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We analyse time‐varying risk spillover and dependence to assess the systemic risk benefits of ethical, sustainable, and green investments. Our data comprise sustainable investments from ethical, environmental, social and governance (ESG), and green bonds. We investigate the link to major asset classes, including equity, commodity, and currency markets. We find evidence of close connection between the major asset classes and sustainable assets, except green bonds. We also explore the improvement in hedging efficiency from combining ethical and ESG investments with commodities and currencies over investment horizons. Our analysis based on systemic risk measures indicates that there is evidence of lower time‐scale systemic risk connectedness in the case of commodities and currencies combined with ethical and ESG assets. These findings have significant implications for portfolio managers, policymakers, and market participants. [ABSTRACT FROM AUTHOR]

Using a backward‐looking Philips curve framework and a Logistic Smooth Transition Regression (STR) model, this article examined the exchange rate pass‐through (ERPT) to final consumer prices in the case of India. Specifically, the nonlinearity of ERPT has been investigated with respect to the level of economic activity and the rate of inflation by considering two alternative measures of exchange rate. For the first transition variable, results are markedly different between high and low‐activity regimes and signify the favourable impact of economic activity on the extent of pass‐through. In the short run, 1% exchange rate appreciation would decrease the price level by 0.244% when the economy is in a low‐activity regime; however, the same appreciation increases the price level by 0.485% when there is a boom in the economy. In the long run, ERPT in the low‐activity regime is −0.358, and in the high‐activity regime, it is 0.039. In both regimes, pass‐through coefficients differ from zero and one, implying that neither local currency pricing nor producer currency pricing characterizes the ERPT mechanism. The impact of other important determinants of inflation is also well according to theoretical expectations. Finally, for the rate of inflation, we did not report any evidence favouring the Taylor hypothesis in the case of India. [ABSTRACT FROM AUTHOR]

Globalization has brought larger spillovers of global risks across borders since the 2000s. Specifically, global policy risk has sharply increased due to policy uncertainty in major countries in the recent decade as are shown in the Brexit, the US‐China trade friction and the COVID‐19 pandemic. This paper empirically investigates effects of both global policy risk and global financial risk on macroeconomy and financial markets in eight major countries from January 1997 to June 2020. We employed a structural vector autoregressive framework to obtain interesting empirical results. First, global risks have recessionary effects on the macroeconomy, reducing production, deteriorating employment, lowering long‐term interest rates, depressing prices and reducing global trade. Second, global risks also have recessionary effects on financial markets, plunging stock prices, appreciating the safe‐haven currencies and depreciating the other currencies. Third, the macroeconomies and the financial markets respond to the global financial risk more significantly than the global policy risk. Fourth, the recessionary effects of global risks vary depending on countries. [ABSTRACT FROM AUTHOR]

This study re ‐evaluates the relative adjustments of household's consumption expenditure to extremely small and extremely large variations in exchange rate in African emerging economies (AEE). For this purpose, we used a modified version of non‐linear autoregressive distributed lag (ARDL) and multiple threshold non‐linear ARDL models that specifically captures the differential effects of extremely small and extremely large positive and negative variations of the explanatory variable(s) on the explained variable. Consequently, the empirical estimates reveal that changes in exchange rate has asymmetric effects on consumption expenditure in all the countries except in Nigeria. Furthermore, consumption expenditure in Algeria, Egypt and Morocco increases significantly at the upper quantile of exchange rate appreciation, whereas, it declines significantly at all quantiles of exchange rate depreciation, implying that consumption expenditure in these three North African countries are more sensitive to large positive shocks in exchange rate. In Kenya, Nigeria and South Africa, consumption expenditure are exchange rate inelastic as households maintain their consumption levels regardless of the direction and degree of exchange rate deviations. Overall, the diagnostics tests prove the superiority of this enhanced technique over the standard non‐linear ARDL technique. Based on the outcomes of this study, policy recommendations that could ensure optimal exchange rate alignment for the African countries, as well as other emerging economies have been proposed. [ABSTRACT FROM AUTHOR]

This research investigates the impact of oil prices, gold prices and exchange rate on Shanghai stock exchange returns. In this study, we used monthly time series data from January 2000 to December 2018. The dynamic autoregressive distributed lag simulations model proposed by Jordan and Philips is used to examine the real change in regressors and their impact on regressand by using graphical representations. The examined results of the dynamic simulated autoregressive distributed lag model indicate that oil prices and gold prices have a positive effect on the stock returns in the short run and in the long run while the exchange rate indicate negative effect both in the short run and in the long run. Our research findings have significant implications for policymakers. [ABSTRACT FROM AUTHOR]

In this paper, we analyse how the Covid‐19 pandemic changed the dynamics of the euro to dollar exchange rate. To do so, we make use of spectral non‐causality tests to uncover the determinants of the euro to dollar exchange rate, using data that cover the pre‐Covid‐19 and the actual Covid‐19 era, by considering the exchange rate movements of other currencies, the stock market index of S&P 500, and the price of oil and gold, as well as their realized volatilities. Based on our findings, the Covid‐19 pandemic has indeed significantly changed the determinants of the euro to dollar exchange rate. Also, to investigate the potential shifts in the regimes of the euro to dollar exchange rate, we formulate a Markov‐switching model with two regimes, based on the determinants that have been found in the previous step. Based on our findings, the duration of the high volatility state in the Covid‐19 era has doubled, from almost 3 to approximately 6 days, compared to the pre‐Covid‐19 era, whereas the high volatility state in the Covid‐19 era is characterized by a statistically significant higher range of volatility compared to the pre‐Covid‐19 era. [ABSTRACT FROM AUTHOR]

This study aims to investigate the causal relationship between the Turkish stock market returns, namely XU100, and foreign exchange rates, namely USD/TRY and EUR/TRY, in Turkey using the wavelet coherence approach. In this study, we focus on the period from April 2000 to March 2019. Our findings reveal the following: (i) While we identify substantial volatility in the exchange rate during the 2000 November (banking crisis), 2001 February (economic crisis), and 2018 July (exchange rate crisis) periods, significant volatility was observed in the Turkish stock market during the 2000 banking crisis, 2001 economic crisis, and 2008 global crisis periods; (ii) There is a negative correlation between the Turkish stock market and foreign exchange rates at different frequencies over the selected sample period; (iii) A unidirectional causality runs from the Turkish stock market to foreign exchange rates between 2000 and 2004 at a scale of 4 months and between 2008 and 2012 at a scale of 32 months; (iv) Although inconsistent results are observed for the models of USD/TRY‐XU100 and EUR/TRY‐XU100, our empirical results show that the correlations between USD/TRY and XU100 are stronger than between EUR/TRY and XU100. [ABSTRACT FROM AUTHOR]

This article analyses the structure of FDI inflow in different sectors of the Mauritian economy. While undertaking this investigation, we primarily allow interaction of FDI with exchange rate and exchange rate volatility and with other equally important macroeconomic variables such as trade openness, human capital, GDP, wages and salaries, gross capital formation, and inclusion of a dummy variable to assess the Mauritian Corporate Income Tax (CIT) reform of 2007. Sectors classified as manufacturing, financial, construction, real estate, tourism, and telecommunication, are considered. Using semi‐annual data spanning from 1990 to 2015, the cointegration bound test reveals a systematic long‐run relationship between the set of variables. This justifies the use of an ARDL model. While exchange rate and exchange rate volatility have negligible impact on FDI inflow in the short run, the ARDL results show that a real depreciation of the Mauritian Rupee against the U.S. dollar over the last decades has been beneficial as it has consistently enhanced FDI inflow in various sectors. Besides, there is evidence that investors in the construction, real estate, and telecommunication sectors, as compared to the financial and manufacturing sectors, are more affected by exchange rate volatility. The ARDL model also suggests that investors are particularly concerned with infrastructure capital, trading opportunity, and human capital, mostly when it comes to labour‐intensive industries such as manufacturing, construction, and tourism. Additionally, the significance of the FDI lag values in the restricted error correction model (ECM) confirms the presence of short‐run dynamism in FDI inflow modelling. [ABSTRACT FROM AUTHOR]

There is a continuous debate on how commodity prices affect the stock prices of emerging countries. We contribute to this debate by study the causal relationship between international prices of crude oil, gold, exchange rate, and Indian stock market. India is one of the major oil and gold importing and major petroleum products exporting country. On the daily prices of all the above mentioned variables from "January 1994 to December 2019", the nonlinear autoregressive distributed lag model (NARDL) is employed to examine cointegration (Shin et al., 2014). The findings of the study revealed that crude oil prices positively affect the Indian stock market and exchange rate negatively affects the stock market in the short run. Stock market is unaffected by gold prices. Our findings have essential implications for the various policymakers, investors, and traders. [ABSTRACT FROM AUTHOR]

While the Tunisian authority claims to adopt a floating exchange regime, the International Monetary Fund (IMF) classifies it as a rather crawl‐like regime. This paper aims at studying the Tunisian exchange rate regime over the post‐revolution period. It uses daily data from 2010 to 2019. The empirical results show that the Tunisian de facto regime is broadly consistent with the IMF classification. Nevertheless, the IMF stated that in 2018 the EUR is the only anchor, but this study shows that from 2017 the implicit weight of the USD becomes higher than the EUR. Most of the time, there is a discrepancy between the regime claimed by the Tunisian authority and the de facto regime detected by the model. Annual regressions, the Chow, and the Bai‐Perron breakpoint tests show that the Tunisian de facto regime is not stable. [ABSTRACT FROM AUTHOR]

This research studies the non‐linear relationship between interest rates and exchange rates for China and the United States using the rolling‐window method. We also investigate uncovered interest rate parity (UIP) and the capital market theory for the whole time period and subperiods so as to reconsider various economic connections between China and the United States. The results suggest that the effect of the latter's interest rate adjustment on China/U.S. exchange rate volatility is stronger than that of China's interest rate adjustment. Moreover, changes in the China/U.S. exchange rate have a slightly stronger effect on the U.S. interest rate than on China's interest rate. Our findings reveal that the interest rate parity theory does not hold for the entire sample period but may hold in subperiods. The results provide a reference for the steady implementation of RMB internationalization. [ABSTRACT FROM AUTHOR]

This study employs Autoregressive Integrated Moving Average (ARIMA) and Autoregressive Conditional Heteroskedasctic (ARCH) models to examine the impact of the unconventional monetary policies implemented in the United States upon the exchange rate movement and volatility in the emerging and growth‐leading economies (EAGLEs), which include Brazil, India, Indonesia, Mexico, Philippines and Turkey. Two series of exchange rates, namely average exchange rate (AER) and end‐of‐period exchange rate (EER), are used with different sets of sample, EER covers 1990:01 to 2018:04 and AER spans over 1980:01 to 2018:04 period. The variance series of the ARCH model is used to measure the volatility of AER and EER. The best ARIMA model is estimated for AER and EER for each country, and the ARIMA model serves as the mean equation for the ARCH volatility measure. Unlike the previous studies, this paper focuses on the EAGLEs, employs exchange rate, and considers various ARCH alternatives in choosing the best model. The findings of the study reveal that India is the only country among the EAGLEs whose exchange rate movement is affected by the U.S. unconventional monetary policy. Another important point is the negative effect of QE policies on the volatility of both AER and EER across the EAGLEs countries. The implication is that QE policies tend to reduce the uncertainty in the foreign exchange of the EAGLEs countries. Hence the policy makers in the EAGLEs countries do not need to take any action whenever the United States pursues unconventional monetary policy. [ABSTRACT FROM AUTHOR]

The scope of this study is to empirically test the renminbi's (RMB) anchor effect. Since the proposal of the Belt and Road (B&R) Initiative, the RMB is shown to have made more remarkable progress as an anchor currency in B&R countries compared to non‐B&R countries. The ordered logit model is then used to examine the determinants of the RMB anchor effect. The results show that the probability of the RMB being an anchor currency increases with the higher the trade integration, the higher the investment dependence, the better the RMB infrastructure and the closer the policy cooperation. The results also provide evidence on how to further strengthen the RMB anchor effect and promote the RMB internationalization in the long run. On the basis of strengthening its policy cooperation with B&R countries, China should use its sustainable growth of trade and investment to provide the impetus for RMB internationalization. Furthermore, it should optimize the layout of the RMB offshore market, increase the openness of the financial market, and strengthen currency cooperation among central banks to provide guarantees for RMB internationalization. [ABSTRACT FROM AUTHOR]

The exchange rate disconnect puzzle argues that macroeconomic fundamentals are not able to accurately predict exchange rate. Recent studies have shown that the puzzle could be upturned if: (a) the dataset is structured in a panel form; (b) the model is based on the portfolio balance theory (PBT); (c) factor models are employed and (d) time‐varying parameter (TVP) regression is used. This study combines these strands of the literature. Essentially, the study conjectures that Global Financial Cycle (GFCy), drawing inspiration from PBT, has some predictive information content on exchange rate. Using dataset from 25 countries, we produced some mixed results. On the whole, the GFCy is able to produce lower forecast error, as compared to the that of benchmark model. However, its effectiveness is dependent upon the regression type (TVP vs. Panel Fixed Effect); forecast horizons (short vs. long); the sample period (early vs. late) and measures of GFCy. The results are robust to a number of checks. [ABSTRACT FROM AUTHOR]

There has been a renewed interest in the wealth effects on household consumption expenditure mostly in the background of the global financial crisis and Eurozone turmoil. The available literature on wealth effects mostly focuses on advanced economies. Hence, this article studies the financial wealth effects on private final consumption expenditure (PFCE) in an emerging economy like India. We use the quarterly data for the period 1951–2015 and employ the ARDL method that has the flexibility in overcoming the econometric issues associated with the traditional methods in the analysis of time series models. The results suggest that financial assets wealth in the form of stock market capitalization (MC) significantly affects the PFCE. This article establishes the long‐run positive relationship between financial wealth assets and household consumption. The major inference is that households are closely linked with the financial markets through their investments in the form of insurance, mutual funds, company deposits, company stocks, and other forms. Hence their consumption behavior is significantly affected by the financial wealth created by the financial markets. The policy implication is to make the financial markets more transparent, easy to access by reducing the related financial intermediation costs leading to a deeper integration of the households with the financial markets, which in turn would result in increased financial asset wealth generation and consequently increased household consumption to boost economic growth. [ABSTRACT FROM AUTHOR]

This paper proposes an approach to correcting parameter misrepresentation under the dominance of a common factor, a customarily overlooked phenomenon. Meanwhile, it provides a general solution to a specific regression bias, namely coefficient correction for common factor dominance in econometrics, which is commonly encountered in the research on currency interactions and co‐movements and beyond. The RMB basket weights are then scrutinized exhaustively, going through all stages of the evolving RMB regime and reforms. Correct and sensible currency basket weights are derived accordingly. It has been found that only the introduction of the central parity regime in 2015 has changed the RMB exchange rate patterns notably. The RMB market behavior and patterns virtually did not change during the prior reforms that had widened the band of daily fluctuation in the RMB exchange rate against the US dollar from 0.3% through to 2%, given the band's unique link to the US dollar. [ABSTRACT FROM AUTHOR]

The exchange rate is one of the most important prices in open economies. Exchange rate volatility (ERV) has been studied in terms of its measurement, forecast and impact and relationship with other variables. This article proposes a bibliometric analysis of ERV compared with two databases Web of Science and Scopus. The number of data obtained reflects the importance of the topic in scientific research. In addition, we identify authors, institutions and countries of great influence studying currency volatility. The evolution of the study through time shows the increase in attention on the topic. VOS viewer software has been used to create graphic maps and visualize the connections existing in the study. [ABSTRACT FROM AUTHOR]

The extant studies on stock returns–exchange rate nexus have been suspected of aggregation bias, we therefore resolve to revisit the nexus using firm‐level data while also accounting for asymmetry. We utilize stock price data covering 326 firms listed in S&P500 index and organized into 11 sectors. We examine the probable asymmetric response of these firms to exchange rate movements using the nonlinear panel ARDL method which simultaneously accounts for any inherent asymmetry and heterogeneity effects and suitable for large N and Large T panels. We establish that asymmetry exists in the stock returns–exchange rate nexus predominantly in the short run. We further show that exchange rate appreciation (depreciation) produces primarily positive (negative) effects on stock returns. We also find that the positive impacts overwhelm the negative impacts in magnitude and statistical significance. Thus, returns on investment in U.S. stocks differ significantly between currency appreciation and depreciation and by implication investors seeking to maximize returns need to exercise some level caution when confronted with sharp swings in exchange rate particularly during turbulent periods. While the results are robust to data frequency and to an extent, the choice of foreign currency, they are sensitive to different market conditions. [ABSTRACT FROM AUTHOR]

In this study, we examine the effect of external commercial borrowings on investment of the firms in the wake of currency depreciation by drawing the firm‐level data from India. Despite steep growth in dollar debt and its critical implications for firms and macroeconomic stability, the issue was not explored before. This article attempt to fills this gap and contribute to the literature on dollar debt and open economy macroeconomics. We estimate the panel regression to quantify the balance sheet and competitiveness effects. We show that currency depreciation does not adversely affect the investment of those firms that borrow in foreign currency. The findings of the study imply that the gradualist approach to liberalization and prudential policy measures laid by regulatory bodies were effective. We also find that firms that incur dollar debt do not possess adequate natural hedge against exchange rate volatility. This finding calls for the mandatory hedging by firms to immune the economy from the contagion effect. The development of offshore derivatives markets is indispensable for such hedging. The findings also call for the availability of easy and cheaper domestic credit to the corporate sector to lessen the over‐reliance on external commercial borrowings. [ABSTRACT FROM AUTHOR]

Monetary policy is one of the instruments that policymakers use to provide both sustainable economic growth and price stability. In this study, I analyse the stock market transmission channel of the monetary policy of the Turkish economy not only at the aggregate but also at the sectoral level in a structural vector autoregression (SVAR) framework. I adopt alternative variables as a policy instrument. When the spread is used as a policy instrument, I find that contractionary monetary policy has a significant negative effect on both output and the price level, and it appreciates the Turkish Lira. Besides, the tight monetary policy reduces both aggregate and sectoral market returns. Hence, I observe that there are effective interest rate, exchange rate, and asset price channels in the Turkish economy. [ABSTRACT FROM AUTHOR]

In the literature, there are studies which conclude that interest rates have either positive or negative effect on exchange rates during financial crises in emerging markets. These results are in accordance with the traditional or revisionist views respectively. However, in the literature, there are also researches which result in interest rates not having influence on exchange rates, signalling that there might be an alternative to these two approaches. In this study, it is investigated whether interest rates can be cause of exchange rates by taking stock market into consideration and using the data of 2001 financial crisis in Turkey. In the analysis, ARDL co‐integration, VECM and Granger causality methods are applied and it is reached that the relationship was from stock market and exchange rates to interest rates, not vice versa. [ABSTRACT FROM AUTHOR]

Literature on exchange rate forecasting often focuses on varied algorithms' prediction performances and is comparatively silent regarding lag length and model structure (linear or nonlinear) selection. However, model selection and lag lengths are important decision criteria for practitioners when undertaking technical analysis. This research explores the impact of varied lags and different model structures on one‐day‐ahead forecasts of AUD/USD and AUD/EUR exchange rates. Two linear (MLR and SVR with linear kernel) and three nonlinear (SVR with RBF kernel and three gamma values) data mining models are adopted, along with lag lengths of 1, 5 (1 trading week), 10 (2 trading weeks), 20 (1 month) or 120 (6 months) days for both non‐differenced and first‐order differenced time series. The investigation highlights that, irrespective of estimating the magnitude of future exchange rate or the future inter‐day changes in exchange rate, linear models outperform nonlinear models at lower lag levels (1 or 5 or 10 days). At higher lags (20 or 120 days) and for the first‐order differenced time series, nonlinear models show promising outcomes. The MLR model, which emphasises training error reduction, generally outperforms the SVR model, which emphasises generalisability. Nonlinear models may show some prediction biases, while linear models appear to show no specific bias. Thus, for technical analysis upon AUD/USD and AUD/EUR exchange rates, instead of using a large lag of historical prices, a linear model with a lag length of 1 can produce good one‐day‐ahead forecasts. [ABSTRACT FROM AUTHOR]

Can depreciation save the economy? This paper conducts an empirical examination with balanced panel data for 133 economies from 1980 to 2014. In the study, the impact of depreciation is dichotomized into common effect and individual effect. The results show that, first of all, the common effect is negative in the current period, and turns to be positive in the lag period, while the magnitude of the former is higher. Secondly, it is also revealed that in terms of individual effect, the negative impact of the common effect will be intensified by the degree of openness, but be mitigated by the scale, floatability, and development level of economies. Among them, scale has a decisive influence. Third, when putting the two tiers of effects together, the aggregate results are generally not strong; moreover, only a few economies can benefit from depreciation. The exceptions are the US and China, which can obtain approximately 0.58% benefits from a 1% depreciation. Fourth, insufficient evidence was found to show a contribution of exchange rate change to total factor productivity. Fifth, there is a two‐way causal relationship between exchange rate and output; however, the causality between exchange rate and productivity is not obvious. [ABSTRACT FROM AUTHOR]

We provide novel evidence on exchange rate predictability by using the term premia of the sovereign credit default swap (CDS). Using a sample of 29 countries, we find that the sovereign CDS term premia significantly predict the exchange rates out‐of‐sample. On average, a steeper CDS spread curve for a country predicts its currency appreciation against the U.S. dollar (USD). Empirically, although the sovereign CDS level mainly reflects global risk, the information in the term premia of the sovereign CDS spreads reveals country‐specific risk. Notably, the predictive power of the term premia is robust after controlling for the sovereign CDS level and other conventional global macroeconomic and financial factors. Further analysis shows that the information in the sovereign CDS term premia is also helpful for forecasting international stock market returns. [ABSTRACT FROM AUTHOR]

We assess the motivations for changing capital controls and their effectiveness in India, a country with the legal and administrative machinery to implement controls. We focus on the controls on foreign borrowing that can, in principle, be motivated by macroprudential concerns. We construct a fine‐grained dataset of capital control actions on foreign borrowing in India. Using event study methodology, we assess the factors that motivate these capital control actions. We find that capital controls are tightened after appreciation and eased after depreciation of the exchange rate. We also assess the impact of controls. The results suggest no impact of capital controls on most variables, including the currency. [ABSTRACT FROM AUTHOR]

A vast literature on Purchasing Power Parity (PPP) has evolved and PPP has become the most popular concept in international finance. PPP is applied with various price indices such as consumer price index, wholesale price index, etc. In this article, we introduce a revised version of PPP equation for financial products, which is strongly supported by our panel data analysis. [ABSTRACT FROM AUTHOR]

We compare forecasts of the volatility of the Australian dollar exchange rate to alternative measures of ex post volatility. We develop and apply a simple test for the improvement in the ability of loss functions to distinguish between forecasts when the quality of a volatility estimator is increased. We find that both realized variance and the daily high–low range provide a significant improvement in loss function convergence relative to squared returns. We find that a model of stochastic volatility provides the best forecasts for models that use daily data, and the GARCH(1,1) model provides the best forecast using high‐frequency data. [ABSTRACT FROM AUTHOR]

This paper investigates the interrelationship between Brent oil price and exchange rate in 10 emerging markets of East Europe, Asia, Africa, and South America. For computational purpose, we apply two innovative methodologies—wavelet coherence and phase difference that are capable of observing different frequency scales. Wavelet coherence results suggest that strong coherence is present during world financial crisis (WFC) in the oil‐exporting countries and in majority of the oil‐importing countries. Phase arrows as well as phase difference suggest negative coherence between oil and exchange rates in the oil‐importing countries during WFC. Negative coherence is found in these countries because currency depreciation was accompanied by immense oil price drop in WFC period. In addition, phase difference has relatively stable in‐phase dynamics in long term in the oil‐importing countries during tranquil periods, which confirms theoretical stance that higher oil prices cause currency depreciation and vice versa. As for the oil‐exporting countries, we find constant and relatively long‐lasting anti‐phase pattern in Russian and Nigerian cases for long‐term horizons but not for Brazilian one. [ABSTRACT FROM AUTHOR]