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Real Exchange Rate (real + exchange_rate)
Kinds of Real Exchange Rate Terms modified by Real Exchange Rate Selected AbstractsCHINA'S EQUILIBRIUM REAL EXCHANGE RATE: A COUNTERFACTUAL ANALYSISPACIFIC ECONOMIC REVIEW, Issue 1 2008Rod Tyers The absence of secondary indices of import and export prices necessitates their construction from trade data. Some undervaluation is suggested in the lead-up to and during the financial crisis, due in part to an extraordinary accumulation of foreign reserves following exchange rate integration in 1994. If, instead, China had run a more typical trade balance prior to the crisis its real effective exchange rate would have been higher by about a tenth. [source] THE REAL EXCHANGE RATE AND THE BALASSA,SAMUELSON EFFECT: THE ROLE OF THE DISTRIBUTION SECTORPACIFIC ECONOMIC REVIEW, Issue 1 2005Ronald MacDonald The main result is that an increase in the productivity and product market competition of the distribution sector with respect to foreign countries leads to an appreciation of the real exchange rate, similar to what a relative increase in the domestic productivity of tradables does. This contrasts with the result that one would expect by considering the distribution sector as belonging to the non-tradable sector. One explanation may lie in the use of the services from the distribution sector in the tradable sector. [source] SHORT-RUN AND LONG-RUN DETERMINANTS OF THE REAL EXCHANGE RATE IN MEXICOTHE DEVELOPING ECONOMIES, Issue 1 2008Antonia LÓPEZ VILLAVICENCIO C32; F31; F41; F49 This paper explores the real exchange rate behavior in Mexico from 1960 until 2005. Since the empirical analysis reveals that the real exchange rate is not mean reverting, we propose that economic fundamental variables affect its evolution in the long run. Therefore, based on equilibrium exchange rate paradigms, we propose a simple model of real exchange rate determination, which includes the relative GDP per capita, the real interest rates, and the net foreign assets over a long period of time. Our analysis also considers the dynamic adjustment in response to shocks through impulse response functions derived from the multivariate vector autoregressive (VAR) model. [source] CAPITAL CONTROLS AS A MEANS OF MINIMISING SPECULATIVE BUBBLES IN REAL EXCHANGE RATES: KEY FEATURES OF THE LITERATURE AND ITS APPLICATION TO CHINA AND INDIAECONOMIC PAPERS: A JOURNAL OF APPLIED ECONOMICS AND POLICY, Issue 3 2003CRAIG APPLEGATE First page of article [source] THE PURCHASING POWER PARITY PERSISTENCE PUZZLE: EVIDENCE FROM BLACK MARKET REAL EXCHANGE RATES,THE MANCHESTER SCHOOL, Issue 4 2008MARIO CERRATO In this paper we analyse the purchasing power parity (PPP) persistence puzzle using a unique data set of black market real exchange rates for 36 emerging market economies and (exact and approximate) median unbiased univariate and panel estimation methods. We construct bootstrap confidence intervals for the half-lives, as well as exact quantiles of the median function for different significance levels using Monte Carlo simulation. Even after accounting for a number of econometric issues, the PPP persistence puzzle is still a striking characteristic of the majority of emerging market countries. However, in a minority of exchange rates, the PPP puzzle is removed. [source] MODELLING THE SLOW MEAN-REVERSION OF THE CENTRAL AND EASTERN EUROPEAN COUNTRIES' REAL EXCHANGE RATES,THE MANCHESTER SCHOOL, Issue 1 2008GILLES DUFRENOT In this paper we propose a new modelling approach of the exchange rate misalignments in four transition countries: Hungary, Poland, Slovakia and Slovenia. We provide an empirical framework that takes into account two characteristics of these misalignments: while the fundamentals and policies adjust to restore equilibrium towards the long-term exchange rate, there are factors that hinder a fast mean-reverting dynamics. When the exchange rates adjust slowly to their equilibrium long-run values, the standard regressions that assume zero-mean misalignments present some drawbacks and one needs a model that helps to capture the time-varying aspects of the misalignment dynamics. The model proposed in this paper reproduces well the periods of overvaluation and undervaluation observed in the four countries. [source] OPTIMAL AND ADAPTIVE SEMI-PARAMETRIC NARROWBAND AND BROADBAND AND MAXIMUM LIKELIHOOD ESTIMATION OF THE LONG-MEMORY PARAMETER FOR REAL EXCHANGE RATES,THE MANCHESTER SCHOOL, Issue 2 2005SAEED HERAVI The nature of the time series properties of real exchange rates remains a contentious issue primarily because of the implications for purchasing power parity. In particular are real exchange rates best characterized as stationary and non-persistent; nonstationary but non-persistent; or nonstationary and persistent? Most assessments of this issue use the I(0)/I(1) paradigm, which only allows the first and last of these options. In contrast, in the I(d) paradigm, d fractional, all three are possible, with the crucial parameter d determining the long-run properties of the process. This study includes estimation of d by three methods of semi-parametric estimation in the frequency domain, using both local and global (Fourier) frequency estimation, and maximum likelihood estimation of ARFIMA models in the time domain. We give a transparent assessment of the key selection parameters in each method, particularly estimation of the truncation parameters for the semi-parametric methods. Two other important developments are also included. We implement Tanaka's locally best invariant parametric tests based on maximum likelihood estimation of the long-memory parameter and include a recent extension of the Dickey,Fuller approach, referred to as fractional Dickey,Fuller (FD-F), to fractionally integrated series, which allows a much wider range of generating processes under the alternative hypothesis. With this more general approach, we find very little evidence of stationarity for 10 real exchange rates for developed countries and some very limited evidence of nonstationarity but non-persistence, and none of the FD-F tests leads to rejection of the null of a unit root. [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] 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] Purchasing Power Parity Adjustment Speeds in High Frequency Data when the Equilibrium Real Exchange Rate is Proxied by a Deterministic TrendTHE MANCHESTER SCHOOL, Issue 2003Ivan Paya Rogoff suggested in 1996 that the dollar,yen real exchange rate represented a ,canonical' case of a trend in the equilibrium real exchange rate. The implied speed of adjustment of the dollar,yen real exchange rate is found to be substantially faster, with half-life shocks of less than 2 years, from estimates of a non-linear model which incorporates a deterministic trend proxying the equilibrium level. We also examine the power of unit root tests against smooth transition non-linear models which incorporate a deterministic trend and the robustness of such non-linear estimations using Monte Carlo and bootstrap simulations. [source] On Public Investment, the Real Exchange Rate and Growth: Some Empirical Evidence from the UK and the USATHE MANCHESTER SCHOOL, Issue 3 2003Sugata Ghosh This study is based on a two-country endogenous growth model with optimizing agents, where public investment affects the real exchange rate and the long-run growth rate, and does so in a non-linear fashion. Non-parametric regression analysis of quarterly data from the UK and the USA suggests that there is a significant non-linear relationship between public investment and the real exchange rate, and also between public investment and the growth rate. This is also supported by our parametric generalized method of moments model that jointly determines the real exchange rate, growth rate and net foreign assets in terms of public investment. [source] Real Exchange Rate in China: A Long-run PerspectiveCHINA AND WORLD ECONOMY, Issue 4 2006Haihong Gao F14; F31; F43 Abstract This paper investigates the RMB exchange rate from a long-run viewpoint. Whether China's rapid economic growth brought about real exchange rate appreciation between 1975 and 2002 is empirically examined, based on a supply-side model, the Balassa,Semuelson Hypothesis (BSH). The same test is conducted on Japan, Hong Kong, Korea, Malaysia, Singapore, Thailand, the Philippines, Indonesia and India. Our result indicates that the BSH only exists where the industrial structure has been upgraded and the economy has been successfully transformed from an agricultural economy to a manufacturing economy. Interestingly, China, among those where the BSH does not present, appears to be upgrading its industrial and trade structure. We then try to answer the question of why past rapid growth has no significant relationship with the RMB real exchange rate and what factors are underlying the trend of the RMB real exchange rate. We expect an appreciating trend of RMB real exchange rate in the foreseeable future, presuming that China's industrial upgrading process continues and the factors pertaining to the BSH's prediction, such as rise of wage rates in both tradables and nontradables, become more significant. (Edited by Xiaoming Feng) [source] Further Evidence on PPP Adjustment Speeds: the Case of Effective Real Exchange Rates and the EMS,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 4 2003Ivan Paya Abstract Two different approaches intend to resolve the ,puzzling' slow convergence to purchasing power parity (PPP) reported in the literature [see Rogoff (1996), Journal of Economic Literature, Vol. 34.] On the one hand, there are models that consider a non-linear adjustment of real exchange rate to PPP induced by transaction costs. Such costs imply the presence of a certain transaction band where adjustment is too costly to be undertaken. On the other hand, there are models that relax the ,classical' PPP assumption of constant equilibrium real exchange rates. A prominent theory put together by Balassa (1964, Journal of Political Economy, Vol. 72) and Samuelson (1964 Review of Economics and Statistics, Vol. 46), the BS effect, suggests that a non-constant real exchange rate equilibrium is induced by different productivity growth rates between countries. This paper reconciles those two approaches by considering an exponential smooth transition-in-deviation non-linear adjustment mechanism towards non-constant equilibrium real exchange rates within the EMS (European Monetary System) and effective rates. The equilibrium is proxied, in a theoretically appealing manner, using deterministic trends and the relative price of non-tradables to proxy for BS effects. The empirical results provide further support for the hypothesis that real exchange rates are well described by symmetric, nonlinear processes. Furthermore, the half-life of shocks in such models is found to be dramatically shorter than that obtained in linear models. [source] Household Heterogeneity and Real Exchange Rates,THE ECONOMIC JOURNAL, Issue 519 2007Narayana R. Kocherlakota We assume that individuals can fully insure themselves against cross-country shocks but not against individual-specific shocks. We consider two particular models of limited risk-sharing: domestically incomplete markets (DI) and private information,Pareto optimal (PIPO) risk-sharing. For each model, we derive a restriction relating the cross-sectional distributions of consumption and real exchange rates. We evaluate these restrictions using household-level consumption data from the US and the UK. We show that the PIPO restriction fits the data well when households have a coefficient of relative risk aversion of around 5. The restrictions implied by the complete risk-sharing model and the DI model fare poorly. [source] What Do We Know About Long,run Equilibrium Real Exchange Rates?AUSTRALIAN ECONOMIC PAPERS, Issue 4 2002PPPs vs Macroeconomic Approaches Despite the fact that the presence of non tradable goods is one of the most frequently advanced reasons for the failure of PPP, the empirical analysis conducted in this paper shows that it explains only a very small portion of the long run behaviour of real exchange rates (RERs) in developed countries: in most cases, there appears to be a very strong long run relationship between RERs calculated on price indexes for tradables and non tradables. As a consequence, deviations from PPP usually appear to be as large for both kinds of goods. To a certain extent, this stylised fact is also verified in the case of the yen/dollar RER, yet formerly known as a typical illustration of the so,called Balassa,Samuelson effect. In this context, so,called macroeconomic approaches of ERERs may be viewed as an alternative to all versions of PPP. We develop a model which combines the contributions of the most fruitful dynamic approaches, namely the NATREX and the BEER. An estimate of this model shows that the main long run determinants of the dollar/euro RER are the rate of consumption and the level of technical progress of the euro area relative to the US. [source] Real exchange rates may have nonlinear trendsINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2008David O. Cushman Abstract The unit root null is tested against possible nonlinear-trend stationarity for 13 US and German bilateral real exchange rates over the floating exchange rate period. Eight tests specified with nonlinear trends are applied. Simulations are used to determine individual and joint significance levels and to help interpret the results. Unit roots can be rejected for a number of the exchange rates, and nonlinear-trend stationarity appears more plausible than mean or linear-trend stationarity as the alternative. In several cases, estimates of the trends support the nonlinear-trend conclusion with statistical and economic significance. Thus, purchasing power parity is probably violated, but real exchange rates have meaningful long-run equilibrium values. Copyright © 2007 John Wiley & Sons, Ltd. [source] Aid and Fiscal Deficits: Lessons from Uganda on the Implications for Macroeconomic Management and Fiscal SustainabilityDEVELOPMENT POLICY REVIEW, Issue 2 2007Martin Brownbridge This article contributes to the ongoing debate on the macroeconomic management of large aid inflows to low-income countries by analysing lessons drawn from Uganda, where the fiscal deficit before grants, which was largely aid-funded, doubled to over 12% of GDP in the early 2000s. It focuses on the implications of the widening fiscal deficit for monetary policy, the real exchange rate, debt sustainability and the vulnerability of the budget to fiscal shocks, and argues that large fiscal deficits, even when funded predominantly by aid, risk undermining macroeconomic objectives and long-run fiscal sustainability. [source] Fixed versus Flexible Exchange Rates: Evidence from Developing CountriesECONOMICA, Issue 295 2007MATHIAS HOFFMANN This paper investigates the hypothesis that in a small open economy flexible exchange rates act as a ,shock absorber' and mitigate the effects of external shocks more effectively than fixed exchange rate regimes. Using a sample of 42 developing countries, the paper assesses whether the responses of real GDP, the trade balance and the real exchange rate to world output and world real interest rate shocks differ across exchange rate regimes. The paper shows that there are significant differences in the variability of macroeconomic aggregates under fixed and flexible exchange rate regimes. [source] Smooth Transition Models and Arbitrage ConsistencyECONOMICA, Issue 287 2005David A. Peel Slow adjustment of real exchange rate towards equilibrium in linear models has long puzzled researchers, stimulating the adoption of nonlinear models. The exponential smooth transition model has been particularly successful, providing faster adjustment speeds. This paper discusses some of its theoretical limitations, for example that expectations are adaptive. We propose a new nonlinear model conceptually superior to the ESTAR model since it is consistent with rational expectations. One of its advantages is that it can be solved and estimated by nonlinear least squares. Using monthly post-1973 real exchange rate data, we show that the model implies even faster speeds of adjustment. [source] Maquiladora Employment Dynamics in Nuevo LaredoGROWTH AND CHANGE, Issue 1 2007JESÚS CAÑAS ABSTRACT The Nuevo Laredo maquiladora sector has grown enormously during the last two decades. The short-term time series characteristics of this portion of the regional economy are analyzed in an attempt to quantify the trends underlying this remarkable performance. Parameter estimation is accomplished via linear transfer function (LTF) analysis. Data are drawn from the January 1990,December 2000 sample period. Empirical results indicate that real wage rates, maquiladora plants, U.S. industrial activity, and the real exchange rate of the peso play significant roles in determining month-to-month fluctuations in maquiladora employment. Furthermore, sub-sample forecast simulation exercises are conducted as an additional means for verifying model reliability. Empirical results indicate that the forecasts generated with the LTF model are less accurate than those associated with a simple random walk procedure for twelve separate step-length periods. [source] The real exchange rate,real interest rate relation: evidence from tests for symmetric and asymmetric threshold cointegrationINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2006Robert Sollis Abstract This paper investigates the existence of threshold cointegration between real exchange rates and real interest rate differentials. Unlike previous work, which generally fails to find evidence of a long-run relationship employing linear models, we employ tests of the null hypothesis of no cointegration derived from nonlinear bivariate models that allow for threshold cointegration under the alternative hypothesis. For six of the countries in our sample our analysis reveals some evidence of a nonlinear long-run relationship between real exchange rates and real interest rate differentials. Asymmetric mean reversion of the equilibrium error is found to be driven by the asymmetric short-run adjustment of the real exchange rate to dis-equilibrium. When threshold cointegration is found to exist, we find stronger mean reversion when the equilibrium error is negative relative to when it is positive. Copyright © 2006 John Wiley & Sons, Ltd. [source] The real exchange rate and real interest differentials: the role of nonlinearitiesINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 4 2005Nelson C. Mark Abstract Recent empirical work has shown the importance of nonlinear adjustment in the dynamics of real exchange rates and real interest differentials. This work suggests that the tenuous empirical linkage between the real exchange rate and the real interest differential might be strengthened by explicitly accounting for these nonlinearities. We pursue this strategy by pricing the real exchange rate by real interest parity. The resulting first-order stochastic difference equation gives the real exchange rate as the expected present value of future real interest differentials which we compute numerically for three candidate nonlinear processes. Regressions of the log real US dollar prices of the Canadian dollar, deutschemark, yen and pound on the fundamental values implied by these nonlinear models are used to evaluate the linkage. The evidence for linkage is stronger when these present values are computed over shorter horizons than for longer horizons. Copyright © 2005 John Wiley & Sons, Ltd. [source] The stabilization properties of fixed and floating exchange rate regimesINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2004Keith Pilbeam Abstract This paper investigates the price and output stabilization properties of fixed and floating exchange rates using a small open economy model. The performance of the two regimes is compared in the face of money demand, aggregate demand and aggregate supply shocks. It is shown that the ranking of the two regimes is extremely sensitive to the weighting of the objective function as between price and output stability, the type of shock impinging upon the economy, the values of structural parameters of the economy and institutional features such as the degree of wage indexation within the economy. The results obtained suggest that estimates of the income elasticity of money demand, the elasticity of aggregate demand to changes in both the real exchange rate and the real interest rate, and the degree of openness of the economy are likely to be important to policymakers when making the choice of exchange rate regime. Neither regime can be said to be dominant in all circumstances. Copyright © 2004 John Wiley & Sons, Ltd. [source] International real interest rate differentials, purchasing power parity and the behaviour of real exchange rates: the resolution of a conundrumINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 1 2004Mark P. Taylor Abstract According to one strand of the international finance literature, market efficiency implies that the real exchange rate follows a martingale process, in direct conflict with the long-run absolute purchasing power parity hypothesis, which requires a stationary real exchange rate process. This conflict between market efficiency and long-run PPP appears as something of a conundrum. We resolve this conundrum by relaxing the assumption of a constant real interest rate differential and analysing the vector equilibrium correction system linking prices and the exchange rate, and draw out the economic intuition of our result. Copyright © 2004 John Wiley & Sons, Ltd. [source] A general equilibrium analysis of foreign direct investment and the real exchange rateINTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 4 2002Milind M. Shrikhande Abstract Modern theories of foreign direct investment claim that foreign direct investment occurs because certain domestic assets are worth more under foreign control. This view developed by industrial organization theorists is indifferent to the financing mode of a foreign acquisition as well as to the interaction between foreign direct investment (FDI) and real exchange rates. However, empirical research has uncovered a significant relationship between FDI and exchange rates. Second, partial equilibrium models of FDI have focused on FDI as foreign acquisitions of existing assets but not on new capital formation initiated by foreigners. We complement these contributions by developing a welfare-maximizing, general equilibrium model of the interaction between FDI as cross-border acquisitions, and the real exchange rate. Copyright © 2002 John Wiley & Sons, Ltd. [source] Further Evidence on PPP Adjustment Speeds: the Case of Effective Real Exchange Rates and the EMS,OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 4 2003Ivan Paya Abstract Two different approaches intend to resolve the ,puzzling' slow convergence to purchasing power parity (PPP) reported in the literature [see Rogoff (1996), Journal of Economic Literature, Vol. 34.] On the one hand, there are models that consider a non-linear adjustment of real exchange rate to PPP induced by transaction costs. Such costs imply the presence of a certain transaction band where adjustment is too costly to be undertaken. On the other hand, there are models that relax the ,classical' PPP assumption of constant equilibrium real exchange rates. A prominent theory put together by Balassa (1964, Journal of Political Economy, Vol. 72) and Samuelson (1964 Review of Economics and Statistics, Vol. 46), the BS effect, suggests that a non-constant real exchange rate equilibrium is induced by different productivity growth rates between countries. This paper reconciles those two approaches by considering an exponential smooth transition-in-deviation non-linear adjustment mechanism towards non-constant equilibrium real exchange rates within the EMS (European Monetary System) and effective rates. The equilibrium is proxied, in a theoretically appealing manner, using deterministic trends and the relative price of non-tradables to proxy for BS effects. The empirical results provide further support for the hypothesis that real exchange rates are well described by symmetric, nonlinear processes. Furthermore, the half-life of shocks in such models is found to be dramatically shorter than that obtained in linear models. [source] AN ANALYSIS OF HONG KONG EXPORT PERFORMANCEPACIFIC ECONOMIC REVIEW, Issue 3 2005Yin-Wong Cheung In general, Hong Kong exports display mean-reverting dynamics, are positively influenced by foreign income and are adversely affected by high value of its currency. The lagged export variable, foreign income, and real exchange rate provide most of the explanatory power. Other variables explain marginally the variability of Hong Kong exports. [source] THE REAL EXCHANGE RATE AND THE BALASSA,SAMUELSON EFFECT: THE ROLE OF THE DISTRIBUTION SECTORPACIFIC ECONOMIC REVIEW, Issue 1 2005Ronald MacDonald The main result is that an increase in the productivity and product market competition of the distribution sector with respect to foreign countries leads to an appreciation of the real exchange rate, similar to what a relative increase in the domestic productivity of tradables does. This contrasts with the result that one would expect by considering the distribution sector as belonging to the non-tradable sector. One explanation may lie in the use of the services from the distribution sector in the tradable sector. [source] SHORT-RUN AND LONG-RUN DETERMINANTS OF THE REAL EXCHANGE RATE IN MEXICOTHE DEVELOPING ECONOMIES, Issue 1 2008Antonia LÓPEZ VILLAVICENCIO C32; F31; F41; F49 This paper explores the real exchange rate behavior in Mexico from 1960 until 2005. Since the empirical analysis reveals that the real exchange rate is not mean reverting, we propose that economic fundamental variables affect its evolution in the long run. Therefore, based on equilibrium exchange rate paradigms, we propose a simple model of real exchange rate determination, which includes the relative GDP per capita, the real interest rates, and the net foreign assets over a long period of time. Our analysis also considers the dynamic adjustment in response to shocks through impulse response functions derived from the multivariate vector autoregressive (VAR) model. [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] | ||||||||||||||||||||||||||||