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This paper contributes to the literature by analysing shock propagation mechanisms between world uncertainty, exchange rates and country-specific commodity terms of trade. Using monthly data from 2008 to 2020 for eight commodity currencies' exchange rates, we analyse the impulse responses based on local projections. The study results show that a shock from the exchange rates which are net transmitters of shocks through the direct United States (US) dollar effect causes world uncertainty to rise and subsequently fall due to the indirect commodity terms of trade effect. Also, in response to world uncertainty shock, the exchange rates fall in the risk-on period and subsequently overshoot during the risk-off period when investors seek the safe haven of the dollar. The world uncertainty shock on the exchange rate is predominantly experienced in the economies that largely trade commodities with the US, particularly Russia and Canada. The study finds evidence that the dollar is a prime cause of world uncertainty. Hence, for policy implications, the study discusses that policymakers, investors, or traders pay attention to the dollar which is the main invoicing currency in the international market. [ABSTRACT FROM AUTHOR]

This paper studies the dynamic relationship between the parallel and official exchange rates of Chinese Yuan (CNY) to U.S. Dollar (USD). Motivated by recent evidence about Bitcoin as a major channel for capital flight from China, we construct a parallel exchange rate implied by Bitcoin prices in the Chinese and U.S. crypto exchanges. While the dual exchange rates are cointegrated, adjustment to long-run equilibrium is non-linear and depends on policy changes and state of the markets. Results from our Markov Switching Vector Error Correction model suggest the parallel exchange rate responds one-to-one in the long-run with respect to an official exchange rate innovation. However, an unexpected change in the parallel rate is countered by an opposite and state-dependent response in the official exchange rate, suggesting active exchange policy interventions by the Chinese monetary authority. [ABSTRACT FROM AUTHOR]

This study analyses and explains food imports from Peru: 1980-2021. The econometric method uses Autoregressive Distributed Lagged (ARDL) models. The result of the stationarity property of I (0) and I(1) of the variables suggests the use of the ARDL model. The Granger causality result shows that variables explain food imports. The bound test cointegration showed a long-run cointegration to exist between foot imports and income, the real exchange rate, relative prices, price of fertilizers, and institution. The short-run analysis shows positive effects of relative prices and the real exchange rate towards food imports. And in the long-run analysis, we have found a positive relationship between food imports and economic growth. Also, there is a negative relationship between food imports and the growth of the real exchange rate, the price of fertilizers, and the opening of the Free Trade Agreement. Policies for self-sufficiency are recommended through investment policies in human capital for research in fertilizers and alternative organic manures; in financial capital for access to credit for small producers; in social capital, with support for sectors with lower productivity in rural areas to reduce dependence on the international market and the growing demand for food imports that puts food security at risk. [ABSTRACT FROM AUTHOR]

Using a comprehensive dataset, this paper estimates a hazard model to examine whether central bank independence matters for the sustainability of fixed exchange rate regimes. The findings suggest that fixed exchange rate regimes are more likely to have a longer duration under more independent central banks; a result that holds true whether an exit from such a regime is orderly or disorderly. Thus, a more independent central bank is more likely to facilitate a more durable fixed exchange rate regime. [ABSTRACT FROM AUTHOR]

We investigate the influence of moves in oil prices on exchange rates of Indonesia, Malaysia, the Philippines, Singapore and Thailand (the ASEAN-5 countries). We disentangle oil shocks, representing them by three components: demand shock, supply shock and risk shock, and examine their impact on the ASEAN-5 exchange rates by employing high-/low-volatility Markov regime-switching regressions for the period 2006 to Beckmann, Czudaj, and Arora 2020. We find that demand shocks make forex rates increase for net oil-producing as well as net oil-consuming economies. The impacts of supply shocks on forex rates for most economies are rather low. The risk shocks lead to depreciating effects on the ASEAN-5 currencies, supporting the notion that the open-oriented nature of ASEAN-5 economies makes them susceptible to constant fluctuations in the global oil market. We study interactions between the price of crude oil and exchange rates of the ASEAN-5 economies. We decompose changes in oil price into demand-, supply- and risk-driven components. We show non-linear interrelations between movements in forex rates and price of oil. Demand shocks appreciate forex rates for both net oil-producer and net oil-consumer economies. Supply-driven moves in oil prices exercise a marginal influence on forex rates for most countries. Risk shocks have depreciating effects on the ASEAN-5 exchange rates. [ABSTRACT FROM AUTHOR]

This empirical investigation aims at exploring the determinants of money demand in Vietnam by using both linear and nonlinear autoregressive distributed lag models over the period spanning from the third quarter of 2000 to the first quarter of 2018. Our findings can be summarized as follows: firstly, when the shock is symmetric (i.e. a permanent nominal appreciation of 1%), the money demand increases by 3.7% in the long term. Secondly, when the shock is asymmetric, for a permanent nominal appreciation of 1%, we observe an increase of 15.6% in the money demand. Whereas for a permanent nominal depreciation of 1%, we observe a decrease of 7.4% in the money demand. These results are consistent with symmetry tests and lead us to think that asymmetries occur mainly in the short run and are transmitted to the long run. [ABSTRACT FROM AUTHOR]

This article proves in a New Keynesian model that interest rate fixation can explain ChinaŠs excessive business cycle fluctuations. The fixed nominal interest rate changes the propagation of external shocks, magnifies volatility of endogenous variables, and leads to economic instability. We then extend the model to a small open economy featuring capital controls, sterilized interventions and a managed exchange rate to capture the main characteristics of the Chinese economy. We prove that the magnifying effect of interest rate fixation holds in such an environment, but this effect diminishes with a more strictly managed exchange rate. [ABSTRACT FROM AUTHOR]

The effects of oil price fluctuations on growth, inflation, and exchange rates for Indonesia are investigated in the framework of the structural vector autoregressive (SVAR). To identify linking oil prices to the macroeconomic activities accurately, the entire sample period is separated into two sub-samples such as the era of net oil exporter (1998:M1-2003:M12) and the era of net oil importer (2004:M1-2019:M4). In the era of net oil exporter, we discover that a surge in oil prices promotes growth and contributes to appreciating the Indonesian currency. In the era of net oil importer, by contrast, an upsurge in oil prices reduces growth and causes a depreciation of the exchange rate. However, there is little evidence that an upswing in oil prices in both eras has a significantly detrimental effect on inflation. [ABSTRACT FROM AUTHOR]

This paper aims to investigate the sources of real exchange rate fluctuation by utilizing sign restrictions in structural vector autoregressive (SVAR) method. Under an agnostic identification scheme, the empirical results show that the delayed overshooting puzzle still exists in response to monetary shock even if price puzzle is ruled out by construction. In contrast, all countries experience a significant initial real depreciation, and then gradually appreciate in response to currency risk premium (CRP) shock. This finding is consistent with Dornbusch's overshooting model. In addition, I examine the importance of investors' expectations in determining the short-term variations in the real exchange rate. The results indicate that the CRP and expectation shocks obviously outperformed the demand, supply and monetary shocks in terms of explaining the real exchange rate fluctuation. [ABSTRACT FROM AUTHOR]

Based on the three functions of currency internationalization, including exchange medium, pricing currency and foreign reserve, this paper explores how the degree of currency internationalization affects the impact of the exchange rate and the asset price on valuation effects. Using samples of 161 countries or regions from 2001 to 2016 and the threshold regression method, we find that, firstly, there is a threshold effect of the exchange rate on valuation effects due to currency internationalization. The higher the comprehensive level of currency internationalization is, the greater the positive impact of the exchange rate on valuation effects will be. Secondly, the threshold effect of the asset price on valuation effects due to currency internationalization is not significant because of the high stickiness of asset price. Besides, compared with developed countries, currency internationalization is more important to increase valuation effects through exchange rate channel and asset price channel in developing countries or regions. Finally, there are some differences in the three types of currency internationalization functions. The promotion of exchange medium function will lead to a greater positive impact of the exchange rate on valuation effects, as well as pricing currency function. However, the foreign reserve function has no such effect. [ABSTRACT FROM AUTHOR]

Remittances have grown in size and importance. They are also among the most stable inflows of scarce foreign exchange for the developing world. While such inflows can boost economic growth, they can also appreciate domestic currency and thus, hurt exports – an unintended side effect commonly referred to as 'the Dutch-disease phenomenon (DDP).' This paper adds to this growing literature by applying the bounds-testing approach to co-integration/error correction, as well as the panel modelling. The DDP has been explored using a reduced form model linking remittance inflows to the real exchange rate of major remittance destinations in the world during the past three decades. While the bounds-testing approach using country-specific data, point at the paucity of the DDP generally, in the utilized panel co-integrated space, its short-run presence is mixed, though its long-run evidence is quite apparent. Indeed, using the preferred random effect model, the findings tend to suggest that a 10% increase in the remittance/GDP ratio, significantly appreciates the real exchange rate by about 0.009 units. Such a finding is also in line with the long-run results of the bounds-testing algorithm. [ABSTRACT FROM AUTHOR]

The role of the exchange rates in emerging market economies that have adopted inflation targeting (IT) is a critical and contentious issue in the relevant literature. This article investigates whether an exchange rate-augmented Taylor rule describes the Central Bank of Republic of Turkey's (CBRT) monetary policy. Covering the period from 2002:1 to 2017:8 it also explores possible nonlinearities in the reaction function of the CBRT by employing a Threshold Vector Autoregressive (TVAR) model. The linear estimation of the model highlighted the importance of the exchange rate in monetary policy under IT. The results of the nonlinear model indicate that the stance of monetary policy was asymmetric with respect to exchange rate movements during the conventional IT period. However, the asymmetric monetary policy stance disappeared in the aftermath of the Global Financial Crisis. Increasing considerations of financial stability undermined the asymmetric policy stance of the CBRT in the post-crisis period. [ABSTRACT FROM AUTHOR]

In order to account for currency substitution, the exchange rate is included in the demand for money. More recent studies have demonstrated that exchange rate changes could have asymmetric effects on the demand for money or domestic currency. In this paper, we consider the experiences of 18 African countries and show that in most countries, indeed exchange rate changes have short-run asymmetric effects on the demand for money. However, short-run effects translate to long-run asymmetric effects only in a limited number of African countries. [ABSTRACT FROM AUTHOR]

This paper examines the asymmetric response of exchange rate to monetary surprises. After controlling the type, direction and origin of the news as well as business cycle phase, a new asymmetry is found in the response of the exchange rate to news surprises. In specific, the US Dollar depreciates against major currencies as the response to the negative monetary surprises in the 2001 recession, while the Dollar appreciates responding to similar negative monetary surprises during the 2008 recession. The paper further explores possible causes and finds that time-varying status of the currency with higher financial returns may contribute to the new asymmetry. [ABSTRACT FROM PUBLISHER]

As a result of the research conducted by Nobel Laureate Robert Mundell (1963), most studies estimating the demand for money today do include the exchange rate in their specification to account for currency substitution. Previous studies that did this for the Turkish demand for money assumed that exchange rate changes do have symmetric effects on the demand for money in Turkey. In this article, we question this assumption. By using the nonlinear ARDL approach, we show that indeed exchange rate changes do have short-run and long-run asymmetric effects on the M1 demand for money. Introducing nonlinearity also yields a stable money demand. [ABSTRACT FROM AUTHOR]

This article investigates the effects of sovereign credit rating announcements on time-varying exchange rate return correlations for a sample of 11 emerging market countries over the period 2002–2015. The data set covers daily exchange rates and long-term foreign currency sovereign ratings, outlooks and watch list. The pairwise time-varying correlations are derived by corrected Dynamic Conditional Correlation (cDCC) modelling which is a member of multivariate Generalized Autoregressive Conditional Heteroskedasticity (GARCH) models family. Furthermore, to capture the global factor effect, a dynamic-weighted index is created by using dynamic principal component (DPC) analysis. Findings suggest that some of the emerging market exchange rate co-movements are affected by rating announcements. Upgrades of Moody’s and downgrades of Fitch lead to spillovers. Main source of these spillovers are sovereign credit rating changes of European countries, especially Czech Republic and Turkey. Countries with high amount of external debt, large current account deficit and speculative grade are more prone to be influenced by announcements on a foreign country’s long-term sovereign rating. [ABSTRACT FROM PUBLISHER]

Did the exchange rate (ER) regime change that was announced by the Chinese government in 2005 lead to an increased sensitivity of Chinese multinational companies (MNCs) to ER fluctuations? To answer this question our article considers the effect of ER level, volatility and expectation on the Chinese outward foreign direct investment (OFDI) activities in 119 countries for a period of 2003–2013. We find striking evidence that Chinese Renminbi appreciation has a negative impact on Chinese outward FDI flows, and both higher ER volatility and expected depreciation encourage Chinese outward FDI flows. We introduce two complementary effects that explain these findings:repatriation effectandmercantilist effect. In view of the recent debate about the growing importance of Chinese Renminbi in the international transactions we believe that our research results shed light on the possible impact of ER policies on Chinese MNCs behaviour and global FDI distribution. [ABSTRACT FROM AUTHOR]

In a globalized world, the volume of international trade is based on both import and export prices, thereby making a country's economy highly dependent on exchange rates. In order to study exchange rate movements, one frequently exploits the so-called Dornbusch overshooting model. However, the model is controversial from a theoretical point of view: it explains exchange rate movements by a number of fundamental variables but ignores how novel information in the form of news can enter the market. As a remedy, this article adjusts for information dissemination by performing a multivariate analysis to compare the classical overshooting model with an extended variant that includes news sentiment. Our results show that news sentiment has a substantial explanatory power of 11% of the exchange rate forecasting error variance. In addition, we also find statistical evidence that a shock in news sentiment may lead to overshooting. [ABSTRACT FROM AUTHOR]

This is the first article that studies BitCoin price formation by considering both the traditional determinants of currency price, e.g., market forces of supply and demand, and digital currencies specific factors, e.g., BitCoin attractiveness for investors and users. The conceptual framework is based on the Barro (1979) model, from which we derive testable hypotheses. Using daily data for five years (2009–2015) and applying time-series analytical mechanisms, we find that market forces and BitCoin attractiveness for investors and users have a significant impact on BitCoin price but with variation over time. Our estimates do not support previous findings that macro-financial developments are driving BitCoin price in the long run. [ABSTRACT FROM AUTHOR]

In this article, we test three popular versions of the monetary model (flexible price, forward-looking and real interest differential models) for the OECD member countries by applying Johansen cointegration technique. Based on country-by-country analysis, we conclude that monetary models do not provide the expected results. We reveal several shortcomings of the models and examine the building blocks of the fundamental version. Although researchers always blame the deviations from purchasing power parity as the reason for the failure of the monetary model, our analysis indicates that invalidity of Keynesian money demand function is also responsible for unfavourable results. [ABSTRACT FROM PUBLISHER]

This article analyses the impact of oil price shocks on real output, inflation and the real exchange rate in Thailand, Malaysia, Singapore, the Philippines and Indonesia (ASEAN-5) using a Structural VAR model. The cointegration tests indicate that the macroeconomic variables of these countries are cointegrated and share common trends in the long run. The impulse response functions reveal that oil price fluctuations do not impact the ASEAN-5 economies in the long run and much of its effect is absorbed within five to six quarters. The variance decomposition results further assert that with a few exceptions oil price shocks do not explain a significant variation in any of the variables under consideration. We also identify a very unique pattern of response to oil price fluctuations between Malaysia and Singapore and between the Philippines and Thailand. The pairs exhibit a high degree of similarity in their responses; they do not share any commonalities across the group. [ABSTRACT FROM PUBLISHER]

In light of the long-standing vision of economic and monetary integration in the ASEAN (Association of Southeast Asian Nations) region and the importance of coordinating monetary policies to achieve it, the objective of this article is to assess the monetary policy synchronization among the founding members of the ASEAN, that is, Indonesia, Malaysia, the Philippines, Singapore and Thailand. Due to the importance of exchange rate movements to monetary policies, we approach this issue from a currency exchange rate perspective. Specifically, multivariate trend–cycle decomposition is employed to investigate common trends and common cycles among the exchange rates of these countries during the period 1976–2012. Our analysis reveals that the real exchange rates of Malaysia, the Philippines, Singapore and Thailand share common cycles in the short term and have common trends in the long term, but the Indonesian currency does not share these relationships. Thus, our results augur well for the synchronization of monetary policies among Malaysia, the Philippines, Singapore and Thailand. In contrast, the relatively turbulent dynamics of the Indonesian rupiah evident in frequent bouts of stark depreciation separated by periods of steady depreciation over the past three decades raise questions regarding the readiness of Indonesia for participating in a monetary alliance with the ASEAN-4 nations. [ABSTRACT FROM PUBLISHER]

We investigate the ways in which permanent exchange-rate changes may affect investment by influencing domestic and foreign revenue, the cost of imported variable inputs and the investment price of imported capital goods. We find that the revenue and investment-price channels have a quantitatively greater effect on investment than the cost channel. The negative effect of the revenue channel, which affects the marginal profitability of capital, outweighs the positive effect of the investment-price channel, which affects the marginal cost of capital, implying that exchange-rate appreciation has a net negative influence on investment. The estimation results are robust to different approaches to extracting the permanent components of exchange rates. [ABSTRACT FROM AUTHOR]

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

The aim of this article is to assess the role of Real Exchange Rate (RER) volatility on long-run economic growth for a set of 82 advanced and emerging economies, using a panel data set ranging from 1970 to 2009. With an accurate measure for exchange rate volatility, the results for the two-step system Generalized Method of Moments (GMM) panel growth models show that a more (less) volatile RER has a significant negative (positive) impact on economic growth. The results are also robust for different model specifications. [ABSTRACT FROM AUTHOR]

In this article we analyse inflation expectations in Mexico. After a review of the theoretical and empirical literature, we apply unit root, normality and cointegration tests to the data provided by Banco de México (Banxico) in the Survey on the Expectations of the Private Sector Economics Specialists. Our results reject the null hypothesis of normality for inflation expectations over the period 2004:01–2011:12. The exchange rate has become one of the most relevant variables in the transmission mechanism of monetary policy in a small open economy. In this regard, we show the existence of a long-run relationship between nominal exchange rate and interest rate where inflation expectations matter for long-term dynamics. [ABSTRACT FROM PUBLISHER]

This article undertakes an in-depth study of the foreign exchange exposure of Malaysian listed firms. We examine several issues related to firm-specific and overall exposure, including an evaluation of the efficacy of adopting a hard-peg on such exposure. Our sample consists of 158 listed firms and spans the 16 year period, 1990–2005. A multivariate model using four bilateral exchange rates is used to determine firm level exposure while panel data analysis using a random-effects Generalized Least Squares (GLS) model is used to determine system-wide or aggregate sample exposure. We find a total 71% of our sample firms to have significant exchange rate exposure, a rate substantially higher than that reported for most countries, especially developed ones. The US$ is by far the single most important source of exposure with 63% of sample firms exposed to it. The sign of the beta coefficient for three of the four currencies are negative, implying that our sample firms are largely net importers in these currencies. We find exposure to be time variant and dependent on the sector within which a firm operates. Interestingly, the panel data analysis which measures aggregate exposure, shows the US$ to be a significant source of exposure even with the adoption of the hard peg. The change in policy regime to a fixed peg following the crisis appears to have had no impact at either firm-level exposure or overall system-wide exposure. [ABSTRACT FROM PUBLISHER]