contracting services, technology, materials, expatriates, etc. Therefore, this study investigated the impact of FEPR on the performance of the construction sector in Nigeria. To achieve this goal, time series data was extracted from United Nations Statistics Division (UNSD) on the construction sector, gross domestic product (GDP) and FEPR for 50 years spanning from 1970 to 2019. The study uses econometric approach including tests of stationarity and co-integration as well as the generalized method of moment (GMM) to model the relationships between the variables. The study reveals that the 1986 FEPR reform had significant and negative effect on the construction sector output in Nigeria. This implies that the performance of the construction sector is affected by the state of the economy and government policy. This study proves that the foreign exchange policy regime does not significantly influence the construction industry during the period of review. It also ascertained that the development of the construction sector depends more on previous construction outputs and only altered due to oil export shock. Hence, this study recommends that sustainable construction development strategies should be implemented to eliminate construction sector challenges and reduce the effect of foreign exchange rate volatility on the construction sector. Finally, monetary and fiscal policies that can engender sustainable growth and development of the construction sector should be implemented.

OECD Ülkeleri Örneğinde Türkiye’nin İhracat Analizi: 1982Q1 ve 2021Q1

International economics is a field that primarily examines the liberalization of trade and its impact on a country’s gross domestic product (GDP). The trade policies in the World economy, specifically Türkiye as a developing economy, have experienced different cycles since the 1980s, and Türkiye has been following liberal trade policies in an attempt to overcome instabilities in its economy since 24 January 1980. In particular, the long-term, including, the 1994, 2001, 2018 currency crises in Türkiye, the 1997 Asia, the 2007-2009 global financial crisis, and the 2020-2022 Covid 19 global recession, further increases significance of the analysis. This article specifically explores the effects of neo-liberal trade policies on Türkiye and its primary export market, the OECD countries. In particular, the impact of changes in the OECD Countries’ GDP on Turkish exports is analyzed in relation to the Terms of Trade (TOT) and foreign exchange (FX) volatility of the Turkish Lira through Auto Regressive Distributed Lag (ARDL) method. The results reveal that Türkiye’s exports follow a statistically significant correlation with OECD’s GDP and FX volatility but not with the TOT for the period between 1982Q1 to 2021Q1. However, the lagged variables evaluated by the ADRL method indicate that five periods of lagging Turkish exports have a statistically significant relationship with two periods of lagging GDP of OECD, and one period of lagging FX, as well as with one period of lagging TOT. This article also offers valuable insights into the impact of exceptional events like COVID-19 pandemic on national economies, thus findings presented in this paper can help governments and policy makers predict potential implications of other extraordinary circumstances or global disasters and make informed decisions to mitigate their impact on the national economy. This is a long term analysis of neoliberal FX policies applied in Türkiye.

Ukraine foreign exchange policy implementation: principles of building state bodies system in sphere regulating currency relations

Ukraine foreign exchange policy implementation: principles of building state bodies system in sphere regulating currency relations

International capital flow pressures and global factors

The risk sensitivity of international capital flow pressures is explored using a new Exchange Market Pressure index that combines pressures observed in exchange rate adjustments with model-based estimates of incipient pressures that are masked by foreign exchange interventions and policy rate adjustments. The sensitivity of capital flow pressures to risk sentiment evolves over time, varies significantly across countries, and differs between normal times and extreme stress events. Across countries, risk sensitivities and safe haven status are associated with self-fulfilling exchange rate expectations and carry trade funding currencies. In contrast, current indicators of a safe macroeconomic profile are only weakly associated with safe haven status.

Exploring the New Educational Policies of Foreign Exchange and Cooperation in the Epidemic Era: A Policy Mapping Perspective

Abstract International education is an important part of our country’s cause of reform and opening. It provides strong manpower and intellectual support for our country to implement the innovation-driven strategy, to rejuvenate our country through science and education, and to powerful person with talent strategy. Thus, this study explores Current education policies for China’s foreign exchanges and cooperation during the epidemic period, in-depth understanding of China’s foreign exchanges and cooperation during the epidemic period, and the problems and strategies of implementing the foreign exchange policy during the pandemic. The conclusion and implication have been offered in the last.

The impact of macroeconomic variables on foreign direct investment in Nigeria

This study's main goal is to determine the effect that specific macroeconomic factors have on the amount of foreign direct investment (FDI) flowing into Nigeria. The ex post facto research design was adopted, and it used exchange rate, inflation rate, monetary policy rate (MPR), and gross domestic product growth (GDP) rate as the macroeconomic variables. The quantity of inflow between 1986 and 2020 was made up of FDI (dependent variable). Because the model variables were integrated in a mixed order of both level and first difference, the autoregressive distributed lag (ARDL) technique was used. The selected macroeconomic variables and FDI were bound by a long-run connection, according to the results of the ARDL bounds test for cointegration. The calculated short-run coefficients showed that GDP growth rate and monetary policy rate were the primary macroeconomic variables that considerably increased FDI inflow in Nigeria, whereas inflation and exchange rate were the major macroeconomic variables that significantly decreased FDI inflow. In the long term, the GDP growth rate and the exchange rate had a beneficial influence on FDI influx, whereas the monetary policy rate had a large negative effect. According to these empirical findings, it is advised that Nigeria's monetary authorities should support strong GDP growth, exchange rate stability, and efficient monetary policy rates in order to draw FDI into the country and create efficient foreign exchange policies that will attract foreign investors.

ДИНАМІКА КУРСОВОЇ ПОЛІТИКИ НАЦІОНАЛЬНОГО БАНКУ УКРАЇНИ В УМОВАХ ВІЙНИ ТА АКТУАЛЬНА СТРАТЕГІЯ КУРСОУТВОРЕННЯ

The article is devoted to the analysis of the measures of the exchange rate policy of the National Bank of Ukraine regarding the optimal order of formation of the exchange rate, which have been taken since the beginning of the full-scale war and the justification of the reasons and feasibility of the transition to the regime of managed flexibility of the exchange rate as an actual and most optimal concept of exchange rate formation. The relevance of the research is beyond doubt, because the choice of a successful strategy for the formation of currency rates using effective traditional and innovative tools will allow balancing the currency market, ensuring financial security and general economic development. The research methods used in the work are: analytical method, graphical method, methods of comparison and detailing. Basic theoretical aspects of the essence of foreign exchange policy have been highlighted, its object, subjects and key tasks have been defined. Operational actions of the National Bank of Ukraine to prevent the rapid depreciation of the national currency due to the impact of the war have been determined, the first of which was the immediate transition to a fixed exchange rate regime, with the aim of adapting to difficult conditions, avoiding panic, ensuring the stable operation of the financial system, curbing inflation and maintaining macroeconomic stability In addition to the fixed exchange rate, directive currency restrictions have been established, including: restrictions on the operation of the foreign exchange market, restrictions on the issuance of cash in the national currency, a ban on the issuance of cash in foreign currency, and others. The advantages of the fixed exchange rate policy, as a temporary stabilization tool, as well as the disadvantages of its long-term use, which put pressure on the economy and are a threat to the state’s financial system, have been analyzed. The advantages, rationality, and prerequisites for introducing the system of managed exchange rate flexibility by the National Bank of Ukraine as a transitional stage before returning to the regime of currency exchange rate formation that operated before the start of a full-scale war, namely: a floating exchange rate and inflation targeting, have been argued.

The impact of foreign exchange policies on Indian trade and commerce

The impact of foreign exchange policies on Indian trade and commerce

Innovative freedom: design and provision

In the process of the study, based on the generalization of the works of famous scientists, the interdependence of the idea, innovation and financial support was determined. This relationship is due to the following components: creativity of the inventor as a transcendence of the idea; uniqueness of innovation as a sign of rationality, consumption, science intensity, usefulness, alternativeness; patterns and rationality of the emergence of innovation as an immanent life; alternativeness of innovation in determining the optimality of financial, energy, time, emotional costs; the intentions of an economic person, which can be manifested in the forms of a traditional and unique way of introducing innovations; financial instruments for introducing innovations; science as a function of life, which is realized through movement towards integrity and causes creativity in innovative design; the need for innovation as a product that optimizes economic costs; growing investment interest in the demand for the latest technologies. The development of the innovation process is analyzed through cyclicity, modeling, consistency, stability, balance, inertia, institutionality, security. Moreover, each methodology contains categories. Thus, new entities, phenomena and forms of their manifestation are illuminated. All areas of the national economy that are contained in the budgetary principles and are based on economy, advertising, efficiency. The initiative of innovative entrepreneurs in choosing forms of presence in the innovation market suffers obstacles from the state authorities. During the recovery period, state regulation pursues a policy of restrictions, a symbolic monetary and foreign exchange policy.

Impact of Capital Flow on Economic Growth: Empirical evidence from Ethiopia (1980-2010) using ARDL Approach

Evidence abound that some transitioning and developing countries are attracting large inflows of foreign capital that could engender economic growth or have destabilizing effects on their economies if not well managed. This has undoubtedly aroused anxiety over its potential effects on economic growth, the competitiveness of the export and external sectors viability. The study examines the impact of capital flow on economic growth in Ethiopia as well as the causal shortrun and long-run relationship among the variables, using time series data from 1980 – 2010. Using the Autoregressive Distributed Lag (ARDL) approach, the result reveals that all the variables are statistically significant; which implies that the capital flow has an impact on economic growth in both short- and long-run dynamic equilibrium models. Additionally, Vector Autoregressive (VAR) and Innovative Accounting Techniques approach to Granger causality analysis shows that there exists bidirectional causality between gross capital flow, and economic growth. Consequently, these findings suggest that policy makers should critically understand, the nature, what drives the capital flows, and the impact of its sudden surge or reversal on economy. Moreover, it is also recommended that government should continue to pursue trade and foreign exchange policies that would ensure competitiveness of the export sector viability and economic growth.

“The rising soft power”: An educational foreign exchange and cooperation policy conceptual framework in China

This study aims to explore the educational foreign exchange and cooperation policy conceptual framework in China’s education system from a historical policy retrospective analysis. Since reform and opening-up, China has issued a total of 151 pieces of educational foreign exchange and cooperation policy documents, including the cultural education policy, the technical educational policy, the overseas educational policy, and the foreign student policy. It is suggested that we need to carry out capacity building and improve the quality of education exchanges and cooperation with other countries; expand forms and paths and expand educational exchange and cooperation resources and optimize the project system and support education exchange and cooperation with foreign countries; enhance the strength of education and enhancing the influence of education on foreign exchange and cooperation. In conclusion, we need build a guaranteed system for educational exchange and cooperation with foreign countries. We will gradually lift the authority of foreign exchange and cooperation projects in education by category, promote the reform of qualification identification and management of institutions opening to the outside world in education, and improve the facilitation and speed of the management and service of opening to the outside world in education.

Advancing policy frameworks to safeguard financial stability in developing and emerging economies: the case of South Korea’s management of international financial flows after 1998

AbstractFinancial liberalisation can promote economic development in developing and emerging economies (DEEs). Especially international financial flows pose risks to the stability of their financial system though, as recurrent foreign debt crises in DEEs show. How can DEEs benefit from international financial flows while safeguarding financial stability? The case of South Korea shows how DEEs can develop domestic policy frameworks to manage international financial flows while maintaining a high degree of financial openness. With the experience of the foreign debt crisis of 1997/98 in mind, Korean policymakers have interlinked policies (monetary policy, foreign exchange policy and financial regulation), public financial institutions and the development of domestic capital markets to develop a financial stability-oriented policy framework that has served as protection against risks attached to international financial flows. While this policy change substantiates a turn towards a finance-led accumulation regime, the case of Korea illustrates that DEEs are not passive bystanders in financialisation processes.

ПРОЦИКЛИЧЕСКАЯ ПОЛИТИКА ЦЕНТРАЛЬНОГО БАНКА АРМЕНИИ: ЦЕНА ВОПРОСА

This article is devoted to the analysis and evaluation of monetary regulation based on the pro-cyclical policy approach in terms of the impact on economic growth on the example of the Armenian economy. The result of the study was the conclusion that procyclical monetary policy has a negative effect on the economy, which in turn requires a revision of such a policy for countries with emerging markets, in particular in Armenia. An analysis of the monetary and foreign exchange policies of Armenia proves that, since the implementation of inflation targeting, the Central Bank of the Republic of Armenia has been pursuing a pro-cyclical policy, which has led to a slowdown in economic growth, especially in the long term.

MANAGEMENT OF THE COMPANY'S INTERNATIONAL FOREIGN CURRENCY-FINANCIAL RELATIONS

This article deals with the set of issues related to economic - currency-financial relations with abroad. To this end, we first presented the general concepts of this process including foreign exchange policy, the foreign exchange market accompanied by the exchange rate. For the practical work of the financial manager of the enterprise of particular importance are the transfers of funds through correspondent banks. That is why we considered it opportune for the financial manager to know the movement of funds in the process of import-export of goods. In this case, it is necessary to understand such financial categories as: the ,,nostro" account, the ,,vostro" account, spot transactions (,,spot"), forward operations, documentary credit, documentary collection, etc. International currency-financial relations are presented as a complex process.

Internationalization of Renminbi as a Function of China’s Foreign Exchange Policy

This article discusses the prospects of the Chinese renminbi (RMB) to expand its sphere of influence and become a full-scale reserve world currency. The methods used in the article are retrospective analysis and graphic analysis. The work is divided into three sections. The first section provides a broad overview of modern reserve currencies. The second part characterizes RMBs shaping as a reserve currency, as well as inner and outer factors that influence its status. The third section includes information about RMBs current status and its perspectives for being a reserve currency in the future. The article argues that currently RMB has already become a regional reserve currency in Asia-Pacific. Chinese government continues to make steps towards international expansion of RMB, yet these steps cannot make RMB one of the leading world currencies together with USD and EUR in the nearest decade.

Assessing the efficiency of the monetary transmission mechanism channels in Ukraine

The paper is focused on the performance features of the monetary transmission mechanism (MTM) in Ukraine as a small open economy. To assess the efficiency of monetary transmission channels, it is important to disclose their interaction, define criteria and tools for analyzing their impact on key macroeconomic parameters. The study deepens approaches to the analysis of the intensity of using monetary, credit, interest rate and exchange rate channels in Ukraine in 2005–2020 and detects violations in the functioning of the MTM. Using economic and statistical methods and regression models, the influence of the main channels of monetary transmission on real GDP growth rate and inflation in Ukraine was assessed. It was concluded that it is advisable to clarify the conditions for increasing the efficiency of MTM in Ukraine; also, the parameters of forecasting the intensification of its channels in the medium and long term are determined. The paper highlights measures to improve the formation of volume and structure of the monetary base and monetary aggregates, improve credit and investment climate, and increase the efficiency of monetary regulation. Moreover, interest rate and foreign exchange policies of the central bank to transmit impulses from the decisions of monetary authorities to market participants were substantiated.