Topic
Exchange rate
About: Exchange rate is a research topic. Over the lifetime, 47255 publications have been published within this topic receiving 944563 citations. The topic is also known as: foreign-exchange rate & forex rate.
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TL;DR: In this article, the authors examined empirically the link between real-exchange-rate uncertainty and private investment in developing countries, using a large cross-country time series data set.
Abstract: This paper examines empirically the link between real-exchange-rate uncertainty and private investment in developing countries, using a large cross-country time series data set. The paper builds a GARCH-based measure of real-exchange-rate volatility and finds that it has a strong negative effect on investment, after controlling for other standard investment determinants and taking into account their potential endogeneity. The effect of uncertainty is not uniform, however. There is some evidence of threshold effects, so that uncertainty only matters when it exceeds some critical level. In addition, the negative effect of real-exchange-rate uncertainty on investment is significantly larger in economies that are highly open and in those with less developed financial systems.
229 citations
Posted Content•
TL;DR: In this paper, the authors extend prior theoretical results to model a global firm's FX exposure and show empirically that firms pass through part of currency changes to customers and utilize both operational and financial hedges.
Abstract: Theory predicts sizeable exchange rate (FX) exposure for many firms. However, empirical research has not documented such exposures. To examine this discrepancy, we extend prior theoretical results to model a global firm’s FX exposure and show empirically that firms pass through part of currency changes to customers and utilize both operational and financial hedges. For a typical sample firm, pass-through and operational hedging each reduce exposure by 10% to 15%. Financial hedging with foreign debt, and to a lesser extent FX derivatives, decreases exposure by about 40%. The combination of these factors reduces FX exposures to observed levels.
229 citations
01 Sep 1992
TL;DR: In this paper, the authors interpreted the evidence on stopping high inflation in terms of an analytical framework and showed that by using the exchange rate as the nominal anchor, hyperinflations have been stopped almost overnight with relatively minor output costs.
Abstract: The evidence on stopping high inflation is interpreted in terms of an analytical framework. The evidence suggests that, by using the exchange rate as the nominal anchor, hyperinflations have been stopped almost overnight with relatively minor output costs. In contrast, exchange rate-based stabilizations in chronic-inflation countries have typically resulted in a sluggish adjustment of the inflation rate, sustained real appreciation of the domestic currency, current account deficits, and an initial expansion in economic activity followed by a contraction. These stylized facts are shown to be consistent with the predictions of a staggered-prices, cash-in-advance model.
228 citations
Posted Content•
TL;DR: In this article, the authors examined the impact of economic shocks on origin-household investments in the Philippines and found that the estimated elasticity of Philippine-peso remittances with respect to the Philippine/foreign exchange rate is 0.60.
Abstract: Millions of households in developing countries receive financial support from family members working overseas. How do migrant earnings affect origin-household investments? This paper examines Philippine households%u2019 responses to overseas members%u2019 economic shocks. Overseas Filipinos work in dozens of foreign countries, which experienced sudden (and heterogeneous) changes in exchange rates due to the 1997 Asian financial crisis. Appreciation of a migrant%u2019s currency against the Philippine peso leads to increases in household remittances received from overseas. The estimated elasticity of Philippine-peso remittances with respect to the Philippine/foreign exchange rate is 0.60. These positive income shocks lead to enhanced human capital accumulation and entrepreneurship in migrants%u2019 origin households. Child schooling and educational expenditure rise, while child labor falls. In the area of entrepreneurship, households raise hours worked in self-employment, and become more likely to start relatively capital-intensive household enterprises.
228 citations
TL;DR: In this article, the authors present a methodology for calculating bilateral equilibrium exchange rates for a panel of currencies in a way that guarantees global consistency, using a theoretical model that encompasses the balance of payments and the Balassa-Samuelson approaches to real exchange rate determination.
Abstract: This paper presents a methodology for calculating bilateral equilibrium exchange rates for a panel of currencies in a way that guarantees global consistency. The methodology has three parts: a theoretical model that encompasses the balance of payments and the Balassa-Samuelson approaches to real exchange rate determination; an unobserved components decomposition in a cointegration framework that identifies a time-varying equilibrium real exchange rate; and an algebraic transformation that extracts bilateral equilibrium nominal rates. The results uncover that, by the start of Stage III of the European Economic and Monetary Union (EMU), the euro was significantly undervalued against the dollar and the pound, but overvalued against the yen. The paper also shows that the four major EMU currencies locked their parities with the euro at a rate close to equilibrium.
227 citations