Real Effective Exchange Research Articles

Causal Relationships between Oil Prices and Key Macroeconomic Variables in India

India is among the largest and fastest-growing economies in the world. To continue its growth, energy is and will continue to be one of its most important considerations. With a population of over one billion, India is the third largest consumer of petroleum on the globe. To maintain this ranking, India imports a large percentage of its total oil consumption. Given India’s current position as a large importer of oil, how does oil price volatility affect the Indian economy? This paper examines the effect of oil price volatility on inflation, economic growth, and the stock market in India. Statistical tests suggest that the overall price level, the real effective exchange rate, and oil prices are negatively related to aggregate output in the long run. Granger causality test results derived from a vector error correction model support bidirectional causality between oil prices and aggregate output, indicating that a change in oil prices also affects aggregate output in the short run.

Effect of Ukraine’s public debt management on its macroeconomic development: VAR modeling

One of the tools of economic policy of any country is efficient public debt management, which influences and determines the dynamics of key macroeconomic indicators. The study aims to assess how public debt management affects Ukraine’s macroeconomic development. The analyzed period includes data of 2015–2021. Econometric modeling is used to establish the existence of causal relationships between the dynamics of public debt and changes in key macroeconomic indicators using the Granger causality test and VAR (Vector Autoregression) model. The obtained results demonstrate that during the study period, the strongest links existed between the public debt and GDP, debt servicing and Ukraine’s total state budget expenditures, public debt and consumer price index, real effective exchange rate index of the hryvnia to the US dollar, and political stability index. At the same time, the calculations proved that public debt does not have a significant impact on foreign direct investment and the level of imports of goods and services. The proposed model allows for forecasts for future periods and can be used in developing public debt management policy.

Threshold Impact of Remittances on Real Exchange Rates for WAEMU: A Panel Smooth Transition Regression Approach

This paper explores the nonlinear relationship between workers’ remittances and real effective exchange rates for West African Economic and Monetary Union (WAEMU) member countries using the panel smooth transition regression (PSTR). The PSTR was estimated with one transition function and one location parameter as dictated by the diagnostic tests. The diagnostic tests reveal that the relationship between workers’ remittances and real effective rates is nonlinear. The estimated threshold value is 3.07%. The results reveal that increases in workers’ remittances have a depreciating effect on real effective exchange rates in regime one, associated with threshold value of less than 3.07%. However, in the second regime when the threshold value is greater than or equal to 3.07%, increases in workers remittances have an appreciating impact on real effective exchange rates. These results substantiate that the relationship between workers’ remittances and real effective exchange rates is asymmetric and as such should be modeled accordingly. Above all, the results confirm the presence of Dutch disease effect in the second regime where the estimated coefficient on workers’ remittances is negative and statistically significant. However, there is no evidence of Dutch disease effect in the first regime where the regression coefficient on workers remittances is positive and also statistically significant. Policy implications are discussed.

Energy price shocks and current account balances: Evidence from emerging market and developing economies

This paper investigates the effects of real energy price shocks on current account balances of 45 emerging market and developing economies. The investigation is based on country-specific structural vector autoregression models, where alternative specifications and identification schemes are considered for robustness purposes. The empirical results suggest that 1 % of a positive real oil price shock results in up to 0.11 (0.08) percentage points of a cumulative improvement (deterioration) in current account balances of oil exporters (importers) after five years, whereas 1 % of a positive real natural gas price shock results in up to 0.06 (0.04) percentage points of a cumulative improvement (deterioration) in current account balances of natural gas exporters (importers) after five years. Real coal price shocks result in higher current account balances of oil exporters and natural gas exporters, suggesting substitution of coal with oil and natural gas in such cases. When contributions of alternative real energy prices to the variance of current account balances are compared, real oil price shocks dominate those of real natural gas and real coal prices. The empirical results investigating the effects of oil demand versus oil supply shocks on current account balances suggest that oil demand shocks (rather than oil supply shocks) result in similar reactions of current account balances to real oil price shocks, supporting the view that the effects of oil demand shocks are different from those of oil supply shocks. The results are robust to the consideration of country-specific changes in real GDP and real effective exchange rates.

How important is the real exchange rate for exports and growth?

Economists have long debated whether the real exchange rate (RER) has a significant impact on export performance and output growth. Some claim that export performance depends only on nonprice competition and the RER is irrelevant to long-run growth, whereas others argue that the RER is a key variable for promoting long-run economic development. Neither extreme view is supported by recent empirical evidence. Most econometric studies find significant effects of RERs on exports and growth, but subject to numerous qualifications. For example, RER effects on exports differ by type of goods exported, while the negative effects of overvaluation on growth may be stronger than the positive effects of undervaluation. Even if RER effects on growth rates are found only for medium-run transitions, these may imply a long-run impact on levels of output.

Impact of geopolitical risk on tourism demand: evidence from asymmetric NARDL approach

PurposeMany tourism academics have investigated the linkages between tourism, power and space; few have specifically addressed the profound links between tourism and geopolitics. In view of the restrictive assumptions of the linear framework used in the earlier studies, and hidden asymmetries present in the time series data. Against this backdrop, the study tries to find out how tourists may respond differently to favourable and unfavourable shocks in geopolitical risk (GPR).Design/methodology/approachIn order to capture this asymmetric nature of the problem, the study employs the non-linear autoregressive distributed lag (NARDL) model to evaluate data from 2001Q1 to 2019Q4.FindingsThe results show that both positive and negative shock to GPR does not produce results of equal magnitude. A positive shock to GPR has a more detrimental effect on foreign tourist arrivals (FTA) than a beneficial effect a negative shock produces. Besides this, the present study also looks at the effect of other macro-economic variables on FTA. An ascend in the real effective exchange rate (REER) i.e. appreciation of the domestic currency has an unfavourable impact on foreign visitor arrivals, while an increase in world gross domestic product amplify it. The results of the study are robust to alternative measures of the control variable.Practical implicationsThe study is significant for policymakers in understanding the short and long-run implications of GPR on FTA in India. The present study can assist policymakers, and destination managers to manage the external and internal risks and minimise the consequences of geopolitical threats on the Indian tourism industry. Consequently, destination managers can utilise the study's findings in calibrating their operations and designing crisis marketing strategies within the geopolitical dynamics of the Indian state.Originality/valueThe study tries to find out how tourists may exhibit distinct reactions to positive and negative disturbances in GPR. The study provides first-hand evidence of how GPR impacts tourism demand. The paper also includes the existing body of literature related to GPR factors and their effect on tourist influx, specifically in the framework of the Indian tourism sector.

Sources of real exchange rate fluctuations in Egypt

PurposeThis paper aims to empirically investigate the sources of real exchange rate fluctuations in Egypt using structural vector autoregression (SVAR). The data covers the period between 1980 and 2016, where exchange regime has been changed more than once.Design/methodology/approachThis paper investigates the source of real exchange rate fluctuations for the period between 1980 and 2016 using the SVAR method. The SVAR method will incorporate real gross domestic product (GDP), real effective exchange rate (REER) and price level in a multidimensional equations system. However, impulse response function (IRF) and error variance decompositions (EVDC) will be generated by the system to have a behavioral insight of real exchange rate in response to economic shocks.FindingsThe IRF and EVDC results indicate a significant impact of demand shocks over the real exchange rate relative to supply shocks and monetary shocks in the period between 1980 and 2016. On the other hand, monetary shocks will have a negligible effect on the real exchange rate in the short run and converging to its previous level in the covering period of the study.Originality/valueIn the best of the authors' knowledge, the topic of the source of the real exchange rate fluctuations in Egypt has not been discussed in a wide range due to the lack of time series data. However, this study provides constructed data for REER for Egypt with the published method in the International Monetary Fund (IMF). Furthermore, the study involves theoretical and econometric modeling to ensure the reliability of the economic results.

A revisit of the natural resource curse in the tourism industry

Despite a growing literature on the natural resource curse, existing studies are sparse on how real effective exchange rate, political stability and corruption shape the relationship between natural resources and tourism revenues. This study analyses both the direct and indirect effects of natural resources on tourism revenues using a panel 95 countries around the world from 1996 to 2018. First, our results indicate that natural resource dependence negatively impacts tourism revenues. Second, above certain thresholds, natural resources curse the tourism sector through the corruption of exchange rate. These results motivate recommendations aimed at maintaining political stability, reducing cumbersome regulations of tourism activities that generate corruption and the adoption of appropriate exchange rate regime is recommended but this requires further studies.

Asymmetric response of domestic production to exchange rate changes: Evidence from southeast Asian countries

This study explores the asymmetric effects of real effective exchange rate variation on domestic output in nine South East Asian nations. The study is the first thorough study on this issue for these countries. The results show that exchange rate fluctuations have asymmetric long‐run and short‐run effects on production in most nations. However, the findings vary across nations. Appreciation has a contractionary effect on production in most countries, while depreciation has an expansionary effect. In certain economies, an appreciation boosts domestic output whereas a depreciation diminishes it. Such conclusions can only be reached if appreciations and depreciations are separated, using non‐linear models.

Analyzing the Determining Factors for Export-Oriented Growth Strategy in East Africa: A Comprehensive Empirical Research

International trade mainly Exports have a substantial impact on the country’s economy, employment, and balance of payments. Despite trade policy reforms, East African nations have a limited share in global exports. The region’s trade balance has been in deficit for multiple years, and its export-driven growth remains poor. This study analyzed data from selected East African countries over a twenty-year period using a panel-autoregressive distributive lag (ARDL) econometric model. The descriptive findings show that exports have been weak with a persistent trade deficit, industrial items dominated imports while primary items were overlooked in the export basket. The results from the empirical study (pooled mean group-PMG) reveal those determining factors such as foreign direct investment, per capita gross domestic product, inflation rate, real effective exchange rate, terms of trade, and industrialization have a significant influence on export performance in the long run. Further to this, the study suggests that the exchange rate, inflation rate, and foreign direct investment inflows negatively affect the performance of exports in the region. To this end, the outcomes of the study highlight the need to revise export-oriented strategies so as to boost export and overall economic development in East Africa.

Asymmetric effect of real effective exchange rate and Saudi non-oil export determinants

Asymmetric effect of real effective exchange rate and Saudi non-oil export determinants

Analysis of Monetary Policy Intervention and Macroeconomic Variable Shocks Against Capital Inflow in 4 Emerging Countries ASEAN

This study aims to analyze the effect of macroeconomic variable shocks which include economic growth, real effective exchange rate, and world oil prices as a proxy for world price stability and monetary policy intervention through controlling the money supply against capital inflow in four ASEAN emerging market countries. This study uses a panel error correction model approach to fully utilize secondary data from 2000 to 2022 in Indonesia, Malaysia, the Philippines, and Thailand. The data is collected from the World Bank and Fred Economic Data. The results of this study indicate that monetary policy intervention through money supply control significantly influences capital inflows to ASEAN emerging market countries in the long run. Then, economic growth significantly affects capital inflows in ASEAN emerging market countries in the long run. Changes in oil prices and the real effective exchange rate do not significantly affect capital inflows in the long run. Economic growth significantly affects capital inflows in the short term. Meanwhile, monetary policy intervention, the real effective exchange rate, and the oil price did not significantly affect capital inflows in the short term in ASEAN emerging market countries. The results of this study show interesting findings because world oil prices, as the main indicator of changes in business and trade around the world, empirically show no significant effect on changes in capital inflows in emerging market countries. Meanwhile, monetary policy intervention effectively adjusts the balance of capital inflows in the long run. So it can be concluded that monetary policy in emerging market countries effectively controls long-term balance.

Asymmetric effects of third-country exchange rate risk: A Markov switching approach

The standard tourism demand models consider the effects of the bilateral real exchange rate between origin and destination in a linear context. Our study contributes to the literature by incorporating the asymmetric effects of real exchange rate volatility of home and third-countries. We propose a Markov Switching ARDL model to estimate outbound tourism demand over the period of 2002–2019. This model allows us to examine both the short- and long-run effects in the likely presence of asymmetric effects and structural breaks. The results reveal that there are nonlinear asymmetric long- and short-run effects of the third-countries exchange rate volatility. We also identify relevant structural changes coinciding with major events.

Türkiye’de Döviz Kuru, İhracat ve İthalat İlişkileri: Dalgalı Döviz Kuru Rejimi̇ Beklentileri̇ Karşılıyor mu?

Türkiye has implemented different exchange rate regimes and foreign trade policies throughout its 100-year history. The foreign trade deficit has been a persistent issue since the establishment of the free-market economy and its opening to foreign capital and aid. Since 1980, export-oriented industrialization policies and the withdrawal of the fixed exchange rate regime have not effectively reduced the foreign trade deficit. This study used the VAR model to examine the relationship between the real effective exchange rate, exports, and imports from March 2001 to June 2023. To investigate the causality between variables, Granger causality test is performed; impulse response functions are used to establish the direction of the variables' reaction to shocks; and variance decomposition is used to evaluate the distribution of impact over periods. The study's findings contradict economic theory's predictions about exchange rate, export, and import linkages. The Granger causality test failed to identify a causal relationship between the real effective exchange rate and exports and imports, leading to the conclusion that the level of the exchange rate has no influence on exports and imports. The bidirectional causation between exports and imports, with import changes largely explained by exports, confirms Türkiye's export dependence on imports

The Effect of Real Exchange Rate on Current Account

This research studies the impact of real Gross Domestic Production (GDP) and real exchange rate on the Current Account position in Jordan, during the quarterly periods from 2008 to 2022. The study reviews the literature on the theoretical framework around the impact of real GDP and fluctuations of the real exchange rate on the current account status. This study describes the performance of the current account during the study period and applies the appropriate econometric tests to an economic model. The main results show a significant, positive effect of real GDP growth in improving the status and sustainability of the current account; output growth indicates an increase in production leading to higher levels of exports and lower levels of imports. The results did not show a significant effect of the real exchange rate on the current account position, which is largely attributed to the stabilization policy of exchange rate pursued by the Central Bank of Jordan since October 1995.

Financial Interrelations of scenario Indicators of budget Forecasting with Indicators of the Federal budget of Russia

The realism of the scenario indicators used in the formation of the federal budget of the Russian Federation in the context of the special significance of the budgetary mechanism for the adaptation of the national economy to global challenges becomes of particular importance while maintaining internal and external sanctions risks. The purpose of this study is to assess the validity of the forecast values of scenario macroeconomic indicators that determine the key characteristics of the Russian federal budget in the current budget cycle, and to develop proposals for clarifying the composition and concretizing approaches to their forecasting for the medium term in conditions of increased uncertainty. The study is based on an abstract-logical method, including a critical analysis of the predictive values of macro-indicators adopted as the basis for the parameters of the federal budget of the Russian Federation in 2023 and the planned period of 2024 and 2025 (using the level of consumer prices and the exchange rate of the ruble as an example), establishing causal relationships between the reliability of projected budget parameters at the federal level and the state of the Russian economy, identifying possible directions for the development of approaches to forecasting initial indicators for the preparation of the federal budget. In particular, the article suggests that in the forecasting of basic scenario parameters to detail the accounting for the dynamics of world prices, the real effective exchange rate of the ruble, to optimize the selection of exchange rate factors, and to take into account the variability of exchange rate volatility. The author’s developments presented in the article contribute to the efficiency of the execution of the federal budget in terms of the use of its resources, and therefore can be used in the activities of state authorities in the development of budget policy.

Estimation of an ARDL (m, p, q, r, s) Model to Determine the Long-run Effects of World Income, Relative Price, Real Exchange Rate and Employment on Export Demand for the Garment Sector of Bangladesh

In this paper, an ARDL (m p, q, r, s, s) log-linear export demand function is estimated to find the long-run impacts of world income, relative price, real exchange rate, and employment on exports of the garment sector of Bangladesh using modern econometric techniques based on time series data from 1979-2020. Long-run significant relationships among exports, relative price, real exchange rate, world income and employment are found. The VEC model's estimated results indicate short-run bidirectional causalities between different pairs of variables. The long-run causalities are found while exports and employment are the endogenous variables. The estimated results indicate that both long-run and short-run exports are influenced positively and significantly by world income. Relative price, real exchange rate and employment carry negative signs for both long-run and short-run in which the effects of relative price and real exchange rate are statistically significant in the long run which implies that a 1% decrease in relative price, exports will increase by 1.256%. It is found that the coefficient of ECM(-1) is -0.9705 which is statistically significant at any significance level, suggesting that when the export value is above its equilibrium level, it will adjust about 97.05% within the first year. The full convergence process to reach the equilibrium level takes more than a year. Thus, this study will help the economists, policymakers and stakeholders of the garment sector of Bangladesh to predict the dynamics of export demand due to changes in world income level, relative price, real exchange rate and employment.

Trade Opening and The Real Effective Exchange Rate of the RMB

This paper uses the Redux model and shows that the fluctuation of the RMB under certain fluctuations; then analyzes the effect of the fluctuation of the RMB on the actual effective exchange rate. The study found that trade opening can reduce the fluctuation of the real effective exchange rate of the RMB; the rationalization of industrial structure can also enhance trade opening and restrain the real effective exchange rate fluctuation of the RMB. Meanwhile, the "Belt and Road" initiative intensifies the real effective exchange rate fluctuation of the RMB, possibly due to the change of the "Belt and Road" initiative and implementation in the total industrial structure of import and export. Therefore, all provinces (autonomous regions and municipalities directly under the Central Government) should increase basic research such as science and technology, promote the rationalization of industrial structure, and make the help of the good opportunity of the "Belt and Road" initiative to reduce the real effective exchange rate fluctuations of RMB.

Exchange rate And Enterprise Investment Efficiency

With the change of the political and economic situation at home and abroad, the economic policy and economic environment also change accordingly, and the exchange rate, as an important macroeconomic policy indicator, is also constantly changing. Based on the data of the actual effective exchange rate of RMB released by the Bank of International for International Settlements from 2010 to 2022, this paper verifies the relationship between the actual effective exchange rate of RMB and the investment efficiency of China's A-share listed companies. After empirical analysis, the research results of this paper show that: The rise of the real effective exchange rate of RMB reduces the degree of non-efficient investment of enterprises, mainly reducing the degree of insufficient investment of enterprises, and thus improving the investment efficiency of listed companies. In addition, this paper makes an in-depth analysis from the two aspects of equity concentration and enterprise scale, and concludes that in small-scale enterprises and enterprises with high equity concentration, the positive impact of RMB appreciation on enterprise investment efficiency will be more significant.

Factors Explaining the Real Effective Exchange Rate in Franc Zone: A New View

Although there is an abundant literature on the determinants of the real effective exchange rate, no study has focused specifically on all the African countries in the Franc zone, whose currencies are still pegged to the euro by a fixed parity, despite the end of the gold standard in 1971. The main objective of this article is to identify the main factors explaining the real effective exchange rate in the franc zone. The data used in this work cover 15 countries that use the CFA franc over the period 1990-2019. To achieve our objective, we mobilized several estimation methods such as the Driscoll and Kraay method, the Panel Corrected Standard Error (PCSE) and the Feasible Generalized Least Squares (FGLS) method. The results of this study reveal that inflation, money supply, the interest rate, gross domestic product per capita, imports and direct investment are the main determinants of the real effective exchange rate in the franc zone.