Impact Of Currency Depreciation Research Articles

Exchange Rate Changes and the J-curve Effect: Asymmetric Evidence from a Panel of Five Emerging Market Economies

Using the symmetric and asymmetric specifications of the pooled mean group estimator, we attempted to scrutinise the possibility of the J-curve effect in the case of Brazil, Russia, India, China and South Africa. In addition to both real effective exchange rate changes and nominal effective exchange rate changes, the possible impact of domestic and foreign demand pressures on the trade balance is also estimated. Incorporating a quarterly data set spanning from 2000Q1 to 2020Q2, the results based on the symmetric and asymmetric model establish no evidence of the J-curve phenomenon. However, when asymmetric possibilities are considered, appreciation is found to deteriorate the trade balance relatively by a greater magnitude whereas the impact of currency depreciation is insignificant. In addition, no asymmetric evidence has been reported concerning the effect of domestic and foreign demand. However, a hike in the former deteriorated the trade balance whereas an increase in the latter improved it in both linear and non-linear frameworks. JEL Codes: F4, F41, F42

On the link between the real exchange rate and domestic investment in Asia: Are there asymmetric effects?

Previous research that assessed the asymmetric impact of currency depreciation on domestic investment considered experiences of seven industrialized countries, six emerging economies, and eighteen countries from Africa. We add to this new literature by considering the experiences of eight Asian countries. Like previous studies, our asymmetric analysis that required estimating nonlinear models revealed much more significant outcome than the linear and symmetric models. It predicted short-run asymmetric effects of exchange rate changes on domestic investment in all eight countries that lasted into long-run asymmetric effects in Hong Kong, Indonesia, South Korea, Malaysia, and Singapore. Additional analysis revealed that currency depreciation has adverse long-run effects on domestic investment in all five countries.

The impact of symmetric and asymmetric exchange rate fluctuations on demand for money in Pakistan

A growing body of recent literature identifies the exchange rate as an important determinant of demand for money along with income and interest rate, but these studies assume the symmetric effect of exchange rate on demand for money. In contrast, this study argues that the exchange rate can have an asymmetric effect on money demand. Therefore, we estimate the symmetric and asymmetric impact of real effective exchange rate on demand for money from 1974 to 2019 for Pakistan using the symmetric and asymmetric autoregressive distributed lag model (ARDL). The estimated symmetric ARDL model shows insignificant impact of the real effective exchange rate on demand for money while the asymmetric ARDL results show that the impact of currency depreciation on money demand is positive and significant, suggesting substitution effect. Moreover, the stability of the money demand function highlights the role of monetary aggregates in the conduct of monetary policy.

Impact of Exchange Rate Changes on the Trade Balance of India: An Asymmetric Nonlinear Cointegration Approach

Applying an asymmetric model, the study reported no evidence of J-curve phenomenon in case of India. In the short-run currency appreciation deteriorates the trade balance and currency depreciation improves it. In the long-run, again the similar response is observed, however, only the impact of currency depreciation is statistically significant. Increase in domestic demand deteriorates the trade balance by a greater magnitude than improvement is observed due to the decline in domestic demand conditions. Finally, foreign demand hike improves the trade balance relatively by a higher magnitude; however, the impact of a foreign demand decline is statistically insignificant.JEL Codes: F4, F41, F42

Asimetrik Döviz Kuru Dalgalanmaları ve Petrol Fiyat Şokları Nijerya’nın Büyümesinde Önemli Midir? Doğrusal Olmayan ARDL Analizinden Bulgular

This paper examines the nexus between exchange rate fluctuations, oil price shocks, and growth in Nigeria, considering misspecification issues, endogeneity bias, and small sample size, which have not received adequate attention. Using a non-linear ARDL model, findings show that accounting for oil price and exchange rate asymmetries is important in explaining growth in the country for the period 1981-2016. The results also indicate that in the long-run, an exchange rate depreciation has a significant positive impact on growth. A negative oil price shock exerts a positive long-run effect on growth while higher oil prices have a negative impact. The oil price impact not only validates the Dutch disease hypothesis, but also reflects the government’s limited fiscal buffers and savings over time. Contemporaneously, oil price shocks affect growth distinctly as high oil prices boost growth while negative shocks retrogress productivity. While the impact of currency depreciation on growth was found to be positive, an appreciation hurt growth in the short term. The findings reinforce the need for the government to urgently minimize the country’s vulnerability to global crude oil markets as well as dependence on imports to stabilize the Nigerian Naira/ US dollar exchange rate.

The impact of Currency Depreciation in Developing Countries

The impact of Currency Depreciation in Developing Countries

Empirical evidence of an S-curve in Croatia

The impact of currency depreciation on the trade balance is still an empirically unanswered question within international and financial economics. This paper is pointed towards partial clarification of that question as the author analyses trade perspectives in Croatia through the concept of an S-curve. The S-curve is an extension of the J-curve, for the impact of exchange rate depreciation wears out after a while and there is no further improvement when all impacts are realised, meaning that at the top of the curve the slope is zero or negative. By focusing on the relationship between the terms of trade (exchange rate) and trade balance the author is trying to provide some new insights into trade dynamics over a business cycle in Croatia. The main result is that both unconditional and conditional relations (conditional to technology’s role identified in the vector error correction model) are consistent with the empirical S-curve pattern of cross-correlations between the trade balance and the terms of trade (exchange rate). Nonetheless, the inability of the S-curve to depict the strength and/or the speed of the adjustment process before and after the terms of trade/exchange rate depreciation explains its limitation within policy recommendations for Croatia.

Asymmetric Effects of Exchange Rate Changes and the J‐curve: New Evidence from 61 Malaysia–Thailand Industries

AbstractResearch on the impact of currency depreciation on the trade balance is now moving in a new direction by incorporating nonlinear dynamic adjustment of the exchange rate and by using a nonlinear approach to error‐correction modeling and cointegration. Using these advances, researchers find not only more evidence of the J‐curve effect, but also new evidence of asymmetric effects of exchange rate changes on the trade balance. We contribute to this line of research by using monthly trade flow data from 61 two‐digit industries that trade between Malaysia and Thailand, and show that not only does currency depreciation have favorable effects on the trade balance of more industries, but the long‐run effects are asymmetric in 26 out of 61 cases. In line with current literature, our nonlinear model performs much better than the linear model when industry level data are used.

Commodity trade between the US and Korea and the J-curve effect

ABSTRACTSeveral studies have investigated the impact of currency depreciation on Korean trade balance with the rest of the world and have found no significant effects. Suspecting that these studies could suffer from aggregation bias, another group has disaggregated the Korean trade flows by its trading partners and has investigated the response of the Korean trade balance to depreciation using bilateral trade data between Korea and each of its trading partners. Again, in most instances, they have found no significant effect. In this paper, we concentrate on the bilateral trade between Korea and the US and disaggregate their trade flows further by industry. We investigate the response of the trade balance of 69 industries to currency depreciation and find that the trade balance of 48 industries are affected significantly by changes in the real exchange rate in the short run. However, short-run effects translate to long-run favorable effects only in 24 industries.

The impact of currency depreciation and trade liberralzation on trade balance of Sri Lanka

This study examines the impact of trade liberalization and currency depreciation on the trade balance of Sri Lanka. Using the bounds testing ARDL approach for co-integration, which is more suitable for small finite sample cases, we found that there was a long run co-integrating relationship between the trade balance and its determinants; particularly the Trade Openness and Real Exchange Rate. Our findings suggest that 1% increase in trade openness leads to 0.48% deterioration, while 1 % depreciation of local currency leads to 0.45% improvement in the Trade Balance Ratio of Sri Lanka given all else remaining unchanged. These findings solve the fundamental dilemma, why Sri Lanka’s Trade Balance continued to deteriorate; despite of substantial currency devaluations/depreciations allowed during past five decades. Our findings conclude that a more powerful negative impact arising from trade openness fully offset the positive impact arising from currency depreciation; thereby leading the Trade Balance into deficit, eventually in the long run. Accordingly, we found trade liberalization and devaluation are counter-cyclical as policy tools.

US–Indonesia trade at commodity level and the role of the exchange rate

Previous studies that assessed the impact of currency depreciation on inpayments and outpayments of Indonesia with her major trading partners did not find much significant results, especially in the trade with the United States. We wonder whether insignificant link between the real rupiah-dollar rate and Indonesia’s inpayments and outpayments with the United States is due to aggregation bias. To answer this question, we disaggregate the trade flows between the two countries by commodity and consider the sensitivity of inpayments of 108 US exporting industries and outpayments of 32 US importing industries from Indonesia. We find that most industries respond to exchange rate changes in the short run. In the long run, however, 32 inpayments schedule and 17 outpayments schedule are significantly affected. A 1% real depreciation of the dollar was found to improve US trade balance by 1.8%.

How responsive are trade flows between Malaysia and China to the exchange rate? Evidence from industry data

This paper investigates the impact of currency depreciation on bilateral trade between Malaysia and China, especially how a real depreciation of ringgit against the yuan on each industry’s inpayments and outpayments affect the trade balance. We employ disaggregated quarterly data on import and export for 52 industries over the period 1993Q1 to 2012Q4. The results from the bounds testing approach to the cointegration and error-correction model reveal that the real bilateral exchange rate has short and long-run effects on the inpayments and outpayments of the industries. However, the short-run effects shift into the long run in 14 out of 35 industries in the inpayment models and 17 out of 44 industries in the outpayments models. Most of these are small industries producing intermediate goods. According to the ML condition, the depreciation of ringgit against yuan improves Malaysia’s trade balance with China in these industries.

The Impact of Currency Depreciation on International Trade Flows

The Impact of Currency Depreciation on International Trade Flows

On the relation between currency depreciation and wages

Devaluation is said to redistribute income from the poor, who have a high Marginal Propensity to Consume (MPC) to the rich, who have a low MPC. Assuming the high MPC group to be unskilled labour and the low MPC group to be skilled labour, we investigate the impact of currency depreciation on skilled and unskilled wage rates by drawing data from 18 countries. While in most countries we found short-run effects, the long-run effects of devaluation on both wage rates were limited to a few countries. Indeed in these countries, devaluation raised the skilled labour wages and reduced unskilled labour wages in the long run as theory dictates.

How Sensitive is U.S.-Canadian Trade to the Exchange Rate: Evidence from Industry Data

Previous research has followed four distinct paths to investigate the impact of currency depreciation on the trade balance of a country, using mostly aggregate trade data. In this paper we choose one of those paths and consider the trade between the U.S. and Canada. However, unlike previous research we disaggregate the trade data between the two countries by commodity and consider 152 industries that trade. After estimating inpayment and outpayment schedules for all 152 industries, we find that real depreciation has short-run effects on inpayments of 72 and outpayments of 53 industries. However, the short-run effects translate into the long-run effects only in 43 of inpayment models and 36 of outpayment models. Further analysis reveals that 1% real depreciation of the U.S. dollar has 1.29% positive effects on the U.S. net export earnings.

Macroeconomic and Environmental History: The Impact of Currency Depreciation on forests in British India, 1873-1893

Abstract The impact of the macroeconomic context, particularly monetary disturbances, on the environment has been hitherto ignored in the study of Indian environmental history. The links between macroeconomics and the environment, however, have been extensively studied and debated in recent times in connection with the structural adjustment programmes (SAPs) that many developing countries have been induced to adopt. A closer examination of India’s monetary history reveals that there exist many similarities between the effects of SAPs and those of monetary disturbances in the last quarter of the nineteenth century due to the depreciation of the rupee. This paper traces out how an exogenously induced change in the macroeconomic environment may have led to policies that prompted increased deforestation. Moreover, in the private sector too the depreciation of rupee may have led to higher levels of investment and exports of environmentally sensitive products, further accentuating the adverse impact on forests. Although not conclusive in quantitative terms, this study nonetheless attempts to show that colonial policies cannot be studied from a purely ideological, political, or real-economic point of view; the macroeconomy, particularly monetary variables that were sometimes beyond control of governments, may also have induced changes in deforestation rates.

CURRENCY DEPRECIATION AND CORPORATE NET WORTH OF LISTED COMPANIES IN INDONESIA

This paper is concerned with the impact of currency depreciation during the period of crisis on the corporate net worth of listed companies in Indonesia. The findings can shed light on the corporate “balance sheet effect” of currency crisis. This paper finds that firms with a higher debt-equity ratio have a lower value in market capitalization growth, sales and asset during crisis and in postperiod of crisis. Meanwhile, firms with majority foreign ownership (F) have higher sales during crisis and in one year after crisis than domestic companies (L). Furthermore, firms in tradable sector (T) have higher sales and less debt-equity ratio during crisis and one year after crisis than those in Non-tradable sector (N). This research uses data from Indonesian Stock Exchange’s (IDX) database and ECFFN covering the period of 1994-2004. This empirical research using panel data analysis includes 238 listed companies with at least 5 consecutive years.

How sensitive are Malaysia's bilateral trade flows to depreciation?

In an attempt to assess the impact of currency depreciation on the trade balance, recent studies are employing disaggregated trade data to avoid aggregation bias. However, since import and export prices are not available at disaggregated level, recent studies are using export and import values rather than their volumes so that they can establish direct relation between inpayments and the exchange rate as well as between outpayments and the exchange rate. This study explores the experience of Malaysia. Bilateral inpayments and outpayments models are estimated between Malaysia and her 14 trading partners using quarterly data and bound testing approach to cointegration. The results show that while real depreciation of the ringgit has short-run effects, in the long-run it increases Malaysia's inpayments from only five trading partners.

Impact of currency depreciation on real GDP in South Korea

Impact of currency depreciation on real GDP in South Korea

The Long-Run Effects of Depreciation of The Dollar on Sectoral Output

Almost all previous research that investigated the impact of currency depreciation on domestic production relied on an aggregate measure of total output, i.e. GDP. In this paper we investigate the long-run relation between the exchange value of the dollar and production in eight different sectors of the U.S. economy by the means of cointegration analysis. For most sectors we find no evidence of a long-run relation between the value of the dollar and sectoral output. [F31]