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Exchange Rate Movements (exchange + rate_movement)
Kinds of Exchange Rate Movements Selected AbstractsEXCHANGE RATE MOVEMENTS AS EXPLAINED BY DEALERSECONOMIC PAPERS: A JOURNAL OF APPLIED ECONOMICS AND POLICY, Issue 3 2003TIFFANY HUTCHESON First page of article [source] China's Exchange Rate Movements and Corporate Currency Invoicing StrategiesCHINA AND WORLD ECONOMY, Issue 5 2009Jingtao Yi F31; F41; L11 Abstract Since China introduced a new managed floating exchange rate regime in 2005, the persistent appreciation of the renminbi against the US dollar has led Chinese firms to reassess their choice of invoice currency among the dollar and other international alternatives to price their exports. The present paper performs a systematic invoice currency analysis by surveying the published literature, summarizing criteria for decision-making, and evaluating the choices available to Chinese exporters implementing currency invoicing strategies to maximize expected profits. This study finds that the euro could play an increasing role as the invoice currency of Chinese firms, although the US dollar will still play a dominant role. Chinese exporters might shift gradually from the dollar to the euro in the face of the falling dollar, balancing between the two by necessity. [source] Risk Management Lessons from ,Knock-in Knock-out' Option Disaster,ASIA-PACIFIC JOURNAL OF FINANCIAL STUDIES, Issue 1 2010Jaeuk Khil G14; G01 Abstract Currency knock-in knock-out (KIKO) options had been widely used for hedging exchange rate risks in Korean financial markets. However, as the Korean won moved in an unexpected direction during the global financial crisis period of 2007 and 2008, the hedging instruments incurred huge losses to the option holders. In this paper, we analyze the event from the viewpoint of risk assessment and management. We find that, first, if the option holders had assessed the risk levels with and without the KIKO options by using standard risk measures like value-at-risk or conditional value-at-risk, then many KIKO option contracts would not have been justifiable from the beginning. Second, having a proper view on the exchange rate dynamics turned out to be crucial for risk assessment and management. If the companies had a proper view instead of a myopic view on the exchange rate movement, then the KIKO options might not have been chosen. Finally, ,hedge-and-forget' behavior proved to be very costly and reckless. If the companies had continuously assessed and managed their risks, then the losses from the KIKO options could have been significantly mitigated. Some relevant pricing issues are also investigated. We find that most KIKO option contracts under study might not be significantly overpriced. However, potential impacts of the possible mispricing could be considerable in some cases. Nonetheless, the risk management failure proved to be more important for the KIKO option losses than the possible mispricing problem. [source] Firm outsourcing decisions: evidence from U.S. foreign trade zonesECONOMIC INQUIRY, Issue 2 2000DL Swenson This article examines the operations of firms located in U.S. foreign trade subzones to study the responsiveness of outsourcing to international cost changes. I find that firms reduce their reliance on foreign inputs when dollar depreciation increases the relative price of imported inputs. The effect is pervasive across industries and is economically significant. In addition, firms that rely more heavily on imported intermediate inputs reduce their overall shipments when dollar depreciation elevates their imported, input costs. However, the magnitude of the shipments effect is economically small, suggesting that firms respond to exchange rate movements by adjusting their operations on other dimensions. [source] Non-linearities, Business Cycles and Exchange RatesECONOMIC NOTES, Issue 3 2008Menzie D. Chinn This paper conjoins the disparate empirical literatures on exchange rate models and monetary policy models, with special reference to the importance of output, inflation gaps and exchange rate targets. It focuses in on the dollar/euro exchange rate, and the differential results arising from using alternative measures of the output gap for the US and for the Euro area. A comparison of ,in-sample' prediction against alternative models of exchange rates is also conducted. In addition to predictive power, I also assess the various models' plausibility as economic explanations for exchange rate movements, based on the conformity of coefficient estimates with priors. Taylor rule fundamentals appear to do as well, or better, than other models at the 1-year horizon. [source] Capital Inflows, Resource Reallocation and the Real Exchange Rate,INTERNATIONAL FINANCE, Issue 2 2008Emmanuel K. K. Lartey A large capital inflow to a developing economy can potentially cause a real exchange rate appreciation that is detrimental to the prospects of its tradable sector; a phenomenon known as the Dutch Disease. I analyse the effects of both the level and share of capital inflow on resource reallocation and real exchange rate movements in a small open economy. I find that there exists a trade-off between resource reallocation and the degree of real exchange rate appreciation. In particular, the less labour the tradable sector loses to the non-tradable sector, the greater is the real exchange rate appreciation. This result is driven by the share of investment accounted for by foreign capital, and suggests that an emerging market economy that adopts a production technique which utilizes a greater share of foreign capital relative to domestic capital will be more susceptible to the Dutch Disease following an increase in capital inflow. The results also imply that a policy designed to minimize real exchange rate appreciation during capital inflow episodes should encompass measures aimed at stabilizing prices of non-tradables. [source] Policy words and policy deeds: the ECB and the euroINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 3 2008Pierre L. Siklos Abstract This paper examines the role of the European Central Bank (ECB) communication activities on daily eurodollar exchange rate and interest rates. We estimate the relationship between monetary policy and the exchange rate using a technique that explicitly recognizes the joint determination of both the levels and volatilities of these variables. We also consider more traditional estimation strategies as a test of the robustness of our main results. We introduce a new indicator of ECB communication policies that focuses on what the ECB says about the future economic outlook for the euro area along five different economic dimensions. The impact of the ECB communication policies is more apparent in the time-series framework than in the heteroskedasticity estimator approach. Time-series estimates reveal that interest rate changes generally have a much larger impact on exchange rate movements, and their volatility, than do ECB verbal pronouncements. Previous studies that conclude that news effects are significant at the daily frequency may have reached such a conclusion because the measurement of news was too highly aggregated. The endogeneity of the exchange rate,interest rate relationship is more apparent when the proxy for monetary policy is the euro area,US differential than when any other proxy for monetary policy is employed. Copyright © 2007 John Wiley & Sons, Ltd. [source] Pricing-to-Market and Market Structure,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 2 2008Matteo Bugamelli Abstract Stimulated by imperfect competition/sticky prices framework of the new open economy macroeconomics, empirical research has reconsidered the role of exchange rates in international adjustment. This paper reassesses the link between exchange rates and traded good prices by estimating pricing-to-market equations for the five main euro area countries over the period 1990,99. We minimize selection biases by keeping all manufacturing products and all destination markets and show that exchange rate pass-through (ERPT) is much larger, almost complete, than previously estimated. Thanks to a huge variability in terms of exchange rate variations, products and destination markets, we can map differences in ERPT into market structures and, at the same time, reconcile our results with the empirical literature. We find that ERPT is highly incomplete for sales by oligopolistic industries into advanced economies, indeed in the order of 50,60% as previously estimated. ERPT is instead almost complete in emerging and developing economies where therefore exchange rate movements can help adjust external imbalances. We also find that ERPT is largely asymmetric: it is almost complete after an appreciation of the exporter's currency, rather incomplete after a depreciation. This result is very robust across specifications. [source] DOLLARIZATION OF DEBT CONTRACTS: EVIDENCE FROM CHILEAN FIRMSTHE DEVELOPING ECONOMIES, Issue 4 2009Miguel FUENTES F31; F49 This paper uses a new data set to estimate the causes and consequences of foreign currency debt in firms' balance sheets. The evidence from this sample of Chilean firms indicates that dollar-denominated debt increases with firms' size and degree of exposure to foreign competition. We find evidence that dollar-denominated debt combines with exchange rate movements to produce a negative balance-sheet effect that reduces firms' investment in periods of strong exchange rate depreciation. This negative balance-sheet effect is associated with long-term debt and appears to be nonlinear in the amount of real exchange rate depreciation. [source] Exploring the Role of the Real Exchange Rate in Australian Monetary PolicyTHE ECONOMIC RECORD, Issue 244 2003Richard Dennis An important issue in small open-economies is whether policymakers should respond to exchange rate movements when they formulate monetary policy. Micro-founded models tend to suggest that there is little to be gained from responding to exchange rate movements, and the literature has largely concluded that such a response is unnecessary, or even undesirable. This paper examines this issue using an estimated model of the Australian economy. In contrast to microfounded models, according to this model policymakers should allow for movements in the real exchange rate and the terms-of-trade when they set interest rates. Further, taking real exchange rate movements into account appears even more important with price level targeting than with inflation targeting. [source] FX Trading and Exchange Rate DynamicsTHE JOURNAL OF FINANCE, Issue 6 2002Martin D. D. Evans I examine the sources of exchange rate dynamics by focusing on the information structure of FX trading. This structure permits the existence of an equilibrium distribution of transaction prices at a point in time. I develop and estimate a model of the price distribution using data from the Deutsche mark/dollar market that prroduces two striking results:(1) Much of the short-term volatility in exchange rates comes from sampling the heterogeneous trading decisions of dealers in a distribution that, under normal market conditions, changes comparatively slowly; (2) public news is rarely the predominant source of exchange rate movements over anyhorizon. [source] SOURCES OF REAL EXCHANGE RATE FLUCTUATIONS: EMPIRICAL EVIDENCE FROM NINE AFRICAN COUNTRIESTHE MANCHESTER SCHOOL, Issue 2009A. H. AHMAD We investigate the sources of real exchange rate fluctuations in a sample of nine African countries from 1980:01 to 2005:04, using a trivariate structural vector autoregression. The analysis is motivated by a stochastic sticky-price model from which three shocks are identified; demand, supply and monetary shocks. The results indicate that demand shocks are the predominant source of real exchange rate movements in these countries, although nominal shocks have also played a small but significant role in South Africa and Botswana, and supply shocks seem to be of some relevance for Algeria, Egypt and Tanzania. [source] Real and Nominal Shocks to Exchange Rates: Does the Regime Matter?THE MANCHESTER SCHOOL, Issue 5 2002Liam A. Gallagher In this paper we investigate the source of Irish real and nominal exchange rate movements during the Exchange Rate Mechanism period. A restricted vector autoregression is employed to decompose Irish pound exchange rate movements into changes due to real and nominal factors, for three bilateral exchange rates,sterling,Irish pound, mark,Irish pound and dollar,Irish pound. The pattern of nominal exchange rate overshooting in response to nominal shocks and the relative importance of nominal shocks as drivers of nominal exchange rates differ between the flexible regime (sterling,Irish pound and dollar,Irish pound) and the target zone arrangement (mark,Irish pound). In contrast real shocks predominantly explain variations in real exchange rates and are independent of the exchange rate regime. [source] Assessing the Equilibrium Exchange Rate of the Malaysian Ringgit: A Comparison of Alternative ApproachesASIAN ECONOMIC JOURNAL, Issue 2 2008Isabell Koske F3; F31; F32 Drawing on the behavioral equilibrium exchange rate and the fundamental equilibrium exchange rate approaches, this paper assesses the equilibrium value of the real effective exchange rate of the Malaysian ringgit over the past 25 years. For 2005, when the Malaysian authorities exited from the peg with the US dollar, both models determine a slight undervaluation of the currency. Openness and real GDP per capita have been the main drivers of real exchange rate movements in the past, although non-tradable productivity, government consumption, and net foreign assets have also had a sizable impact. The paper also highlights the limitations of applying the two approaches in the context of emerging countries. [source] A Monetary Approach to Exchange Market Disequilibrium in Australia: 1975,97AUSTRALIAN ECONOMIC PAPERS, Issue 2 2003M. A. Taslim Under a managed float, the central bank may respond to an exchange market disequilibrium by changing either the international reserves or the exchange rate or both such that neither the reserve changes nor the exchange rate movements convey an unambiguous indication of the nature or extent of the disequilibrium. Girton and Roper (1977) suggested an index, namely the exchange market pressure, to capture the disequilibrium. This paper utilises a similar framework to study the exchange market pressure in Australia during 1975,1997 and reserve transactions. It is found that there were substantial reserve transactions in the face of exchange market pressure even after the switch to the floating rate system and the deregulation of the financial system. As a result of these transactions, sharp fluctuations in the exchange rate were moderated and the actual exchange rate appeared to broadly follow the market equilibrium rate. [source] Firm survival, performance, and the exchange rateCANADIAN JOURNAL OF ECONOMICS, Issue 2 2009Jen Baggs Abstract This paper examines the impact of exchange rate movements on firm survival and sales. We exploit detailed Canadian firm-level data from 1986 to 1997, a period in which the Canadian dollar appreciated approximately 30% in the first six years and depreciated 30% in the later six years. We find that survival and sales are negatively associated with appreciations in the Canadian dollar. The impact on survival is less pronounced for more productive firms. The magnitude of the impact of exchange rate changes on firm survival and sales was comparable to the effect of CUSFTA-mandated tariff changes. Ce texte étudie l'impact des mouvements dans le taux de change sur les ventes et la survie des entreprises. On exploite une base de données détaillées au niveau de l'entreprise pour la période 1986,1997 , une période durant laquelle le dollar s'est apprécié d'à peu près 30% au cours des premiers six ans, et s'est déprécié de 30% au cours des six dernières années. Il appert que survie et ventes sont négativement co-reliées quand le dollar s'apprécie. L'impact sur la survie est moins prononcé pour les entreprises plus productives. La magnitude de l'impact des mouvements dans le taux de change sur la survie et les ventes des entreprises a été comparable à l'effet des changements de tarifs commandés par l'Accord de libre-échange Canada-US. [source] Large real exchange rate movements, firm dynamics, and productivity growthCANADIAN JOURNAL OF ECONOMICS, Issue 2 2008Loretta Fung Abstract., This paper examines the influence of large real exchange rate movements on firm turnover and production scale, and the contribution of these decisions to productivity growth. Our theoretical model predicts that home currency appreciations cause firm closure and reduce surviving firms' exports while boosting domestic sales. The net effect on sales and productivity therefore depends on changes in domestic sales and exports. Taiwanese firm-level data are used to test these predictions. The results show that real currency appreciations lead to scale expansion of surviving firms which in turn raises productivity. Our findings suggest the existence of a significant scale effect. Ce mémoire examine l'influence de changements importants dans les mouvements du taux de change réel sur le roulement des firmes et la taille de la production, et la contribution de ces décisions à la croissance de la productivité. Le modèle théorique proposé prédit que des appréciations de la monnaie domestique vont entraîner la fermeture d'entreprises, réduire les exportations des entreprises qui survivent, et accroître les ventes sur le marché local. L'effet net sur les ventes et la productivité dépend donc de la nature des changements dans les ventes locales et les exportations. On utilise des données taiwanaises au niveau de la firme pour mettre au test ces prédictions. Les résultats montrent que les appréciations de la monnaie en termes réels entraînent une expansion de l'échelle de production des entreprises qui survivent, ce qui enclenche une augmentation de productivité. Les résultats suggèrent l'existence d'un effet d'échelle significatif. [source] Exchange Rate Pass-through in ChinaCHINA AND WORLD ECONOMY, Issue 1 2009Chang Shu E31; F31; F32 Abstract During the second half of 2007 and early part of 2008 when there were intense inflationary pressures in China, RMB appreciation was advocated as a means of helping to curb inflation. The effectiveness of appreciation in controlling inflation depends on the impact of exchange rate movements on import and domestic prices. Our analysis finds fairly large and speedy exchange rate pass-through (ERPT) to import prices: 50 and 60 percent for the short run and long run, respectively. However, the degree of ERPT decreases along the price chain from upstream to downstream prices. ERPT for consumer prices, the most downstream prices, is much milder and has substantial lags. A 10-percent rise in the nominal effective exchange rate will dampen consumer prices by 1.1 percent within a year, with very little pass-through in the first half year, and by 2.0 percent over the long run. These findings, particularly the ERPT to consumer prices, suggest that RMB appreciation can help to reduce inflationary pressures over the longer term. However, it is unlikely to provide rapid relief to the current round of high inflation because of the long lags in ERPT. The RMB needs to strengthen in effective terms to exert the desired dampening impact on prices. [source] | |||||||||||||||||||||||||