What drives exchange rate volatility, and what are the effects of fluctuations in the exchange rate on economic growth in Ghana? These questions are the subject matter of this study. The results showed that while shocks to the exchange rate are mean reverting, misalignments tend to correct very sluggishly, with painful consequences in the short run as economic agents recalibrate their consumption and investment choices. About three quarters of shocks to the real exchange rate are self-driven, and the remaining one quarter or so is attributed to factors such as government expenditure and money supply growth, terms of trade and output shocks. Excessive volatility is found to be detrimental to economic growth; however, this is only up to a point as growth-enhancing effect can also emanate from innovation, and more efficient resource allocation.

On the Causes and Effects of Exchange Rate Volatility on Economic Growth: Evidence from Ghana

Display Omitted We attempt to improve GARCH forecasting using artificial intelligence methods.Fuzzy Neural Network Artificial Neural Network forecasting comparison is studied.The importance of the fuzzy inference in forecasting is concluded.Accuracy improvement is found to be around 20% using the Fuzzy Neural Network.The inclusion of fuzzy inference improves volatility forecasting. Stock market volatility forecasting is an important and interesting topic of research due to its impact on trading decisions. This behavior is particularly important in emerging economies in Latin America, and moreover, in the larger stock markets of this region (Brazil, Mexico, and Chile). The Latin American region is highly influenced by macroeconomic factors; therefore, it is relevant to discover ways in which the market index forecast accuracy can be improved. Thus, in this study, we present a novel methodology: first, we forecast the volatility of each market using different GARCH models. Then, we use Markov Switching to determine the states of external factors. Subsequently, these states are combined in a ANFIS model to determine individual impact on each index, and finally, we use an ANN algorithm to improve the forecast accuracy of the best GARCH model forecast with the combined effects of all the external factors. The results indicate that this methodology manages to improve prediction in terms of MAPE and RMSE, thus providing a more accurate volatility estimation.

A stock market risk forecasting model through integration of switching regime, ANFIS and GARCH techniques

Currency depreciation reduces aggregate supply by raising cost of imported inputs and increases aggregate demand by increasing its net export component. Depending on the relative strength of the two effects, depreciation could be expansionary or contractionary. We employ the bounds testing approach to cointegration and error-correction modelling to evaluate the effects of exchange rate depreciation on output growth, both in the short and in the long-run, across a sample of MENA countries. Exchange rate fluctuations are found to be important to fluctuations in real output growth in the short-run. Anticipated exchange rate depreciation may induce long-run expansionary or contractionary effects on output supply. Consistent with theory's predictions, the expansionary effect of unanticipated depreciation is only transitory on output growth. Nonetheless, unanticipated depreciation is found to have a contractionary effect on output growth in the long-run via an increase in the cost of imported inputs.

Are devaluations contractionary in MENA countries

The goal of this paper is to examine the impact of oil prices on Vietnam's economic activity using vector autoregressive (VAR) modeling and cointegration techniques. We use monthly data for the period 1995-2009 and include inflation and the real effective exchange rate as additional determinants of economic activity. We find evidence of a long-run relationship between oil prices, inflation, exchange rate, and economic activity. The results suggest that both oil prices and the real effective exchange rates have strongly significant impact on economic activity. An increase in oil price or depreciation may enhance economic activity. Vietnamese economic activity is influenced more by changes of value of Vietnamese currency than the fluctuations of oil prices. Inflation has a positive impact on economic activity however its impact is not highly significant. This suggests that moderate inflation is helpful rather than harmful to economic activity.

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The impact of oil prices, real effective exchange rate and inflation on economic activity: Novel evidence for Vietnam

The paper investigates the impact of exchange rate depreciation on the balance of payments (BOP) in Nigeria over the period 1961–2012. The analysis is based on a multivariate vector error correction framework. A long-term equilibrium relationship was found between BOP, exchange rate and other associated variables. The empirical results are in favour of bidirectional causality between BOP and other variables employed. Results of the generalized impulse response functions suggest that one standard deviation innovation on exchange rate reduces positive BOP in the medium and long term, while results of the variance decomposition indicate that a significant variation in Nigeria’s BOP is not due to changes in exchange rate movements. The policy implication is that exchange rate depreciation which has been preponderant in Nigeria since the mid-1980s has not been very useful in promoting the country’s positive BOP. It is recommended that growth in the real sector should be improved to enhance exports, cre...

https://www.tandfonline.com/doi/pdf/10.1080/23322039.2014.923323

Impact of exchange rate depreciation on the balance of payments: Empirical evidence from Nigeria

This paper examines the effects of exchange rate fluctuations on real output growth and price inflation in a sample of twenty-two developing countries. The analysis introduces a theoretical rational expectation model that decomposes movements in the exchange rate into anticipated and unanticipated components. The model demonstrates the effects of demand and supply channels on the output and price responses to changes in the exchange rate. In general, exchange rate depreciation, both anticipated and unanticipated, decreases real output growth and increases price inflation. The evidence confirms concerns about the negative effects of currency depreciation on economic performance in developing countries.

Magda Kandil

Papers

Exchange rate fluctuations and economic activity in developing countries: theory and evidence