Real Exchange Rate Uncertainty Research Articles

The impact of real exchange rate uncertainty on exports by technology classification in emerging economies

The impact of real exchange rate uncertainty on exports by technology classification in emerging economies

Trade Balance, Real Exchange Rate and Trade Policy Uncertainty in Türkiye: Evidence from the SVAR Approach

Trade Balance, Real Exchange Rate and Trade Policy Uncertainty in Türkiye: Evidence from the SVAR Approach

The effects of economic and financial shocks on private investment: A wavelet study of return and volatility spillovers

This paper examines the linkage between private investments and shocks in economic and financial indicators. Using data from India, we study the return and volatility spillovers from crude price, credit availability, real exchange rate, inflation, output gap, government spending, and economic policy uncertainty to private investments. We combine the ARMA-GARCH model with wavelet multiresolution analysis to capture the multiscale features of return and volatility spillovers among the time series. Our findings uncover spillovers in the time-scale decomposed series that are otherwise not observable in the original data, thereby throwing new light on the private investment-macroeconomic shock relationship. Private investment receives return spillovers from all variables at lower frequencies. Volatility spillovers from credit availability, exchange rate, output gap, and public investment exist at higher frequencies. The findings are robust to different forecast horizons, window sizes, frequency of data observation, and methodology of volatility extraction.

The role of real exchange rate in the trade balance between Turkey and Libya: Evidence from nonlinear and wavelet-based approaches

The time-invariable models would suffer to give a clearer description to the relationship between exchange rate and trade flows. Therefore, the growing strand of literature has failed to reach a consensus. This study aims to contribute to this discussion by employing not only nonlinear model to capture the asymmetric effect, but also to detect the time frequencies and explore the lead-lag relations between real exchange rate and trade balance between Libya and its major trade partner ‘Turkey’ by applying both NARDL and wavelet coherence approaches, using monthly data spanning January 2013 to December 2020, selected based on data availability. The findings disclose that trade balance responds to the real exchange rate asymmetrically. The asymmetric effect is skewed more in the negative direction, as the impact of negative change is significant and greater than the positive change in long run. While the oil price shocks positively impact trade balance, economic policy uncertainty negatively affects trade balance. The wavelet coherence analysis indicates that real exchange rate and economic policy uncertainty are lagging in trade balance, while oil price leads trade balance. Among various other policy suggestions, we recommend that stable exchange rate through the intervention in the foreign exchange market will promote the trade balance at the end.

THE EFFECT OF EXCHANGE RATE UNCERTAINTY ON DOMESTIC INVESTMENT IN ETHIOPIA

There is no yet clear theoretical and empirical consensus on the relationship between exchange rate uncertainty and domestic investment. The main purpose of this study, therefore, is to examine the effect of real effective exchange rate uncertainty on domestic investment for the Ethiopian economy over the sample period 1992Q1- 2016Q1. To address this objective, Jordà’s (2005) local projection method is employed and generalized impulse response functions are generated in this study. The impulse response functions exhibit that one standard deviation shock in exchange rate uncertainty stimulates domestic investment for the Ethiopian economy. In response to one standard deviation shock in exchange rate uncertainty, domestic investment increases to around 4 percent at the second quarter. This may indicate the existence of risk neutral or insensitive domestic investors to exchange rate uncertainty in Ethiopia. As to the effects of other control variables, domestic investment also increases in response to real income and real effective exchange rate shocks. The effect of inflation shock on domestic investment is positive and statistically significant up to the eighth quarter, and negative and significant afterwards.

Exchange Rate Uncertainty Effects on Domestic Investment in South Africa

The main goal of this study is to examine the effect of real effective exchange rate uncertainty on domestic investment for the South African economy over the sample period 1985Q1–2019Q2. To address this objective, Jordà’s (2005) local projection method is employed in this study. The generalised impulse response functions indicate that domestic investment decreases between the second and seventh quarters in response to one standard deviation shock in exchange rate uncertainty. Furthermore, high exchange rate uncertainty affects domestic investment negatively while low exchange rate uncertainty affects domestic investment positively. In other words, domestic investment declines due to a rise in exchange rate uncertainty while a drop in exchange rate uncertainty enhances domestic investment. Regarding the effects of control variables, output and export influences domestic investment positively and significantly. Inflation, however, has a negative and significant effect on domestic investment. Lastly, the Diks–Panchenko nonlinear Granger’s causality confirms bidirectional causality between exchange rate uncertainty and domestic investment. JEL Classification: C32, E22, F31, F41

The Impacts of Country Risk, Global Economic Policy Uncertainty, and Macroeconomic Factors on the Turkish Tourism Industry

ABSTRACT This study investigates the impacts of country-specific risk, namely, political and economic risks, global economic policy uncertainty, and also macroeconomic factors on the price of Turkish tourism firms’ stocks during the 2000 to 2017 period. By considering the structural break, the results underscore that a rise of political and economic risks, global economic policy uncertainty, and real exchange rate correspond with decreasing stock prices in the long-run. Moreover, the short-run results show that the real exchange rate and global economic policy uncertainty impact stock prices negatively though stock prices react positively to a rise of political risk. To the best of our knowledge, this is the first study that attempted to conduct this nexus, and findings have important implications for managers, investors, and assets analysts.

Domaća potrošnja i neizvesnost deviznog kursa u monetarnoj uniji - dokazi iz evrozone

The research seeks to uncover how real consumption reacts to real exchange rate uncertainty in the short and long run for the world's largest monetary union the Euro zone. Twelve Euro zone countries were sampled covering the period 1995Q1-2019Q4. Using generalized autoregressive conditional heteroskedasticity (GARCH) and pooled mean group (PMG), the result shows that exchange rate uncertainty significantly dampens long-run consumption while the short-run effect is mixed. In the benchmark model, a negative and significant error correction coefficient was obtained, which allows to argue that i) there is evidence of a return to the long-run equilibrium path for consumption following short run deviations and ii) the speed of adjustment to equilibrium is low, with a coefficient of ~ 4%. This suggests that, in the Euro zone, convergence to long-run equilibrium is slow, as the proportion of disequilibrium corrected in one quarter, following a shock, is about 4%, which implies it would take ~17 quarters for one half of the disequilibrium, or deviations from the long-run consumption path to become corrected.

The effect of real exchange rate uncertainty on Turkey’s foreign trade: new evidences from SVAR model

ABSTRACT In this study, the relationship between exchange rate uncertainty and Turkey’s foreign trade performance is analyzed using monthly data from 2002:01 to 2017:12 via Structural VAR (SVAR) model. The empirical results indicate that domestic income and import have more impact on Turkey’s export. Moreover, domestic income, exchange rate and exchange rate uncertainty are effective on Turkey’s import. These results imply that Turkey’s export is dependent on imported inputs more than the exchange rate and exchange rate uncertainties.

Real Exchange Rate Uncertainty and Domestic Consumption in a Monetary Union: Evidence from the Euro Area

How does real consumption react to real exchange rate uncertainty in a monetary union? In the eurozone, the world’s largest monetary union, we document that exchange rate uncertainty significantly dampens real consumption in the long run while the effect is mixed in the short run. In our benchmark model, we obtain a negative and significant error correction coefficient which allows us to argue that i) there is evidence of a return to the long-run equilibrium path for consumption following short run deviations and ii) the speed of adjustment to equilibrium is low, with a coefficient of ~ 4%. This suggests that, in the eurozone, convergence to long-run equilibrium is slow, as the proportion of disequilibrium corrected in one quarter, following a shock, is about 4%, which implies it would take ~17 quarters for one half of the disequilibrium, or deviations from the long-run consumption path, to become corrected.

On the impact of exchange rate uncertainty on private investment in Ghana

AbstractHigh levels of private investment are correlated with higher economic growth and development across countries, but questions remain whether this relationship is sustainable given the high levels of exchange rate uncertainty in developing economies albeit other macroeconomic instabilities. This paper examines empirically the impact of real exchange rate uncertainty on private investment in Ghana. We, thus, apply the accelerator theory to investigate the contributing effect of real exchange rate uncertainty on the movement of private investment from the economic standpoint of an import‐dependent economy such as Ghana. The study employs annual time series data from 1980 to 2016. Moreover, we adopt the autoregressive distributed lag model of cointegration where we find evidence of a long‐run positive relationship between positive private investment and real exchange rate uncertainty as well as trade openness. The short‐run evidence provides a confirmation of the impact of inflation, trade, and real exchange rate uncertainty on private investment. Specifically, our results show that there is a positive pass‐through effect from real exchange rate uncertainty to private investment decision in resource allocation. Shocks from lending rate and terms of trade were found to exhibit negative effects on private investment in the short and long run. As a matter of policy, it is imperative for policymakers in developing economies to consider the effect of exchange rate and terms of trade associated with bilateral trade and investment‐related agreements to minimize the effects of contemporaneous shocks from uncertainties.

Exchange Rate Uncertainty and R&D Investment: Evidence from Japanese Firms

The Japanese yen is one of the most volatile among developed country currencies. In this paper, we investigate how real effective exchange rate (REER) uncertainty affects firms’ research and development (R&D) investment, using firm‐level panel data for Japanese manufacturing firms for the period 1994–2011. Our results show that firms that are more exposed to REER uncertainty are less responsive to changes in demand conditions. Uncertainty makes firms more cautious when investing, since high uncertainty increases the chances of making a costly mistake. Our finding thus provides evidence of the caution effect of uncertainty. The caution effect also increases the persistence of R&D, implying that R&D investment does not increase much even if firms face favorable demand conditions. Reducing REER uncertainty is important to stimulate R&D investment, especially for firms that are more exposed to international competition and REER uncertainty.

The Effect of Real Exchange Rate Volatility on the Trade of Educational Services

ABSTRACTThis article finds that high levels of real exchange rate volatility between two trading partners significantly decrease the amount of educational services traded. Many academic institutions are actively looking to expand exports of educational services as a means of increasing revenues. Internal policies that reduce real exchange rate uncertainty may help encourage trade of educational services between countries where volatility is high. The discovery that real exchange rate volatility serves as a significant barrier to attracting educational export opportunities to certain countries underscores an obstacle that should and/or could be addressed as academic institutions strive to expand their international enrollments.

The Impact of Exchange Rate Uncertainty on Exports in South Africa

This paper examines the impact of real effective exchange rate uncertainty (REER) on aggregate exports of South Africa for the period 1986Q4–2013Q2. Using a bivariate framework where the structural vector autoregression (VAR) is modified to accommodate bivariate GARCH-in-Mean (GARCH-M) errors, we find that exchange rate uncertainty has a significant and negative effect on exports. Comparing the response of exports to a shock in exchange rate from a model that includes the REER uncertainty with results from a model that restricts the coefficient of the exchange rate uncertainty to zero, we find that the response is more pronounced in the former model. Furthermore, real exports respond asymmetrically to negative and positive shocks of REER of the same size.

Real Exchange Rate Uncertainty and the Import of Agricultural Main Goods (EGARCH MODEL)

This article investigated the effect of real exchange rate uncertainty on the import of agricultural main goods in Iran over the period of 1991–2012. The aim of this article was to test the following hypothesis: “The uncertainty of real exchange rate has a negative effect on the import of agricultural main goods”. Uncertainty series of the exchange rate are usually estimated using GARCH and ARCH models and the asymmetric effects are also analyzed using these models. Exchange rate uncertainty index resulted from the fluctuations of the real exchange rate is calculated through Generalized Autoregressive Conditional Heteroskedasticity (GARCH) model and is regarded as the proxy of real exchange uncertainty rate. According to the uncertainty analysis and measuring the exchange rate uncertainty by EGARCH model, and eventually based on demand function estimation, it was realized that there was a long term relation between importing agricultural main goods and real exchange rate uncertainty. The obtained results proved that real exchange rate uncertainty had a negative effect on the import of agricultural main goods in Iran and the demand for their import is positively affected by the real national income.

The determinants of foreign direct investment in Malaysia: A case for electrical and electronic industry

This study attempts to analyse the determinants of inward FDI in the electrical and electronic (E&E) industry in Malaysia using bounds test approach for the 1980–2008 period. It is found that GDP, real exchange rate, financial development, corporate income tax, macroeconomic uncertainty and social uncertainty factors significantly affect inward FDI in E&E sector in Malaysia. Empirical results indicate that GDP, real exchange rate, financial development and macroeconomic uncertainty are positively related to inward FDI in E&E sector in the long run. However, corporate income tax and social uncertainty have a negative impact on inward FDI in E&E sector. Furthermore, the Granger causality results also indicate that all explanatory variables Granger-cause FDI in the long-run, but in the short-run only macroeconomic and social uncertainties Granger-cause FDI. The impact of social uncertainty is found to be greater than macroeconomic uncertainty. Thus, foreign investors in E&E sector seem to be more concern about the level of social security and safety when choosing their investment destination.

The Impact of Real Exchange Rate Uncertainty on Private Investment in Iran

This study sought to analyze the impacts of real exchange rate volatilities on investment in the private sector of the economy of Iran during the period 1961-2008, and also evaluate the impact of real exchange rate uncertainty on private investment behavior during the period under study. For this purpose, first, the uncertainty index of the real exchange rate is determined through auto-regressive patterns of conditional variance heterogeneity (EGARCH) and then it estimated the model. In this study, the entire economy of Iran has been studied during 1961-2008. It is a practical research, in terms of the research goal. In this study, GARCH models to obtain the uncertainty on the time series pattern have been used. Data analysis method is based on descriptive and inferential statistical research; according to inferential statistic, the research hypothesis has been tested. To verify or reject the hypothesis of this study, it was used Eviews software indicates that which variables a correlation exists between. The dependent variable in this model is ratio of the fixed investment to GDP and the independent variables include the import of capital goods, governmental investment, inflation index, GDP and real exchange rate uncertainty. The results showed that the index of real exchange rate uncertainty has a significant negative effect on private investment to GDP ratio, and imports of capital commodity and inflation have negative effects on private investment to

Exchange rate shocks and trade: A multivariate GARCH-M approach

We build on the recent literature studying the effects of uncertainty on trade by introducing a model that combines a reduced form vector autoregression for the growth rates of exports, foreign income, and the real exchange rate (RER), with a multivariate GARCH model. Up to 12 lags of several conditional standard deviations are added to relevant mean equations, and all parameters are estimated simultaneously using maximum likelihood, thus allowing us to avoid two step procedures that are common in the literature. Using a large data set of both developed and emerging countries, we find evidence that RER uncertainty negatively impacts trade for several less developed countries. We also find that RER uncertainty tends to be associated with a real currency appreciation. When we compute generalized impulse response functions to study the impacts of unexpected shocks to RER growth on export growth, the results are typically asymmetric. Positive shocks generate substantial negative responses while unexpected depreciations produce relatively smaller positive responses, especially in our developing country sample.

Trade Flows, Exchange Rate Uncertainty, and Financial Depth: Evidence from 28 Emerging Countries

This article investigates the effects of real exchange rate uncertainty on manufactures exports from 28 emerging economies, representing 82% of all developing country manufactures exports, and explores the sources of heterogeneity in the uncertainty effects by controlling for the direction of trade (south‐north or south‐south), and the level of financial development of the exporting country. The empirical results show that for more than half of the countries, the uncertainty effect is unidirectional, either south‐south or south‐north, and the median impact is negative. In addition, while we find that financial development augments trade, exchange rate shocks can negate this effect. Last but not least, trade among developing economies improves export growth under exchange rate shocks.

Exchange Rate Uncertainty and Import Demand of Thailand

This study investigates the impact of real exchange rate uncertainty on import demand of Thailand. The period of study is during July 1997 to December 2011. The results from bounds testing for cointegration show that all variables are cointegrated. Even though there is no short-run impact, but the long-run negative impact of real exchange rate uncertainty on real imports is large and highly significant under the floating exchange rate regime. In the long run, a rise in real exchange rate uncertainty can improve the country’s trade balance by substantially lowering import demand, but can harm industrial production at the same time. Therefore, stabilization of real effective exchange rate via major nominal exchange rates may deem necessary.