Impact Of Exchange Rate Research Articles

Asymmetric Impact of Exchange Rate on Balance of Payment in Nigeria

Maintaining a stable exchange rate is key to attaining macroeconomic objectives for any emerging economy like Nigeria. Thus, an unstable exchange rate may lead to economic instability and uncertainty in the investment climate of an economy like Nigeria. Over time Nigeria has been faced with unstable exchange rates. persistent economic challenges and an unfavourable balance of payments. In the pursuit of these macroeconomic goals, Nigeria has implemented various exchange rate regimes, including fixed, floating, and a unified exchange rate system. However, these goals remain a challenge to the economy. It is against this backdrop that this study employed the Nonlinear Autoregressive Distributed Lag estimation technique to analyze the asymmetric impact of exchange rate fluctuations on Nigeria’s balance of payments. Additionally, it considers the impact of control variables such as real interest rates, gross fixed capital formation, trade openness, trade policies, financial deepening, natural resources, and trade balance. Findings from this study revealed that the exchange rate has an asymmetric impact on the balance of payments in Nigeria. Other control variables were statistically insignificant but contributed positively to the balance of payment in Nigeria. Therefore, the research suggested that to improve the balance of payments of the country, Nigeria’s monetary authorities; the Central Bank of Nigeria (CBN), should implement exchange rate policies that will promote domestic investment and encourage export activities. Interest rate policies that would encourage domestic investments are necessary. This can be achieved through reducing the monetary policy rate which is a driver of banks’ interest rate. This will further encourage loanable funds for investment, hence a favourable balance of payment in Nigeria. Furthermore, the Federal Government through the Ministry of Petroleum and Natural Resources should leverage international oil prices to enhance export activities and strengthen the balance of payments.

A VAR Framework of Exchange Rates, Interest Rates, and Inflation Through COVID-19 in Turkey: Empirical Evidence From Linear Cointegration and Causality Analysis

In this study, we investigate the impact of exchange rates and interest rates on inflation in Turkey using monthly data from January 2004 to July 2020 obtained from the Turkish Statistical Institute. Our vector autoregressive (VAR) model showed an evidence of stochastic behaviour among the series. The autoregressive distributed lag (ARDL) results showed a short-run and long-run covariate between exchange rates, interest rates and inflation. Specifically, the findings showed a short-run and long-run relationship between inflation, producer price index (PPI), and Turkish interbank offer rates (TIBOR). However, there was no connection between inflation and dollar exchange rates (DSR) and commercial banks’ interest rates (CBIR). The VAR Granger causality results revealed the variables to be exogenous except DSR, which displayed endogenous to other variables. Nevertheless, the results revealed unidirectional causality from the producer price index (PPI) to DSR and unidirectional causation from TIBOR to CBIR. It means an increase in production costs through raw materials importation led to devaluation of the Turkish lira. Similarly, TIBOR rates drive CBIR high, making domestic lending more expensive, which will inhibit loan provisions to the private sectors, which will result in an economic contraction and eventually high inflation. Our unit roots breakpoint results pointed to breaks in the dataset were between 2016-2019, reflecting the effects of the Fetullah Terrorist Organization (FETO) failed coup, the 2018 U.S. embargo, and an assumed fiscal dominance as the major and direct causes of economic instability and inflation. However, Covid-19 may have acted as a contributing factor since then. Thus, we recommend that the monetary authorities articulate policy to avoid the assumed fiscal dominance.

A Study of Long-Run Equilibrium Relationship Between Foreign Direct Investment and Its Key Determinants in Malaysia

This study investigates the long-run equilibrium relationship between foreign direct investment (FDI) and its key determinants in Malaysia. Employing the Autoregressive Distributed Lag (ARDL) model on annual data between 1971 and 2021. The key findings confirm a long-run equilibrium relationship between FDI and the selected macroeconomic variables as a group. However, the individual impact of gross domestic product, inflation, exchange rate, and trade openness on FDI is not statistically significant when analyzed separately. Specifically, the long-run results suggest that the determinants do not have significant effects on FDI. Meanwhile, the short-run relationship between FDI and its determinants in Malaysia reveals a complex interplay of factors. Inflation and exchange rates play significant roles, with inflation generally encouraging FDI and exchange rate volatility creating mixed effects. Trade openness on the other hand shows some short-run significance but it is not consistently impactful. The error correction (ECM) model also confirms the existence of a long-run relationship. It highlights that while short-term fluctuations can occur, FDI tends to move towards a long-term equilibrium influenced by a relatively moderate speed of adjustment. The key conclusion implies that FDI is influenced by the combined effect of these variables in the longer term, but the individual contribution of each variable is not strong enough to stand out statistically. This research contributes to the understanding of FDI dynamics in Malaysia by providing insights, thereby informing policymakers and investors about effective strategies to attract and leverage FDI for sustainable development.

Responsiveness of United States – China bilateral commodity trade to real exchange rate misalignment: Does the complexity of traded products matter?

This paper assesses the impact of real exchange rate (RER) misalignment on the trade balance between the United States and China, accounting for the complexity of traded products. We employ two recent econometric techniques: the panel autoregressive distributed lag (ARDL) model to estimate both long – and short-run dynamics, and the dynamic panel threshold model of Seo, M. H., and Y. Shin (2016. “Dynamic Panels with Threshold Effect and Endogeneity.” Journal of Econometrics 195 (2): 169–186) to uncover potential non-linearities and identify critical thresholds that could lead to a regime shift. Using highly disaggregated trade data at the HS 06-digit level, encompassing 913 products from 2004 to 2020, our findings reveal a negative impact of RER misalignment on the United States’ trade balance with China. However, this detrimental effect is significant only in industries dealing with less complex products. In contrast, industries handling highly complex products show a notably positive impact. Furthermore, our results suggest that industries can benefit from an undervalued exchange rate only when they have a relatively high level of product complexity. Additionally, heightened product complexity can mitigate any adverse effects overvaluation might have on the trade balance.

The Impact of Real Exchange Rate and Gross Domestic Product on Trade Balance of Lao-Thailand

The objectives of this study are to analyze the effect of the real exchange rate of kip to baht and gross domestic product on the trade balance between Lao-Thai in both short-run and long-run effects. The time series data from 1990-2021 was usedand implied with the ARDL model. The stationary of each variable was tested by Augmented Dickey Fuller (ADF) method. The empirical analysis by the ARDL model show that there is a long-run relationship. In the long run, the real exchange rate and the gross domestic product of Thailand have a negative relationship with the trade balance at a statistical significance level of 0.01. Meanwhile, the gross domestic product of the Lao PDR has a positive relationship. In the short term, only the gross domestic product of Lao PDR has a negative relationship with the trade balance at a significance level of 0.05. The gross domestic product of Thailand has the most effect on the trade balance, followed by the gross domestic product of the Lao PDR and the real exchange rate of kip per baht has the least effect. The coefficient of speed in adjusting to the equilibrium point is equal to -0.784, which means that after shock, it will be able to adjust to the long run equilibrium by 78.4%.

CURRENT EXCHANGE RATES AND MANAGEMENT POLICIES IN VIETNAM

In the age of inflation, the monetary policy management of national central banks has been challenging in stabilizing the economy. The exchange rate is an economic variable that affects most of the aspects of the economy's activities, but the effect of the exchange rate on many activities is very different. In particular, the impact of exchange rates on trading activities is clear and quick. Therefore, the majority of countries use the exchange rate as an effective tool to adjust their import and export activities of goods and services. In Vietnam, although the State Bank of Vietnam (SBV) has managed the exchange rate relatively stable, in the coming time, the exchange rate may continue to be under pressure due to high inflation and political conflicts between countries; there are still no signs of ending… Potential risks affecting investment, production – business activities, and the exchange rate fluctuations in the foreign exchange market. Researching and making practical proposals will help the State Bank apply exchange rate regimes and appropriate exchange rate management mechanisms.

Küreselleşme sonrası Türkiye’de dış ticaret açığının reel efektif döviz kuru ve dış ticaret hadleriyle modellenmesi: NARDL yaklaşımı

Fluctuations in the real effective exchange rate and changes in the terms of trade can cause predictable or unpredictable changes in the overall economy. The most important consequences of these fluctuations and changes are the effects of regional or global economic crises on macroeconomic variables (employment, unemployment, inflation, GDP, balance of payments, foreign trade deficit). Anticipating the consequences of the dynamic effects of these changes is crucial for policymakers. This study analyzes the effects of changes in CPI-based real effective exchange rates and terms of trade on the trade deficit in 1994-2022. Since the impact of CPI-based real effective exchange rate and terms of trade changes on the trade deficit is likely to be asymmetric, the Nonlinear Auto Regressive Distributed Lag (NARDL) method is used in this study, and it is concluded that the factor that affects the trade deficit the most is the decline in the terms of trade. One of the most important reasons why the foreign trade deficit does not decrease at the desired level, even in periods of depreciation of the TL, is the decline in the country’s terms of trade.

The Impact of Exchange Rates on Macroeconomic Factors in Lao PDR from 2012-2021

The purpose of the analysis of the impact of exchange rates on macroeconomic factors of Lao PDR from 2012-2022 aims to (1) analyze the fluctuation of macroeconomic factors and exchange rate of Kip/Dollar and Kip/Baht in the Lao PDR from 2012-2021 and (2) the impact of the exchange rate on the macroeconomic factors of the Lao PDR from 2012-2021. By bringing the collected data to summarize, interpret, consider, select and analyze by using descriptive statistical model and inferential statistics to find a value in percentage, parameter value of regression equation with OLS through E-view 12. The analysis results found that: the exchange rate of Kip/Dollar has effect on the Gross National Income (GNI) of the Lao PDR in the same direction relationship, if the exchange rate changes and increases, it means that the kip of Lao PDR is weak. The country will have the ability to compete in terms of price or make the income from exports that change the value of the kip increase and have a continuous effect on the wages of labor in businesses related to exports, investment and the purchasing power of consumers through income and the economic growth increases, lead to export and investment increase. That will result in the increase of the Gross National Income (GNI) of the Lao PDR. The Consumer Price Index of Lao PDR is continuously increasing, if the Dollar /Kip exchange rate increase by 1 US dollar (USD), it will cause the consumer price index (CPI) of Lao PDR to increase by 1.67% in US dollar (USD). For the exchange rate and export relationship of Lao PDR, it shows that if the exchange rate of Dollar/Kip increase by 1 US dollar (USD), it will result in the export value (EX) of Lao PDR increase by 11.15% US dollar (USD). In other side, the Thai/Kip Baht exchange rate is unable to explain the Gross National Income (GNI), Consumer Price Index (CPI) and Lao PDR's exports clearly, which means that there is no relationship among them, or in other words, the Thai Baht exchange rate does not affect the macroeconomic factors in the model of this research.

The Effect of Export, Import, and Exchange Rates of Economic Growth on China

This research analyzes the impact of exports, imports, exchange rates, and economic growth in China using data on export, import, and exchange rate activities during the period 1981-2020. The research conducted with a quantitative method, utilizing multiple regression analysis to examine the relationships between these variables. The findings indicate that exports, imports, and exchange rates significantly influence China's economic growth. The results suggest that exports and exchange rates have a positive and significant effect on economic growth in China, while imports have a positive but not significant impact on economic growth in China.

A Study of Factors Influencing Corporate Debt Default

With the global debt rate rising at a high speed in recent years, the risk of corporate debt default has also increased gradually, in order to explore the influencing factors of corporate debt default and let enterprises better avoid the risk of debt default. This paper discusses the impact of corporate debt default from internal and external, macro and micro levels, from the aspects of corporate investment and financing strategy, management's investment preference, corporate governance structure, corporate strategic positioning and the differences between the same industry, external macroeconomic environment, national policies and international exchange rate impact, and the degree of opening up of the capital market to the outside world. Corporate debt can be influenced by several factors, and a clear understanding of the relationships and mechanisms between the factors will help to propose feasible debt reduction programs that will lead to more robust corporate development.

THE INFLUENCE OF DEBT COVENANT, PROFITABILITY, BONUS PLAN, AND EXCHANGE RATE ON TAX AVOIDANCE WITH TRANSFER PRICING AS AN INTERVENING VARIABLE IN RAW GOODS SECTOR COMPANIES ON THE INDONESIAN STOCK EXCHANGE

In companies operating in the Raw Goods Sector that are publicly traded on the Indonesian Stock Exchange, the objective of this research is to determine how debt covenants, profitability, bonus plans, and exchange rates influence transfer pricing. Furthermore, the study seeks to ascertain the impact of transfer pricing, equity markets, debt covenants, profitability, and compensation schemes on tax evasion within the Raw Materials Sector of Indonesian Stock Exchange-listed companies. The research methodology employed in this study is associative research. The subject of investigation is the raw materials industry on the Indonesia Stock Exchange throughout the period from 2018 to 2022. The population for this study consists of 96 companies registered on the Indonesia Stock Exchange in the primary consumer products industry, spanning from 2018 to 2022. The research employed a purposive sampling strategy. This research consisted of a sample size of 23 firms. The data analysis technique is facilitated by the utilization of a specific tool, namely Statistical Product and Service Solution (SPSS) version 26. The research findings indicate that the variables of debt covenant, bonus plan, exchange rate, and transfer pricing do not have any impact on tax avoidance. However, profitability is found to have a negative influence on tax avoidance. Debt covenant, profitability, bonus plan, and exchange rate do not impact transfer price. In addition, transfer pricing is unable to reconcile debt covenants, profitability, compensation schemes, and the impact of exchange rates on tax evasion.. Indonesia as a country that has many companies that have been successful at the national and international levels can increase sources of state revenue. As the company's profit rises, the corresponding tax payment also grows. This forms the basis for companies to employ tax evasion tactics in order to reduce their tax obligations. This study investigates the factors that influence tax evasion

Vector Error Correction Model to Analyze the Impact of Exchange Rates and Money Supply on Inflation in Indonesia

Vector Error Correction Model to Analyze the Impact of Exchange Rates and Money Supply on Inflation in Indonesia

Impact of Commodity Price and Exchange Rate on IHSG with Geopolitics as Moderation

This research aims to determine the influence of world gold prices, world oil prices, world coal prices, and exchange rates on the Indonesian composite stock index. The tests of the ponder are Indonesia's world oil prices, world gold prices, world coal prices, trade rate, geopolitical chance record, and composite stock prices for Indonesia, data from www.investing.com and www.policyuncertainty.com January 2020 to December 2023. The method used to analyze the data in this research is multiple regression analysis and residual tests for moderator variables. Through F test analysis it is known that simultaneously all variables X have a significant influence on the Indonesian Composite Stock Price Index at the 5% level. Based on these results, the research hypothesis is accepted. Furthermore, through t-test analysis (subtest), the variables of world gold prices, world oil prices, world coal prices, and exchange rates have a partially significant influence on the Indonesian Composite Stock Price Index at a confidence level of 100. It turns out to be 95% (a = 5%). It can be concluded that changes in these variables influence changes in the Indonesian composite stock index. In addition, geopolitical variables cannot moderate the relationship between all variables X and Y. This shows that geopolitical factors do not play a significant role in this context. The variation in the Indonesian Composite Stock Price Index of 88.0 can be explained by combining all variables X. The remaining 12.0% can be explained by other factors not included in the estimation model.

Exchange rate movements and trade balance in developing economies: Evidence of symmetry and country-specific asymmetries

The impact of exchange rate (ER) movements on the trade balance has been extensively debated in the literature, with conflicting views on the nature and magnitude of this effect. This paper investigates the relationship between ER movements and trade balance in developing economies, with a specific focus on bilateral analysis involving Pakistan. Employing the Nonlinear Autoregressive Distributed Lag (NARDL) model, our results reveal a symmetric relationship between positive and negative ER changes and the trade balance, showing significant long-term and short-term effects across the panel of developing economies. However, country-specific asymmetries are observed, especially in the cases of India and China, and are more pronounced in each bilateral analysis, whether in the short run or long run. The study findings highlight the critical importance of maintaining a stable exchange rate policy, which can provide policymakers with precise insights into the money market and the broader economy while preventing high volatility and continuous depreciation of domestic currencies. Such measures can mitigate the long-term adverse effects of ER movements on trade agreements. The study offers valuable insights for policymakers and investors in developing economies, aiding them in making informed decisions about exchange rate policies.

Empirical Analysis of the Macroeconomic Drivers of Banking Industry Stability in Nigeria

The main purpose of this study is to determine the macroeconomic drivers of banking industry stability in Nigeria. The study employed Quantitative Research method using ex-post research design to analyse the impact of exchange rate, interest rate, inflation rate, economic growth rate, and unemployment rate on bank credit-asset ratio from 1991 to 2023. Based on preliminary estimations from the Phillips-Perron unit root and F-Bounds tests, the study employed the Autoregressive Distributed Lag (ARDL) technique to establish the following key findings. Macroeconomic variables collectively and significantly influence banking industry stability. Specifically, high economic growth rate, moderate inflation rate, and low unemployment rate are the core drivers of banking industry stability, while high interest rate and volatile exchange rate exert a significant negative influence on banking industry stability. Consequently, bankers and macroeconomic policymakers should collaborate to ensure that macroeconomic policy frameworks provide banks with the opportunities for capital mobilisation necessary to effectively perform their financial intermediation roles for the overall benefit of the economy. The study recommends balancing macroeconomic targets and bank stability through growth-inflation-employment targeting policies to improve households' loan repayment resilience and reduce the credit risk of Nigerian banks. Additionally, exchange rate stabilisation through government intervention is suggested to help banks hedge against asset and credit value loss due to exchange rate volatility.

THE DYNAMICS OF EXCHANGE RATES, INFLATION, AND TRADE BALANCE IN A SMALL OPEN ECONOMY (CASE STUDY OF SIERRA LEONE)

Sierra Leone experiences a persistent trade deficit problem. Currently, there is a vacuum in the literature employing recent data and suitable approaches to address the issue of non-stationarity and dynamic interaction between macroeconomic variables in influencing the trade deficit in Sierra Leone. This study examines the relationship between Sierra Leone's trade balance, inflation, and exchange rate using quarterly data from 2005 Q1 to 2023 Q3. The focus is on understanding how the exchange rate and inflation impact Sierra Leone's trade balance in both the short and long term. To achieve this, the study utilizes the VAR/VECM model to depict the dynamic interaction between the trade balance, exchange rate, and inflation. It also employs Granger Causality analysis to determine the most appropriate ordering among the macroeconomic variables in the model and Impulse Response Function (IRF) analysis to test the hypotheses regarding the trade balance response to exchange rate shocks and inflation. The empirical results confirm the existence of cointegration, indicating a long-term balance between the trade balance, exchange rate, inflation, and other macroeconomic variables such as GDP growth and interest rate differentials. Moreover, the dynamic prediction analysis using the IRF method supports the J-curve hypothesis in Sierra Leone and suggests that inflation can reduce the performance of the trade balance. These findings highlight the need for Sierra Leone to implement a comprehensive strategy to adjust the exchange rate and curb inflation to improve the trade balance and enhance external economic stability.

Nonlinear relationships between the participation index and key financial assets: A quantile regression analysis

The Participation Index is essential for assessing market sentiment, investor confidence, and financial market direction. Gold, known for its historical role in protecting wealth and providing a stable asset during economic instability, plays a key role in investment portfolios as an alternative guarantee against financial market fluctuations. The USD and EUR are key current currencies in global economics, affecting international trade, financial transactions, and investment decisions. The purpose of this study is to analyze the complex relationships between the Participation Index (KAT) and three significant financial assets: gold, the US dollar (USD), and the Euro (EUR) using Quantile Regression analysis. Daily data between 16.11.2021-08.08.2023 were used in this study. According to the results; the impact of the euro exchange rate on the "KAT" variable exhibits a positive relationship, which increases as the quantile level rises. The impact of the exchange rate of the United States Dollar (USD) on the variable defined as "KAT" indicates a positive relationship, which intensifies as the quantile level rises. The relationship between gold prices and the "KAT" variable shows a positive strengthening impact as the quantile level increases, and these effects demonstrate a high level of statistical significance.

Stability and Performance of Conventional and Sharia Banking in Indonesia Before and After the Covid-19 Pandemic

This study examines the impact of the COVID-19 outbreak on the performance and stability of Indonesia's dual banking system. Our sample includes the top 20 banks by assets, both conventional and sharia, from 2018 Q1 to 2023 Q3. Data for conventional banks is obtained from Bloomberg, while data for Islamic banks is sourced from each bank's official website. We use ROA, ROE, and NIM as performance variables and Z-Score and NPL as stability variables. External factors such as GDP, Inflation, BI Rate, and Exchange Rate serve as independent variables, while bank-specific variables act as controls. Panel data regression is used to determine causal relationships between these factors and banking performance and stability. We also compare bank performance and stability before and after COVID-19 using the Mann-Whitney Test. Findings indicate that the pandemic significantly affected conventional banks' Z-Score, NPL, ROA, ROE, and NIM, while only NPL was significantly affected in sharia banks. The results highlight the significant impact of GDP, exchange rate, and BI Rate on banking variables, while inflation had no effect. The type of bank significantly influences performance but not stability.

Relationship Between Exchange Rate and Inflation in Afghanistan

Afghanistan is an import dependent country and has been facing perpetual trade balance deficit for decades. In case of imperfect competition in the market or existence of market monopoly, there is a higher chance of reflecting the exchange rate changes on the prices of the goods. In Addition, countries with low level of domestic production and higher amounts of imports usually experience higher degree of the exchange rate pass-through effect on inflation. Countries with high import volumes and low export levels often face a deficit in foreign currency inflows and an excess in outflows. These countries need substantial foreign currency to purchase and import goods from both neighboring and international markets, increasing domestic demand for foreign currencies and consequently leading to domestic currency depreciation. This study investigated the relationship between exchange rates and inflation in Afghanistan, examining how exchange rates impact inflation and the benefits associated with exchange rate mechanisms. The primary research questions include: What is the relationship between exchange rates and inflation in Afghanistan? How does the exchange rate influence inflation in the country? What are the benefits of exchange rate systems? The hypothesis posits that higher inflation typically depresses a country's currency value and that exchange rates directly affect inflation. Additionally, exchange rates determine the value of currency exchanges between different nations. This research aims to elucidate the relationship between exchange rates and inflation in Afghanistan, assess the impact of exchange rates on inflation, and explore the benefits of exchange rate systems. The methodology involves a binary system and utilizes secondary data collected from books, websites, and research papers. Findings indicate that Afghanistan's reliance on imports results in a persistent trade balance deficit, with a significant portion of goods, especially non-food items, being imported due to insufficient domestic production. To import goods, Afghanistan requires foreign currencies, which are typically earned through exports of goods and services as of a result, Afghanistan will experience stability in the exchange rate and in the domestic prices.

Effect of Exchange Rate on Foreign Direct Investment in Nigeria

This study investigates the relationship between exchange rates and Foreign Direct Investment (FDI) in Nigeria from 1981 to 2021. Employing a Fully Modified Ordinary Least Squares (FMOLS) regression analysis, the study reveals a significant positive correlation between exchange rates and FDI. Conversely, the study finds a positive but statistically insignificant association between trade openness and FDI. Finding on interest rates (INTR coefficient: -0.104) indicates a negative relationship with FDI, lacking statistical significance. Similarly, inflation rates (INFR coefficient: 0.012) exhibit a positive yet statistically insignificant link with FDI. Notably, the study highlights a substantial and statistically significant negative relationship between human capital (HC coefficient: -77.787) and FDI, signifying the importance of human capital development in attracting foreign investment. In summary, the research findings indicate a substantial impact of exchange rates on FDI in Nigeria. It suggests that policymakers should proceed with caution to avert possible depreciation of the exchange rate, which could deter foreign investors. Furthermore, adopting a comprehensive strategy for macroeconomic stability could foster a more conducive atmosphere for foreign investment.