Showing papers on "Exchange rate published in 2017"

Household Debt and Business Cycles Worldwide

Abstract: An increase in the household debt to GDP ratio predicts lower GDP growth and higher unemployment in the medium run for an unbalanced panel of 30 countries from 1960 to 2012. Low mortgage spreads are associated with an increase in the household debt to GDP ratio and a decline in subsequent GDP growth, highlighting the importance of credit supply shocks. Economic forecasters systematically over-predict GDP growth at the end of household debt booms, suggesting an important role of flawed expectations formation. The negative relation between the change in household debt to GDP and subsequent output growth is stronger for countries with less flexible exchange rate regimes. We also uncover a global household debt cycle that partly predicts the severity of the global growth slowdown after 2007. Countries with a household debt cycle more correlated with the global household debt cycle experience a sharper decline in growth after an increase in domestic household debt.

The technology and economic determinants of cryptocurrency exchange rates

Abstract: Cryptocurrencies, such as Bitcoin, have ignited intense discussions. Despite receiving extensive public attention, theoretical understanding is limited regarding the value of blockchain-based cryptocurrencies, as expressed in their exchange rates against traditional currencies. In this paper, we conduct a theory-driven empirical study of the Bitcoin exchange rate (against USD) determination, taking into consideration both technology and economic factors. To address co-integration in a mix of stationary and non-stationary time series, we use the autoregressive distributed lag (ARDL) model with a bounds test approach in the estimation. Meanwhile, to detect potential structural changes, we estimate our empirical model on two periods separated by the closure of Mt. Gox (one of the largest Bitcoin exchange markets). According to our analysis, in the short term, the Bitcoin exchange rate adjusts to changes in economic fundamentals and market conditions. The long-term Bitcoin exchange rate is more sensitive to economic fundamentals and less sensitive to technological factors after Mt. Gox closed. We also identify a significant impact of mining technology and a decreasing significance of mining difficulty in the Bitcoin exchange price determination. We theoretically discuss the technology and economic determinants of the Bitcoin exchange rateWe use the ARDL model with bounds test to address co-integration of a mix of stationary and non-stationary time seriesWe find Bitcoin exchange rate relates more with economic fundamentals and less with technology factors as Bitcoin evolvesWe find the impact of computational capacities on Bitcoin is decreasing as technology progresses

The Country Chronologies to Exchange Rate Arrangements into the 21st Century: Will the Anchor Currency Hold?

Abstract: Detailed country-by-country chronologies are an informative companion piece to our paper “Exchange Arrangements Entering the 21st Century: Which Anchor Will Hold?,” which provides a comprehensive history of anchor or reference currencies, exchange rate arrangements, and a new measure of foreign exchange restrictions for 194 countries and territories over 1946-2016. The individual country chronologies are also a central component of our approach to classifying regimes. These country histories date dual or multiple exchange rate episodes, as well as to differentiate between pre-announced pegs, crawling pegs, and bands from their de facto counterparts. We think it is important to distinguish between say, de facto pegs or bands from announced pegs or bands, because their properties are potentially different. The chronologies also flag the dates for important turning points, such as when the exchange rate first floated, or when the anchor currency was changed. We extend our chronologies as far back as possible, even though we only classify regimes from 1946 onwards.Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

The Finance Uncertainty Multiplier

Abstract: We show how real and financial frictions amplify the impact of uncertainty shocks. We start by building a model with real frictions, and show how adding financial frictions roughly doubles the negative impact of uncertainty shocks. The reason is higher uncertainty alongside financial frictions induces the standard negative real-options effects on the demand for capital and labor, but also leads firms to hoard cash against future shocks, further reducing investment and hiring. We then test the model using a panel of US firms and a novel instrumentation strategy for uncertainty exploiting differential firm exposure to exchange rate and factor price volatility. Consistent with the model we find that higher uncertainty reduces firms' investment, hiring, while increasing their cash holdings and cutting their dividend payouts, particularly for financially constrained firms. This highlights why in periods with greater financial frictions--like during the global-financial-crisis--uncertainty can be particularly damaging.

Exchange Arrangements Entering the 21st Century: Which Anchor Will Hold?

Abstract: This paper provides a comprehensive history of anchor or reference currencies, exchange rate arrangements, and a new measure of foreign exchange restrictions for 194 countries and territories over 1946-2016. We find that the often-cited post-Bretton Woods transition from fixed to flexible arrangements is overstated; regimes with limited flexibility remain in the majority. Our central finding is that the US dollar scores (by a wide margin) as the world’s dominant anchor currency and, by some metrics, its use is far wider today than 70 years ago. In contrast, the global role of the euro appears to have stalled in recent years. While the incidence of capital account restrictions has been trending lower for decades, an important wave toward capital market integration dates as recently as the mid-1990s. We suggest that record accumulation of reserves post 2002 has much to do with many countries’ desire to stabilize exchange rates in an environment of markedly greater capital mobility. Indeed, the continuing desire to manage exchange rates despite increased capital mobility post-2003 may be a key factor underpinning the modern-day Triffin dilemma that some have recently pointed to.

Price setting in online markets: Basic facts, international comparisons, and cross-border integration

Abstract: We document basic facts about prices in online markets in the United States and Canada, which is a rapidly growing segment of the retail sector. Relative to prices in regular stores, prices in online markets are more flexible and exhibit stronger pass-through (60-75 percent) and faster convergence (half-life less than two months) in response to movements of the nominal exchange rate. Multiple margins of adjustment are active in the process of responding to nominal exchange rate shocks. Properties of goods, sellers, and markets are systematically related to pass-through and the speed of price adjustment for international price differentials.

Global liquidity and cross-border bank flows

Abstract: Summary The literature traditionally uses US monetary and financial factors as indicators of global financial conditions. This paper explores whether similar European factors also need to be considered when studying the behaviour of cross-border bank flows. Using a longer time series and broader country sample than previous studies, we confirm that flows vary with uncertainty (VIX), US monetary policy (real interest rate and term spread), and US exchange rate. In contrast to the existing literature, we find that US bank conditions are insignificant in explaining flows outside the global financial crisis. European bank conditions (euro-area and UK large bank leverage, or TED spread, the three-month interbank rate minus three-month government bond yield) are, however, important throughout the 2000s, even outside the crisis and when controlling for commonality in global conditions. Taken together, our results suggest that global financial conditions are best captured by US monetary conditions and exchange rate dynamics and European bank conditions. This finding is consistent with the important role of European banks in intermediating cross-border credit, including dollar-denominated credit.

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

Abstract: 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.

Oil price and exchange rate co-movements in Asian countries: Detrended cross-correlation approach

Abstract: Most empirical literature investigates the relation between oil prices and exchange rate through different models. These models measure this relationship on two time scales (long and short terms), and often fail to observe the co-movement of these variables at different time scales. We apply a detrended cross-correlation approach (DCCA) to investigate the co-movements of the oil price and exchange rate in 12 Asian countries. This model determines the co-movements of oil price and exchange rate at different time scale. The exchange rate and oil price time series indicate unit root problem. Their correlation and cross-correlation are very difficult to measure. The result becomes spurious when periodic trend or unit root problem occurs in these time series. This approach measures the possible cross-correlation at different time scale and controlling the unit root problem. Our empirical results support the co-movements of oil prices and exchange rate. Our results support a weak negative cross-correlation between oil price and exchange rate for most Asian countries included in our sample. The results have important monetary, fiscal, inflationary, and trade policy implications for these countries.

Determinants of foreign direct investment in developing countries: a panel data study

Abstract: Purpose The purpose of this paper is to identify key determinants of foreign direct investment (FDI) inflows in developing countries by using unbalanced panel data set pertaining to the years 1990-2012. This study considers 20 developing countries from the whole of South, East and South-East Asia. Design/methodology/approach Using seven explanatory variables (market size, trade openness, infrastructure, inflation, interest rate, research and development and human capital), the authors have tried to find the best fit model from the two models considered (fixed effect model and random effect model) with the help of Hausman test. Findings Fixed effect estimation indicates that market size, trade openness, interest rate and human capital yield significant coefficients in relation to FDI inflow for the panel of developing countries under study. The findings reveal that market size is the most significant determinant of FDI inflow. Research limitations/implications Like any other study, this work also has some limitations. Lack of data on key determinants such as labor cost, exchange rate, corruption, natural resources, effectiveness of rule of law and political risk may be considered one such limitation. Further, controlling for variables such as exchange rate, corruption, labor cost and political risk could make significant improvements to this study. Practical implications This study has significant implications for policy makers, mangers and investors. Policy makers would be able to understand the importance of the major determinants of FDI mentioned in the paper, and take steps to formulate policies that encourage FDI. Such measures could include developing market size, making regulations more international trade friendly and investing in the nation’s human capital. Further, steps could be taken to keep interest rates and inflation rates under control as these factors have been found to influence FDI. Originality/value The sample of 20 developing nations chosen for this study has not been considered by any study earlier. This is a unique contribution to existing body of research, and highlights the originality value of this paper.

Autoregressive Integrated Moving Average (ARIMA) Model for Forecasting Cryptocurrency Exchange Rate in High Volatility Environment: A New Insight of Bitcoin Transaction

Abstract: The cryptocurrency is a decentralized digital money. Bitcoin is a digital asset designed to work as a medium of exchange using cryptography to secure the transactions, to control the creation of additional units, and to verify the transfer of assets. The objective of this study is to forecast Bitcoin exchange rate in high volatility environment. Methodology implemented in this study is forecasting using autoregressive integrated moving average (ARIMA). This study performed autocorrelation function (ACF) and partial autocorrelation function (PACF) analysis in determining the parameter of ARIMA model. Result shows the first difference of Bitcoin exchange rate is a stationary data series. The forecast model implemented in this study is ARIMA (2, 1, 2). This model shows the value of R-squared is 0.444432. This value indicates the model explains 44.44% from all the variability of the response data around its mean. The Akaike information criterion is 13.7805. This model is considered a model with good fitness. The error analysis between forecasting value and actual data was performed and mean absolute percentage error for ex-post forecasting is 5.36%. The findings of this study are important to predict the Bitcoin exchange rate in high volatility environment. This information will help investors to predict the future exchange rate of Bitcoin and in the same time volatility need to be monitor closely. This action will help investors to gain better profit and reduce loss in investment decision.

The macroeconomic impact of the ECB's expanded asset purchase programme (APP)

Abstract: This paper provides empirical evidence on the macroeconomic impact of the expanded asset purchase programme (APP) announced by the European Central Bank (ECB) in January 2015. The shock associated to the APP is identified with a combination of sign, timing and magnitude restrictions in the context of an estimated time-varying parameter VAR model with stochastic volatility. The evidence suggests that the APP had a significant upward effect on both real GDP and HICP inflation in the euro area during the first two years. The effect on real GDP appears to be stronger in the short term, while that on HICP inflation seems more marked in the medium term. Moreover, several channels of transmission appear to have been activated, including the portfolio rebalancing channel, the exchange rate channel, the inflation re-anchoring channel and the credit channel.

Keynes at the periphery: Currency hierarchy and challenges for economic policy in emerging economies

Abstract: While the post Keynesian literature offers a rather clear concept for growth-oriented policies, it is necessary to adapt them for peripheral emerging economies. We base our analysis of an appropriate Keynesian policy mix for these countries on the concept of currency hierarchy, where the currencies of peripheral emerging economies have a lower liquidity premium than the currencies of advanced economies. The international asymmetry related to the currency hierarchy, amplified by financial globalization, imposes major constraints to the adoption of Keynesian policies for these economies. Under these conditions, we argue that domestic economic policy coordination should lay a major focus on a low policy rate and, especially, a competitive exchange rate for obtaining, at least, a balanced current account, in order to prevent capital flows boom-bust-cycles with subsequent financial crises. We conclude that it is a rather ambitious and long-term goal to climb up the currency hierarchy, especially under ...

Resetting the International Monetary (Non)System

Abstract: This book provides an analysis of the global monetary system and the necessary reforms that it should undergo to play an active role in the twenty-first century. As its title indicates, its basic diagnosis is that it is an ad hoc framework rather than a coherent system—a ‘non-system’—which evolved after the breakdown of the original Bretton Woods arrangement in the early 1970s. The book places a special focus on the asymmetries that emerging and developing countries face within the current system, and therefore on the development dimensions of the global monetary system and of global monetary reform. The book proposes a comprehensive yet evolutionary reform of the system that includes: (i) provision of international liquidity through a system that mixes the multi-currency arrangement with a more active use of the IMF’s Special Drawing Rights (SDRs), the only true global currency that has been created; (ii) stronger mechanisms of macroeconomic policy cooperation, including greater cooperation in exchange rate management, and freedom to manage capital flows as a complement to counter-cyclical macroeconomic policy and other instruments of financial regulation; (iii) additional automatic balance-of-payments financing facilities, and the complementary use of swap and regional arrangements; (iv) a multilateral sovereign debt workout mechanism; and (v) major reforms of the system’s governance, based on a more representative apex organization, more equitable participation of emerging and developing countries in decision-making, and a network of global, regional, inter-regional, and sub-regional organizations.

Tourism demand: a panel data approach

Abstract: This paper estimates the coefficients of the determinants of international tourism demand for the period 1995–2014 in the USA using the gravity framework. The analysis is based on a panel dataset of tourist arrivals among 14 countries using autoregressive distributed lag methods. The results show real gross domestic product, consumer price index, real exchange rate and certain specific events have a significant impact on international tourism demand. The income elasticity suggests that tourism is non-luxury goods, and prices and real exchange rate have negative relation to tourist arrivals. We also find that tourism transport infrastructure is a significant determinant of tourist arrivals into USA. This implies that infrastructure to reinforce taste formation is important to attract more international tourists to USA. In addition, results also suggest implications for public and private tourism authorities.

The determinants of corporate profitability: an investigation of Indian manufacturing firms

Abstract: Purpose The present study examines the firm-specific and macroeconomic determinants of profitability of Indian manufacturing firms. It assesses the main determinants of firm's profitability in the pre-crisis and post-crisis period from 2000 to 2015. Design/methodology/approach This methodology splits the factors that influence firm profitability in two groups: firm-specific (internal) factors and macro-economic indicators. It further aims to look at the consistency of the factors in the pre-crisis and post-crisis period. The return on assets (ROA) and the Net Profit Margin (NPM) are considered as proxy for corporate profits. The panel Generalized Least Square (GLS) and Panel Vector Auto Regression (VAR) model have been employed, and it is observed that the exchange rate seems to have played a major role in the crisis period by explaining the earning quotient for Indian firms. Findings This paper concludes that the firm specific variables and exchange rate channels are quite relevant in explaining the prof...