Real Exchange Research Articles

Analisis Pengaruh Keterbukaan Ekonomi Terhadap Pertumbuhan Ekonomi di Indonesia

This research aims to determine and analyze the influence of economic openness on economic growth in Indonesia. This research uses time series data from 1993-2023 sourced from the Central Statistics Agency, Bank Indonesia, Bank International For Settlements, and World Bank. The results of the study reveal that (1) trade openness has a negative and significant effect on economic growth in Indonesia, (2) Foreign Investment and the real exchange rate have a positive effect, (3) The real exchange rate has a negative and insignificant effect on economic growth in Indonesia.

Asymmetric Effects of Real Exchange Rate on Turkey's Imports: Threshold Value Regression Model

Determinants of imports are one of the most discussed topics in the foreign trade literature. This study explores the asymmetric relationship between the real exchange rate and imports for Turkey example. The paper employs monthly data spanning from 2013:01 to 2023:06, estimating classical least square estimation and Threshold Regression Models, subsequently comparing their outcomes. The findings highlighted that the relations between imports and real exchange rate are asymmetric. According to the least square estimation model, it was noted that the real exchange rate had a negative impact on imports, aligning with anticipated outcomes. In the threshold regression model, it was seen that movements in the real exchange rate positively affected imports in the model below the threshold, while exerting a negative effect in the model above the threshold. This finding was interpreted as increasing imports by buying the expectation that the exchange rate increases, which are below the internalizable level, may increase further. It is considered essential for policymakers to take into account asymmetric relationships when analyzing the relationships between imports and the exchange rate.

Analysing Real Exchange Rate Effects on the Trade Balance in South Africa

For years, policymakers and economists have been researching the significance of the native currency value versus other currencies in favouring the country’s trade balance and total. Therefore, this study investigates the impact of the real exchange rate change on the trade balance in South Africa. The study used annual time series data from 1980 through 2022. This study used the ARDL technique to analyse data. Variables used in this study include the trade balance, real exchange rate, terms of trade, money supply, South Africa’s gross domestic product, and the Chinese gross domestic product. Bounds tests showed that the variables are cointegrated. According to the empirical findings, the real exchange rates have significantly influenced the trade balance positively in the short run but in the long run, have a negative significant influence on the trade balance. The terms of trade have a positive significant influence on the trade balance in the short run, but it appears to be positively significant in the long run. The money supply in the short run has an insignificant negative relationship with the trade balance but in the long run, has a significant positive relationship with the trade balance. The SA gross domestic product has a significant negative impact on the trade balance both in the short and long run. Lastly, the Chinese gross domestic product has a negative insignificant relationship with the trade balance in the short. However, in the long run, it has a positive significant relationship with the trade balance. This proves that a rise in Chinese GDP, as a proxy for foreign economic activity, boosts South African exports to the rest of the world in the long term. As a result, the trade balance improves as China imports minerals from South Africa for production purposes. The dependence on currency depreciation to enhance trade in South Africa can improve its trade balance, but it may also damage the economy due to the country’s reliance on imports. However, the advice to weaken the South African currency should not be so harsh as to have a negative impact on the importation of key capital goods critical to the growth and development of the South African economy. It is recommended that the government reduce demand for imported products and boost domestic manufacturing, which might lead to domestic products being exported. The central bank must also stabilize the currency to increase competitiveness by decreasing the overseas price of exports and increasing the cost of imports.

Financial development, international reserves, and real exchange rate dynamics: Insights from the Europe and Central Asia region

This study examines the impact of international reserves on real exchange rate (RER) stability in the Europe and Central Asia (ECS) region, focusing on how financial development levels affect this relationship. Using panel threshold regression, the analysis reveals that international reserves significantly stabilize RER when reserves exceed 17.28 % of GDP, especially in countries with underdeveloped financial systems. The findings suggest that reserves play a more critical role in less developed financial markets, providing insights for policymakers on optimal reserve management and financial development strategies in emerging economies.

An Exploratory Study on the Effect of Macroeconomic Indicators on the Stock Market Performance among 6-ASEAN Countries

The stock market's performance has been impacted by the global economy's recovery from the COVID-19 pandemic. This study investigates the impact of various factors on stock market performance, with a focus on the global economic recovery from the COVID-19 pandemic. The stock market has experienced positive growth, driven by low interest rates, ample liquidity, and sustained investor optimism, despite concerns over rising inflation and interest rates. This research aims to analyze stock market performance across six ASEAN countries, using a range of data sources, including historical stock prices, financial reports, and macroeconomic indicators. The findings reveal that the real exchange rate exerts the most significant influence on stock market performance. The insights from this study provide valuable information for investors, policymakers, and government bodies, aiding in strategic decision-making and investment planning in these markets.

AN EMPIRICAL ANALYSIS OF CAUSATIVE EFFECT OF LINGERING NAIRA DEVALUATION ON NIGERIAN ECONOMY

This study focused on the effect of the inflationary trend caused by persistent loss of value of Naira on the Economic growth and foreign exchange market in Nigeria. The study adopted quantitative research design. Data for this study were of secondary sources obtained from the Statistical Bulletin of Central Bank of Nigeria. Data collected were analysed using multiple regression. The result of the study revealed that inflation negatively affects the GDP. The loan cost on the other hand positively affects the GDP. Also, exchange receptiveness negatively affects the GDP. The study affirmed economic literature; highlighted the link between the exchange rate volatility and economic performance in Nigeria considering gross domestic product as an exponent of economic performance, thus the need to quantify the link between gross domestic product and exchange rate volatility emerges. The study suggests further diversification of the economy: an expansion in non-oil exports, adoption of measures to stimulate domestic production of essential household goods, and also encourage export of primary commodities in which the country has comparative advantage. A strong demand management of exchange rates through restrictive monetary and fiscal policies to ensure that growth of aggregate demand is compatible with a low and stable inflation is recommended. The study also recommended an adoption of a realistic exchange rate policy for naira best capable of restricting excessive demand for foreign exchange.

Real Exchange Rate Depreciation and Domestic Tax Revenue Performance in Kenya

Purpose: Taxation plays a critical role in raising the resources needed for financing government activities in developing countries. On the other hand, the volatility of real exchange rates (RERs) has generated significant concern among academics and policymakers in view of its effects on macroeconomic variables such as tax revenue generation. This study therefore focused on real exchange rate depreciation on domestic tax revenue performance in Kenya. The study was guided Theory of Constraints. Methodology: The study employed an explanatory research design. Secondary data was collected from the CBK, KRA, and the World Bank. In this study time series data ranging from 2003 – 2023 was used to analyze the determinants of domestic tax revenue performance in Kenya. The hypotheses were tested at a significance level of .05 using the multiple regression analysis. A multivariate time series ARDL regression analysis model was used to analyze the data. Results: The study ARDL model concluded that Real exchange rate depreciation led to a notable decrease in domestic tax revenue performance, with β = -0.223945 and p = 0.000 < 0.05. This effect is intensified when considering the lagged impact, where a one-period lagged depreciation results in an even greater reduction in tax revenue performance, β = -1.927412 and p = 0.0004 < 0.05. Conclusion: The study recommended that government of Kenya should stabilize the exchange rate and prevent excessive depreciation by fostering a favorable trade balance and maintaining investor confidence. Additionally, future research could focus on the effects of fiscal Policy Changes on domestic tax revenue performance. Also, future studies could examine Impact of Global Economic Shocks on Domestic Tax Revenue.

Euroization of the Economy and the Negative Impact of the Strengthening of the Local Currency on Exports and Other Economic Indicators in Albania

The Albanian economy is a small and open economy. As such, it is quickly influenced by the turbulence of the global, European, and regional economies. Economic theory emphasizes the link between the exchange rate, exports, the consumer price index, and the balance of foreign trade. The purpose of this article is to study the impact of the exchange rate, primarily at the export level, while also considering other economic factors within the framework of the overvaluation of the Albanian currency (ALL) against the currencies of partner countries, mainly the Euro. The overvaluation of the Albanian currency has led to discouraging exports and increasing imports, influencing the rise in the Consumer Price Index, meaning higher consumer prices. This is due to the fact that the Albanian economy is mainly dependent on imports. The empirical and econometric models used, along with the factors included in this study according to the hypotheses raised, are related to assessing the mutual relationships of the exchange rate with other economic factors for the time period 2018-2023.The results imply and depict the integrated relationship between the exchange rate and exports and other economic factors, as well as supporting the fact that the real exchange rate (RER) has deviated from its equilibrium level. The conclusions in this study confirm that an overvalued domestic currency has increased costs for operations conducted in the local currency ALL, reducing income for operations conducted in Euro and other currencies. This overvaluation of the domestic currency has resulted in losses for exporting companies, impacting the trade balance. Based on the findings in this study, it is crucial for financial institutions and policymakers to be consistent in monitoring the exchange rate, especially EUR/ALL, to improve the long-term relationships between the exchange rate, exports, and other economic factors.

Exchange rate fluctuations and industrial production in Malaysia: evidence from dynamic simulated ARDL analysis

Contemporary literature argues that the exchange rate serves as an important instrument of industrial policy to boost economic growth. However, it is difficult to design effective exchange rate policies owing to the uncertainty shrouding the outcomes of the exchange rate movement for industrial growth. Therefore, this study uses a dynamic simulated autoregressive distributive lags approach to study the impact of positive and negative changes in the real effective exchange rate on industrial production of Malaysia for the period 1970–2022. We employ an extended production function to study this relationship by incorporating capital, labour and globalisation as additional explanatory variables. The findings suggest that positive (negative) changes in real effective exchange rate are followed by positive (negative) changes in economic growth in the long run. Furthermore, positive changes in capital affect economic growth positively and significantly in both the short and long run. Finally, positive (negative) movement in labour and globalization positively (negatively) and significantly affect industrial production in the long run respectively. Policymakers should depreciate currency to expand industrial production in Malaysia. Moreover, to boost industrial production, short-term loans should be introduced for capital accumulation.

New insights into Korea's trade relations: A comprehensive FNARDL analysis with 18 global partners

This study applied the Fourier nonlinear autoregressive distributed lag (FNARDL) model to investigate the bilateral J-curve effect between Korea and 18 trading partners. As a result, negative asymmetric effects of changes in the real exchange rate were detected in some cases in the short run. However, in other cases, these effects were positive or exhibited both positive and negative trends. This variation stemmed from the heterogeneity of import and export products and the diverse reactions of exporters to exchange rate fluctuations. By contrast, positive asymmetric effects were evident in most cases in the long run. Through the Fourier function, the FNARDL model better captured the J-curve effect compared to the standard NARDL model. Furthermore, by using bilateral trade data, this study mitigated the problem of aggregate misalignment, compared to using a country's gross trade data with the rest of the world. Therefore, the hidden effects of the real exchange rate were unveiled. This study's findings will enhance policymakers' awareness of formulating exchange rate management strategies.

Investigating The Validity of The Marshall-Lerner Principle and J-Curve Theory in Relation to Real Exchange Rates and Trade Imbalances: An Empirical Study of China's Economic Dynamics

According to traditional macroeconomic theory, meeting the Marshall-Lerner condition suggests that currency devaluation could positively impact the long-term trade balance. This implies that despite initial import cost increases, enhanced export competitiveness from a weaker currency eventually leads to trade balance improvements. However, short-term negative effects, known as the J-curve effect, may occur due to trade volume adjustments lagging currency devaluations. This study aims to assess the validity of the Marshall-Lerner condition in China's economy from 1995: Q1 to 2023: Q4 and evaluate the short-term J-curve effect's magnitude. Analyzing economic indicators and exchange rate fluctuations, the research confirms the validity of the Marshall-Lerner condition and supports the existence of the J-curve effect. These findings highlight the importance of nuanced currency policymaking for sustainable economic growth and stability, considering both short-term adjustments and long-term objectives. Key Words: Marshall-Lerner Condition, J Hypothesis, Foreign Trade.

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 changes in macroeconomic factors on banks’ lending behaviour

Loans are a critical transmission channel for commercial banks as well as an important revenue source. Macroeconomic factors are not within the control of commercial banks, however, select factors are observed to have a direct impact on lending behaviour in studies around the world. This study examined the relationship between macroeconomic variables and the lending behaviour of banks in South Africa for the period ranging from 2001 to 2022. Quarterly time series data was employed using the Autoregressive Distributed Lag Model (ARDL). The empirical results of the paper revealed that there is a long-run relationship between the repurchase rate (repo rate), inflation, the real effective exchange rate (REER) and lending behaviour in South Africa. The REER and inflation were both found to have a positive relationship, whilst the repo rate had a negative relationship. In addition, Gross Domestic Product (GDP), the activity rate and sovereign credit rating (SCR) changes returned insignificant results. Overall, these findings show that select macroeconomic factors do influence lending behaviour in South Africa. Furthermore, the results suggest that monetary policy decisions have a direct influential effect on lending and the South African Reserve Bank (SARB) has implemented their policies effectively.

Does Exchange Rate Undervaluation Have a Symmetric or Asymme-tric Effect on Economic Growth?

This paper investigates the asymmetric pass-through of real exchange rate undervaluation (Underval) on economic growth. The study using the autoregressive distributed lagged (ARDL) and non-linear autoregressive distributed lagged (NARDL) models reveals the complex and asymmetric effects of Underval on economic growth across different economies for the period 1984-2022. In developing countries, particularly those with floating exchange rate regimes, undervaluation can enhance economic performance by boosting exports and attracting foreign investment. However, in developing countries with fixed exchange rate regimes, undervaluation poses significant challenges and can lead to negative economic outcomes due to the rigidity and financial burdens associated with maintaining a fixed exchange rate. Conversely, developed countries and emerging markets exhibit a more muted response to underval, reflecting their greater economic stability and resilience. These findings highlight the importance of tailoring exchange rate policies to each country's specific economic context and exchange rate regime to optimize their impact on economic growth.

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%.

A simple model of internal and external balance for resource‐rich developing countries

AbstractWe present a simple model of internal and external balance that incorporates key features of resource‐rich developing countries (RRDCs). The main result is that ‘government take’—the ratio of fiscal resource revenue to resource output—is a key determinant of the equilibrium real exchange rate (ERER) in these countries. Examining the case of Papua New Guinea, which has grappled with foreign exchange restrictions since 2015, we find that about half of the RER overvaluation estimated at 26% in 2019 would disappear if the current low level of government take was to be lifted to its long‐term average. The analysis has two key takeaways for RRDCs. First, changes in the government take require adjustments to the RER and fiscal policy to maintain internal and external balance. Second, economic adjustments to falls in the take are difficult; therefore, policies seeking to stabilise the take over time to promote macroeconomic stability are recommended.

STRUCTURAL AND STOCHASTIC BEHAVIOR OF MEXICAN AGRICULTURAL EXPORTS

Mexican agricultural exports have grown faster than the country’s economy, suggesting a foreign exchange inflow and the use of production factors in Mexico. This work examines both the structural behavior of the agricultural exports and its stochastic behavior using data from 1993 to 2023. The structural part is modeled with three explanatory behaviors: first, the influence in exports of the U.S. economy through its Gross Domestic Product (GDP); second, the effect of the Mexican economy through its own GDP; and third, the search for a more profitable price abroad was modeled with the real exchange rate. On the other hand, the stochastic behavior was modeled with lags of the actual exports and other explanatory variables. After adjusting an autoregressive distributed lag model and verifying the existence of a long-term relationship between Mexican agricultural exports, U.S. GDP, Mexican GDP, and the real exchange rate, it was found that the behavior of the export growth is largely explained by the U.S. economy.

Hierarchical Bayesian Modelling of Macroeconomic Variables in Ghana

Abstract This study analyzed the impact of macroeconomic variables (manufacturing, real exchange rate, government expenditure, and gross fixed capital formation) on GDP growth in Ghana. Utilizing secondary data from the World Development Indicators of the World Bank (1991–2021), we employed a hierarchical Bayesian linear model with interaction effects to assess these relationships. The results indicate that the real exchange rate, manufacturing, and government expenditure have a positive influence on GDP growth, while gross fixed capital formation exhibits a moderately negative effect. To enhance economic growth, it is crucial to optimize capital investments, bolster export competitiveness through targeted policies, and invest in manufacturing innovation. These findings offer actionable insights for policymakers aiming to stimulate economic growth in Ghana.

Effects of the Real Effective Exchange Rate Volatility on the Trade Balance, The Case of Vietnam for Sutainable Development Goals

Objective: The objective of this study is to analyze the impact of exchange rate volatility on the trade balance of Vietnam. Analyzing and evaluating the degree of exchange rate fluctuations of the VND from the first quarter of 2000 to the second quarter of 2019. Then, proposing the orientations and some solutions to regulate the exchange rate to ensure the trade balance surplus in the near future. Method: Exchange rate fluctuation is the conditional variance or unconditional variance or standard deviation of the base rate. Auto Regressive Conditional Heteroskedasticity (ARCH) model was used to calculate real effective exchange rate fluctuations in VND. The study also uses Ordinary Least Square regression (OLS) method to evaluate the impact of exchange rate volatility on Vietnam's trade balance. Results and Discussion: The results show that a stable long-term equilibrium relationship exists between exports. Quantitative results show that exchange rate volatility have a positive impact on exports but have not yet shown a clear impact on Vietnam's imports. The paper also points out that in addition to the exchange rate fluctuations, many other factors such as foreign income, domestic income, trade conditions ... could also affect the trade balance. Research Implications: To achieve the trade balance surplus, the proposed solutions need coordination among ministries and agencies. Finally, the flexible control of State Bank on exchange rate volatility will enhance Trade Balance of Vietnam.

Market Capitalization and Economic Growth Nexus A Mediation Analysis for selected countries

The study examined the mediating role of market capitalization in the relationship between economic growth and macroeconomic variables in twenty countries, including foreign direct investment, gross fixed capital formation, government spending, and inflation. The study has used panel data of twenty countries from the period of 2002-2021. The selection of countries involves three criterions, first; the study selected three regions; Asia, Europe, and Mena region. Secondly, among those selected countries, the study tried to select all three categories, higher income countries, middle income countries, and upper middle-income countries. The selection of these countries follows the criteria of GDP growth rate of 2021. Thirdly, these economies are either emerging economies or the economies who have established the stock market and getting its benefits for sustained GDP growth rate e.g. Australia, China, and Germany etc. Panel regression results show that foreign direct investment, gross fixed capital formation, consumption expenditures, inflation, GDP per employed person, and education expenditures all contribute to economic growth in selected countries, whereas an increase in the real effective exchange rate reduces growth. Hayes (2022) employs a mediation analysis approach that confirms market capitalization as a partially mediating variable between the rate of economic growth and various control variables in case of selected 20 countries. Providing more favorable policies for investors and enterprises, such as special economic zones and free tax breaks. Furthermore, emphasis on the money supply and preserving the currency's balance between face and interior worth. Increased foreign direct investment raises the country's workforce demand.