Search

The study attempts to measure RMB real effective exchange rate (REER) equilibrium and its associated degree of misalignments for China using the behavioral equilibrium exchange rate (BEER) and permanent equilibrium exchange rate approaches. We use a range of economic fundamentals and employ yearly data covering the period 1980–2020, and apply the Johansen Cointegration test and other econometric methods for the study purpose. We find evidence of the existence of RMB real effective exchange rate equilibrium, and for most of the periods, the RMB REER is closer to its equilibrium level. We also find that the RMB REER misaligned with its equilibrium producing episodes of undervaluation and overvaluation, but the magnitude of the misalignments is small and the BEER approach produces a lower degree of misalignments. This suggests that the RMB undervaluation is moderate and not as exaggerated. We identify that the economic fundamentals used in this study are important determinants of RMB real effective exchange rate equilibrium. In line with the above, the study recommends that China may continue using its RMB exchange rate as its policy tool, but the policymakers should focus on the core fundamentals that derived the equilibrium exchange rate. [ABSTRACT FROM AUTHOR]

Foreign investment can mitigate the foreign exchange constraint of developing countries. It can also influence the economy's international competitiveness through appreciating or depreciating exchange rates. The exchange rate impact of domestic investment is also not straightforward and depends on some critical factors. These issues of investment often pose a policy dilemma. Against this backdrop, this paper assesses the relative impacts of foreign direct investment (FDI), domestic investment (DI), and external debt on India's real effective exchange rate and the rupee/dollar real rate for the liberalized regime for trade, investment, and exchange rates. The autoregressive distributed lag bounds testing approach to cointegration, followed by its error correction representation, finds that real exchange rate variations are associated with FDI, debt, DI, and some control variables. FDI and debt depreciate real exchange rates, indicating that these have not exacerbated the economy's international competitiveness. However, DI causes real appreciation. These findings are consistent across estimations involving alternative specifications of control variables. Offsetting impacts of FDI and DI is an interesting finding. This can stabilize the exchange rates by undermining appreciating or depreciating exchange rate trends. [ABSTRACT FROM AUTHOR]

The international nature of health tourism, which has an increasing importance, makes its interaction with the real exchange rate a prominent research topic. On this basis, this study aims to examine the relationship between health tourism revenues and real exchange rate for Türkiye, and to determine to what extent the preferences of health tourists traveling to this country are price- or cost-centered. For this purpose, Johansen cointegration and Granger causality analyses and the dataset for the period Q1 2002 – Q4 2019 were used. Findings of cointegration analysis supported that there is a long-term relationship between real exchange rate and health tourism revenues. Accordingly, a 1% change in all, developed, and developing trading partner countries based real exchange rate causes a change of 2.4065%, 2.6108%, and 2.1383% in health tourism revenues in reverse direction, respectively. These findings indicate that health tourism revenues are highly sensitive to the changes in real exchange rates. Furthermore, Granger causality analysis supported a one-way causal relationship from all three real exchange rates to health tourism revenues. Considering the findings, it is possible to state despite the high quality of health services in Türkiye, prices or costs are significantly effective in the decisions of health tourists. [ABSTRACT FROM AUTHOR]

Purpose: The present study aimed to examine the effect of received remittance inflows on the price level ratio of the purchasing power parity conversion factor to the market exchange rate in 36 developed and developing countries from 2004 to 2020. Design/methodology/approach: The panel data conducted a comparative analysis and used panel least squares, regression with Driscoll-Kraay standard errors of fixed effect, random effect, feasible generalised least squares and maximum likelihood robust least squares to overcome the heterogeneity issue. Furthermore, the two-step difference generalised method of moments to overcome the endogeneity issue. Diagnostic tests were used to increase robustness. Findings: In the studied countries, there was a statistically significant negative relationship between received remittance inflows and the price-level ratio of the purchasing power parity conversion factor to the market exchange rate. This relationship explains why remittance flows depreciate the real exchange rate. The study's results also indicated that attracting investments can improve the quality of institutions despite high tax rates, leading to low tax revenue. Originality/value: The current study findings enrich the understanding of policies of how governments should minimise tariff rates on capital imports and introduce export-oriented incentive programmes. The study also revealed that Dutch disease can occur due to differences in the demand structure and manufacturing development policy. [ABSTRACT FROM AUTHOR]

This article investigates the causes of structural change in Brazil, through the rise and the fall of the manufacturing industry, and the consequences for total factor productivity and manufacturing labour productivity, from 1947 to 2021. Our results show that the industrialization of the Brazilian productive structure is positively associated with expansions in infrastructure investments and with the pursuit of a competitive real exchange rate, that is, with policies oriented towards economic development. Our findings also indicate that such variables exert a direct influence on total factor productivity and manufacturing labour productivity and an indirect influence through their impacts on the Brazilian productive structure. Our conclusions suggest that an important cause of the Brazilian premature deindustrialization, and then of its poor performance in terms of total factor productivity and manufacturing labour productivity, is the adoption of policies not oriented towards economic development adopted since the neoliberal reforms of the 1980s and 1990s. [ABSTRACT FROM AUTHOR]

We analyze the determinants of capital flight in three resource scarce MENA countries namely Egypt, Morocco, and Tunisia. Our methodology involves both the linear and nonlinear autoregressive distributed lag (ARDL) cointegration approaches, with a focus on asymmetric relationships between capital flight and the real exchange rate, to distinguish the impact of real appreciation and depreciation of domestic currency on capital flight. The results based on nonlinear ARDL approach using annual data between 1977 and 2019 indicate that in Egypt, financial openness is negatively related with capital flight, while real depreciation seems to increase it in the long run. Our findings also reveal that the real GDP growth rate, institutional quality as well as inflation are important factors affecting capital flight in Morocco, whereas financial openness and the real exchange rate influence capital flight significantly in Tunisia. [ABSTRACT FROM AUTHOR]

Previous research that assessed the asymmetric impact of currency depreciation on domestic investment considered experiences of seven industrialized countries, six emerging economies, and eighteen countries from Africa. We add to this new literature by considering the experiences of eight Asian countries. Like previous studies, our asymmetric analysis that required estimating nonlinear models revealed much more significant outcome than the linear and symmetric models. It predicted short-run asymmetric effects of exchange rate changes on domestic investment in all eight countries that lasted into long-run asymmetric effects in Hong Kong, Indonesia, South Korea, Malaysia, and Singapore. Additional analysis revealed that currency depreciation has adverse long-run effects on domestic investment in all five countries. [ABSTRACT FROM AUTHOR]

This study delves into the intricate relationship between fluctuations in the real exchange rate and the trade balance, situated within the framework of a 'two-country' trade theory model. Despite a wealth of prior research on the impact of exchange rates on international trade, the precise extent of this influence remains a contentious issue. To bridge this gap, our research adopts a pioneering approach, employing three distinct artificial intelligence-based influence measurement methods: Mean Decrease Impurity (MDI), Permutation Importance Measurement (PIM), and Shapley Additive Explanation (SHAP). These sophisticated techniques provide a nuanced and differentiated perspective, enabling specific and quantitative measurements of the real exchange rate's impact on the trade balance. The outcomes derived from the application of these innovative methods shed light on the substantial contribution of the real exchange rate to the trade balance. Notably, the real exchange rate (RER) emerges as the second most influential factor within the 'two-country' trade model. This empirical evidence, drawn from a panel dataset of 78 nations over the period 1992–2021, addresses crucial gaps in the existing literature, offering a finer-grained understanding of how real exchange rates shape international trade dynamics. Importantly, our study implies that policymakers should recognize the pivotal role of the real exchange rate as a key determinant of trade flow. [ABSTRACT FROM AUTHOR]

Purpose: Empirical studies regarding the impact of the real exchange rate (RER) on economic growth are extensively available. However, the literature as a whole appears to report varying results, while the causes of such differences have not been analyzed systematically. The present study aims to fill the gap in the literature. Design/methodology/approach: In this paper, the authors compile 543 empirical estimates from 51 studies of the exchange rate-growth nexus in order to meta-analyze its relationship. Meta-analysis allows the authors to quantitatively synthesize previous empirical studies and explain the variation in the results. This method also enables us to investigate the possibility of publication bias, as there is a tendency in research only to report results that are both statistically significant and show the expected signs. Findings: After addressing publication bias and heterogeneity in the estimates, the meta-regression results show that RER depreciation (or undervaluation) genuinely favors economic growth. On average, RER depreciation has a greater impact on economic growth in developing countries than the developed ones. The study's results imply that maintaining an undervalued RER could be favorable to spur economic growth, especially in developing countries. Originality/value: Initially predominant in the medical literature, meta-analysis has been on a rising edge in economics. This progress has produced many systematic quantitative review analyses with continuously improved statistical-econometric practices related to economic variables. However, to the authors' knowledge, no comprehensive meta-regression analysis of the relationship between exchange rate and economic growth has been conducted and published in any publicly accessible academic outlet. Therefore, this study aims to fill this gap in the literature. [ABSTRACT FROM AUTHOR]

The Dutch disease phenomenon has been related to foreign inflows into emerging economies in particular, including foreign aid, migrant’s remittances, and foreign direct investment. A surge in these inflows is expected to yield a rise in the real exchange rate. Recipient countries have seen a decline in industry as a result of the rise in the non-marketable sector and the slump in the marketable sector. This study empirically investigates the mechanisms of real exchange rate adjustments to migrant remittances, ODA, and FDI toward emerging economies. For the analysis covering the years 2001–2020, dynamic panel data approaches, difference GMM and system GMM, are used to investigate the incidence of Dutch Disease in 84 emerging economies. Numerous econometric studies have shown that Dutch Disease does exist in emerging economies. The Dutch Disease theory is supported by an expanded study that has included the empirical analysis of both industrial (marketable) and service (non- marketable) sectors. [ABSTRACT FROM AUTHOR]

• In recent years many developing countries pursued policies aimed at increasing the banking sector's ability and willingness to lend to households. • These policies contributed to relaxing borrowing constraints households were previously subjected to. • This paper presents a two-sector open economy model that examines the sectoral implications of policy driven household lending expansions. • I use macroeconomic data from the Turkish economy to motivate the model. • The paper shows that policy driven expansions in household lending can have adverse sectoral implications by benefiting low productivity nontradable industries at the expense of higher productivity tradable industries. This paper analyses the sectoral implications of household credit expansions in a two-sector open economy model. In the model, policy-induced expansion in banks' willingness and ability to lend to households results in new lending, boosting aggregate demand and average wages in the nontradable sector. Under fixed relative wages and mark-up pricing in the tradable sector, wage pressures translate into inflationary pressures. The inflation-targeting central bank increases the policy rate to contain inflationary pressures. This intervention causes a real exchange rate appreciation, followed by a reduction in international competitiveness and a contraction of the tradable sector output. This way, the model illustrates that consumer credit expansions can trigger premature deindustrialisation , shifting the sectoral structure away from the high-productivity tradable sector towards the lower-productivity nontradable sector. Key macroeconomic developments from the Turkish economy between 2002 and 2013 are presented to motivate the model. [ABSTRACT FROM AUTHOR]

New Developmentalism doctrine defends the central role played by a competitive real exchange rate in promoting catch-up in developing economies. Recently, this theory has been questioned by critics; the main criticism has been that an outward growth strategy based on a competitive real exchange rate would harm income/real wage distribution and have a negative effect on the economy. This study discusses how the real exchange rate influences growth in light of the new developmentalist doctrine and the contrasting experiences of Asian and Latin American countries. Its main contribution is to document the influence of the real exchange rate on economic performance, specifically through certain transmission channels. The article's findings suggest that a competitive RER is an important aspect in a country's growth path, insofar as it favors profits, capital accumulation, net exports, and gains in social capabilities. [ABSTRACT FROM AUTHOR]

This study examines the effects of gasoline prices, fluctuations in the actual exchange rate, and food prices on the export of vegetables and fruits from Turkey. In this study, the Nonlinear Autoregressive Distributed Lag (NARDL) approach was utilized to examine the factors influencing the exports of vegetables and fruits from 2003:1 to 2019:12. The analysis was conducted with the assumption that the relationships between gasoline, actual exchange rates, and food prices are nonlinear. The objective of the study was to ascertain the asymmetric effects of gasoline, real exchange rate, and food prices on the exportation of vegetables and fruits. The findings of the NARDL model suggest that there is a significant relationship between long-term fluctuations in gasoline prices and the export of fruits and vegetables of different magnitudes. On the other hand, it has been observed that vegetable exports experience linear effects over an extended period in relation to the real exchange rate. On the other hand, it has been observed that fruit exports are susceptible to asymmetric effects. The present study suggests that fluctuations in food prices have diverse effects on vegetable exports. [ABSTRACT FROM AUTHOR]

In order to improve current account deficit, exchange rate policy has been frequently used by policymakers. Therefore, the effect of exchange rate on exports has been well-studied in literature. This paper aims to estimate real exchange rate elasticities of export outcomes (unit value, quantity, and value) using six-digit HS product level data for Turkey and selected countries. Our results show that price elasticity of exports is low, but quantity elasticity is high in most selected countries. This indicates that the exchange rate is affected by export amount. On the other hand, these results vary among different sub-sectors and destination country groups. These findings imply that exchange rate policy should be cautiously designed to avoid unexpected consequences. [ABSTRACT FROM AUTHOR]

Oil prices, which are effective on many variables such as production, investment, foreign trade and employment structure of countries, also have effects on foreign direct investments and foreign trade due to their effects on the real exchange rate. The essence of this phenomenon, which can be formed through some parameters such as foreign direct investments, portfolio investments and foreign aid, which causes capital flows as well as oil prices, and which is defined as the Dutch Disease in the literature, is the increase in the amount of foreign currency entering the country as a result of the profit explosion that emerged with the discovery of natural resources. The "Dutch Disease", which was first recognized by the world's countries through The Economist magazine in 1977, is the contraction of production with the flow of production factors towards the new source in a country that suddenly became rich with the discovery of a natural resource. Thus, it is the coexistence of two subsectors that expand and contract at the same time in the economy. In this study, it is aimed to determine whether there is a connection between oil prices and real exchange rates in the Turkic Republics (Azerbaijan, Kazakhstan, Kyrgyzstan, Uzbekistan, Turkmenistan) using panel data for the period 2000-2019. As a result of the analysis, there is no relationship between the increase in oil prices and the real exchange rate in these countries, so the finding of Dutch Disease could not be determined. [ABSTRACT FROM AUTHOR]

Most of the exportation costs are sunk and those sunk-costs generates hysteresis in the export decisions of the firms. Firm-level observed hysteresis in the export behavior may lead to deterioration in the exchange rate export relation at macro-level. In this study, at the first stage using micro data existence of sunk-cost investigated by studying the exportation decision of the Turkish manufacturing firms. Estimation results show that exporting firms are exposed to high sunk costs. In order to examine the possible impacts of the hysteresis caused by sunk costs on the real exchange rate-export relationship at the sector level the Preisach approach is employed. The results indicate that the hysteresis behavior of the firms caused by sunk costs limits the sensitivity of exports to real exchange rate changes in Turkish manufacturing sectors excluding textile, wearing, tobacco, machinery-equipment and communication tools sub-sectors. [ABSTRACT FROM AUTHOR]

Purpose – The study examines the impact of real exchange rates and asymmetric real exchange rates on real stock prices in Malaysia, the Philippines, Singapore, Korea, Japan, the United Kingdom (UK), Germany, Hong Kong and Indonesia. Design/methodology/approach – This study uses the asymmetric autoregressive distributed lag (ARDL) approach and non-linear autoregressive distributed lag (NARDL) approach. Findings – The asymmetric ARDL approach shows more economic variables are found to be statistically significant than the ARDL approach. The asymmetric real exchange rate is mostly found to have a significant impact on the real stock price. Moreover, real output and real interest rates are found to have a significant impact on the real stock price. The Asian financial crisis (1997–1998) and the global financial crisis (2008–2009) are found to have a significant impact on the real stock price in some economies. Research limitations/implications – Economic variables are important in the determination of stock prices. Originality/value – It is important to examine the impact of asymmetric real exchange rate on the real stock price as the depreciation of real exchange rate could have different impacts than the appreciation of real exchange rate on the real stock price. The previous studies in the literature mostly found the significant impact of nominal exchange rate on the nominal stock price. [ABSTRACT FROM AUTHOR]

The exchange rate is one of the most important macroeconomic variables. It directly influences trade and domestic price levels. The real exchange rate (RER) accounts for the price competitiveness of exports; the nominal exchange rate (NER), in its turn, pushes the domestic price level, affecting the achievement of the inflation target under an inflation target regime (ITR). The aim of this work is to present an RER model for external equilibrium and to assess the long-run effects of NER depreciation on inflation. The results are evaluated through simulations for the Brazilian economy. They suggest that the RER was overvalued from 2005 to 2018 and indicate that an overappreciated NER was an important tool to avoid inflation from 2005 to 2014. Therefore, under an ITR, there is no expectation to achieve an RER consistent with the current account equilibrium. [ABSTRACT FROM AUTHOR]

The paper's aim is to empirically analyse the consistency of the balance of payments constrained growth model (BPCGM) in Latin America, Asia and Europe during the period from 1990 to 2019. Following McCombie's algorithm and Panel autoregressive distributed lag model (ARDL). Our main empirical results show that there exist: i) a process of external restriction in Latin America, linked to the nature of specialization patterns and the high content of foreign added value in production lines; ii) for Europe, the evidence indicates that the growth rate is not restricted by the current account, however, the slowdown in productivity and competitiveness could significantly affect this relationship; iii) estimates in Asia indicate that the rate of expansion of the product is not conditioned by the balance of payments. [ABSTRACT FROM AUTHOR]

Purpose: This paper aims to explain real exchange rate fluctuations by means of a model including both standard fundamentals and two alternative measures of inflation expectations for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) over the period January 1993–July 2019. Design/methodology/approach: Both a benchmark linear autoregressive distributed lag (ARDL) model and a nonlinear autoregressive distributed lag (NARDL) specification are considered. Findings: The results suggest that the nonlinear framework is more appropriate to capture the behaviour of real exchange rates given the presence of asymmetries both in the long and short run. In particular, the speed of adjustment towards the purchasing power parity (PPP) implied long-run equilibrium is three times faster in a nonlinear framework, which provides much stronger evidence in support of PPP. Moreover, inflation expectations play an important role, with survey-based ones having a more sizable effect than market-based ones. Originality/value: The focus on linearities and the estimation of a NARDL model, which is shown to outperform the linear ARDL model both within sample and out of sample, is an important contribution to the existing literature which has rarely applied this type of framework; the choice of an appropriate econometric method also makes the policy implications of the analysis more reliable; in particular, monetary authorities should aim to achieve a high degree of credibility to manage them and thus currency fluctuations effectively; the inflation targeting framework might be especially appropriate for this purpose. [ABSTRACT FROM AUTHOR]

Capital inflows play a crucial role in financing savings-investment gaps, which could result in higher economic growth and better living standards, but capital inflows are associated with the risk of real exchange rate (RER) appreciation. The empirical evidence on the nexus between capital flows and RER is limited and inconclusive. This study empirically investigates the impacts of capital inflows on the RER for a sample of 114 emerging market and developing economies (EMDEs) from 1991-2015. This study's large sample, making it one of the most comprehensive studies, renders us to undertake a more granular analysis on the capital inflows-RER nexus, which has not been conducted in the literature. The study employs the two-step system generalized method of moment technique to estimate dynamic panel data models. The results show that capital inflows exert the RER appreciation impacts in EMDEs. However, the composition of capital inflows matters. When gross capital inflows are analyzed at disaggregated levels, only foreign direct investment (FDI) generates RER appreciation effects while the other forms of capital inflows, including portfolio equity, portfolio debt, and other investment, do not. Further, the absorptive capacity of the capital-recipient economy plays a role in mediating the capital inflows-RER relationship. There is a positive feedback loop between capital inflows and exchange rate flexibility although the evidence is weak. In a more flexible exchange rate regime, capital inflows cause RER to appreciate further. In contrast, the empirical results show substantial evidence that financial development helps dampen the RER appreciation impacts of capital inflows. When a capital-recipient economy possesses a certain threshold of financial sector development, the appreciation impacts of capital inflows are neutralized. The findings have important policy implications. First, although it is generally considered that FDI positively contributes to economic growth in the capital-recipient economy, the FDI movements should be actively monitored and analyzed because the FDI inflows can cause the RER appreciation that could, in turn, reduce export competitiveness. Second, financial sector development should be a policy priority for EMDEs because it plays a crucial role in weakening the RER appreciation effects caused by capital inflows. [ABSTRACT FROM AUTHOR]

Overdependence on oil export has made the Russian economy more vulnerable to fluctuations of oil price in the world market. Moreover, existing empirical evidence on the relationship between real exchange rate and real oil price in the country has yet to account for any possible asymmetric adjustment of the real exchange rate that result from changes in the real oil price. In view of this, the current study examines the relationship between the real exchange rate and the real oil price using monthly dataset from Russia for the period of January 1995 to April 2013 and symmetric cointegration tests proposed by Engle and Granger and Johansen. In addition, the study used Threshold Autoregressive (TAR) and Momentum Threshold Autoregressive (MTAR) estimation techniques to test for asymmetric cointegration. The study further conducted an asymmetric error correction modelling using the threshold value from MTAR-consistent to estimate the dynamics of the real exchange rate caused by changes in real oil price. Overall, the results of the study reveal the presence of a long-run relationship between the real exchange rate and the real oil price using all the estimation techniques. Specifically, the result of MTAR-Consistent produces evidence of a cointegrating relationship between the real exchange rate and the real oil price with asymmetric adjustment of the former to the long-run equilibrium values. The speed of adjustment of the real exchange rate is more rapid when the deviation from the equilibrium values is negative than when the deviation is positive. According to the estimations, 22 percent of the negative departures from the equilibrium values are corrected during the subsequent month. But only 4.8 percent of the positive deviations from the equilibrium values are corrected in the following month. From the policy viewpoint, the results suggest that real exchange rate depreciations brought about by falling oil price are defended and rapidly reversed by the Russian monetary authorities than real exchange rate appreciation caused by rising oil price. In other words, Russia intervened more during oil price slumps to defend her currency from depreciations, but intervened less during oil price booms to revert or postpone any appreciation of her currency. [ABSTRACT FROM AUTHOR]

Oil-importing developing countries such as Turkey may be adversely affected by the increase in oil prices, which can raise production costs and the overall level of consumer prices. Increases in oil prices in international markets may also adversely affect the foreign trade balance of oil-importing countries. In this study, annual data for the period 1960-2019 in Turkey are used to investigate asymmetric causality relationships between oil prices and real exchange rate variables. Causality relationships between oil prices and real exchange-rate series, and between positive and negative shocks of these series, are examined using the Fourier Toda--Yamamoto method. The results show no symmetric causality relationship between oil prices and real exchange rate variables. However, a one-way causality relationship is revealed from positive oil price shocks to positive real exchange rate shocks, indicating that an increase in oil prices causes an increase in the real exchange rate in Turkey. According to these results, asymmetric effects should be considered when examining the relationship between oil prices and exchange rates in Turkey. [ABSTRACT FROM AUTHOR]

This paper examines the absorption of foreign aid in the presence of formal and informal production. Calibrating a two‐sector open economy model to 67 aid‐recipient countries for 1990–2019, we show that an increase in foreign aid drives resources into the informal sector, and away from the formal sector. With untied aid, the expansion of the informal sector can lead to an economic contraction through the Dutch Disease effect. An economic expansion with an increase in the share of formal production can be attained by re‐allocating existing aid to public investment rather than an increase in the aggregate level of aid. [ABSTRACT FROM AUTHOR]

The objective of this work is to analyze the relationship between the real exchange rate and the productivity of the industry in the short and long terms. In order to test the new-developmental hypothesis that a higher level of the real exchange rate is related to a greater dynamism in the productivity of the industry, a mathematical model of this theoretical relationship is developed and an econometrically estimated Non-Linear Autoregressive Distributed Lag Model (NARDL). The results found are unprecedented, since they demonstrate the existence of a positive relationship between a real devaluation of the effective exchange rate and the growth in labor productivity of Brazilian industry in the long run. In addition, the work was able to demonstrate an existing asymmetry of the effect of (de) valuation on productivity, that is, the estimates showed that devaluation positively affects the productivity of Brazilian industry when compared to the negative effects of an appreciation on productivity. [ABSTRACT FROM AUTHOR]

The Balassa-Samuelson effect provides a theoretical explanation for the deviation of the real exchange rate (RER) from its purchasing power parity based on the heterogeneous productivity growth in the tradable and non-tradable sectors. This paper bridges the literature on foreign direct investment (FDI) spillovers with the Balassa-Samuelson effect by theoretically and empirically showing that (1) the productivity impact of inward FDI is notably larger in the tradable sector than in the non-tradable sector, generating an appreciation effect on the RER; (2) the magnitude of heterogeneous productivity impacts of inward FDI in the tradable and non-tradable sectors is commensurate with the technological backwardness in the two sectors relative to the world leaders. [ABSTRACT FROM AUTHOR]

J-curve which explains the possible effects of exchange rates on foreign trade states that the depreciation of national currency worsens the trade balance in the short-term and has an improvement effect in the long-term. The success of devaluation in affecting the trade balance positively depends on the fulfillment of Marshall-Lerner condition. Accordingly, when the sum of foreign demand elasticity of exported goods and domestic demand elasticity of imported goods is equal to or greater than one, the rise in the RER increases the country's foreign exchange earnings and improves the trade balance. In our study, it is investigated whether the J-curve hypothesis is valid or not in Turkey. For this purpose, the Toda-Yamamoto Causality Test and Hatemi-J (2012) Asymmetric Causality Test are applied using the 1996-2019 monthly data. The Toda-Yamamoto Causality Test results indicate that there is a unidirectional causality relationship from the real exchange rate to import. On the other hand, the results of the Hatemi-J (2012) Asymmetric Causality Test show that shocks in the real exchange rate do not affect export but decrease import. Thus, the J-curve hypothesis has been determined to be invalid for Turkey. [ABSTRACT FROM AUTHOR]

This paper investigates the importance of real exchange rates on export volumes by estimating a panel SVAR model using quarterly unbalanced panel data from 21 emerging markets over the 2005:Q1-2018:Q4 period. Although the results suggest no conclusive evidence that real exchange rate shocks do affect the export volumes in our sample of emerging markets, the responses of export volume to real exchange rate shocks are heterogeneous across countries in which commodity exporter countries, on average, have a lower response of exports to the real exchange rate movements. Furthermore, we find that while the magnitude of response of the export volumes to exchange rate shocks is positively related to exchange rate volatility, the higher export market penetration ratio helps insulate the economy from real exchange rate shocks. Overall, our results carry broad policy implications indicating that policymakers need to pay attention to the exchange rate volatility of their countries and expand their export competition in the world trade. [ABSTRACT FROM AUTHOR]

This study analyzes the dynamic relations between economic activity, tourism expenditures, and real exchange rate in 9 most visited OECD countries using annual panel data for 2005-2019. To examine the dynamic relations, we first carried out the panel unit root tests to determine the degree of the integration of the variables. And then, using the Westerlund error-correction-based panel cointegration test, we found evidence of the existence of long-run relationships among variables. Therefore, we estimated a panel VECM model to obtain evidence of the causal relationship between the variables. According to the major finding of the studies, there is unidirectional causality from the real effective exchange rate and tourism expenditures to real GDP. Also, real exchange rate granger causes tourism expenditures in the short run. Test results also provide evidence that both real effective exchange rate and tourism expenditures granger cause to real GDP in the long run. However, there is no evidence of long-run granger causality when real effective exchange rate and tourism expenditures are dependent variables. The results of the study imply that to create sustainable growth in the sample countries, they should increase the tourism sector's contribution to GDP, and the countries also should maintain their external competitiveness. [ABSTRACT FROM AUTHOR]

The steel industry, one of Turkey's leading exporting sectors provide also main inputs for various sectors such as automotive and construction. While Turkey's total steel exports to the United States was 15 percent in 2017, this rate has decreased up to 3 percent after the protectionist measures applied by the U.S. administration against Turkey. Investigation of factors impacting Turkey's steel exports to the U.S. apart from the additional taxes that the U.S. applied to Turkey, constitutes the starting point of this study. In this context, the study aims to, using the monthly data set between 2014:01-2019:12, investigate the relationship between Turkey's steel exports to the U.S. and the real exchange rate and the U.S. industrial production index variables. For this aim, Granger causality test was used to determine the causality relationship in the analysis. According to the results obtained; we found a two-way causality between Turkey's steel exports to the U.S. and the U.S. industrial production index. Furthermore, we concluded that there is one-way causality from the real exchange rate to the U.S. industrial production index and Turkey's steel exports to the U.S. The study may have important implications for new policies that can be developed against protectionist measures, especially in the context of developing countries. [ABSTRACT FROM AUTHOR]

According to the Balassa-Samuelson hypothesis which explains real exchange rate movements by productivity differences between tradable and non-tradable sectors, an increase in the relative productivity of the tradable sector leads to a real appreciation of the domestic currency. In this study, we analyze the existence of the Balassa-Samuelson effect employing recent panel data techniques for a panel data set covering 25 OECD countries and the period 1990-2016. For this purpose, the effect of sectoral relative productivity on the real exchange rate is examined employing panel data estimators considering country heterogeneity, dynamic behavior, and cross-section dependency. Results of Pooled Mean Group estimations support the Balassa-Samuelson hypothesis for OECD countries. However, the effect of relative productivity on real exchange rate becomes statistically insignificant when we control the cross-section dependency that arises due to common global shocks by employing a Cross-sectionally Augmented Panel ARDL estimator (Chudik and Pesaran, 2015). Consequently, the Balassa-Samuelson hypothesis cannot be robustly supported for OECD countries. [ABSTRACT FROM AUTHOR]

In this article, we examine whether tourism is a useful predictor of economic growth in tourism island states. Since tourism has been argued to stimulate and contribute to economic growth, it is on this premise that this study investigates the predictive power of tourism on economic growth and vice versa by incorporating real exchange rate as an additional variable over the period 1995–2016 for 16 selected tourism island states. We make use of panel bootstrapping cointegration testing approach that accounts for cross-sectional dependence to examine whether there is a long-run relationship between the variables. For causality, we make use of Granger non-causality in heterogeneous panel. Our results suggest tourism-induced growth, exchange rate-induced growth, and exchange rate-induced tourism hypotheses for tourism island states. [ABSTRACT FROM AUTHOR]

The transmission mechanisms of monetary policy through the exchange-rate channel become operative when any change in the policy interest rate under inflation targeting leads to a change in the real interest rate. This change in the real interest rate, in turn, changes the real exchange rate, which affects the trade and capital flows and hence real output. Although such a linkage between the interest rate and trade-capital flows is well-developed in advanced economies, it remains debatable whether the suggested monetary policy transmissions mechanism involving the interest and exchange rates operates in emerging market economies, such as Thailand. This paper uses quarterly data for Thailand over the period 2000Q2-2017Q4 to investigate the extent to which the interest rate is effective in affecting the real exchange rate and trade flows under the present inflation targeting strategy of monetary policy in this country. The paper specifies and estimates a structural vector autoregression (SVAR) model with six endogenous variables, namely real output, prices, interest rate, real exchange rate, real exports and real imports, in the presence of two external variables, namely the world oil price and the US federal funds rate. The empirical results suggest that the change in the policy interest rate that the central bank of Thailand (Bank of Thailand) deploys as the instrument of monetary policy for price stability under flexible inflation targeting does not make significant contributions to the forecast error-variances of other endogenous variables in the system. These findings raise doubt about the effectiveness of the interest rate in influencing the real exchange rate and through it, trade flows, real output and the prices. However, as suggested in the extant literature on open-economy macroeconomics, both real output growth and inflation maintain feedback relations with changes in the real exchange rate, real exports and real imports. [ABSTRACT FROM AUTHOR]

According to the Balassa-Samuelson hypothesis which explains the deviations of the real exchange rate from purchasing power parity with the changes in countries' relative productivity, the real exchange rate appreciates when there is a rise in countries' relative productivity. A wide range of studies examining the validity of the Balassa-Samuelson hypothesis have revealed different findings for different set of countries. In this study, it is examined whether there exists a positive relationship between the real exchange rate and growth for large panel data set comprising 82 countries and 1980-2017 period. Besides, it offers a comparative analysis by estimating real exchange rate models for group of countries with different levels of income. Panel Dynamic OLS estimation results for the whole country support the Balassa-Samuelson hypothesis showing that domestic currency appreciates as productivity rises. The analysis for sub-income groups indicates that, the hypothesis is strongly valid for high-income and medium-income groups, while it is not supported for lowincome group. Positive effect of relative roductivity on the real exchange rate is higher for high-income countries than middle-income countries. [ABSTRACT FROM AUTHOR]

Tourism is one of the most critical sectors in the economy today regarding its positive impact on growth, foreign exchange inflows, the balance of payments, investment opportunities and new employment areas. Researching the interaction of tourism revenues with real economic growth and the real exchange rate is the primary motivation of this study. With this motivation, the relationship between tourism revenues, economic growth and exchange rate has been investigated using quarterly data for the period 2003Q1-2020Q1 for Turkey. This research has been conducted through Zivot and Andrews structural break unit root test, Johansen cointegration analysis, coefficient estimates with FMOLS and DOLS methods, and causality analysis with the Toda-Yamamoto test. As the result of the research, it was observed that there is a long-term relationship between the variables, the probability values of tourism revenues and the real exchange rate, the independent variables that explain the dependent variable real national income were significant and the coefficient signs were positive. The power of the real exchange rate to affect real national income is relatively higher than tourism revenues. The significant structural break dates for 2016Q2 and 2017Q1 can be explained by the global repercussions of the terrorist incidents in this period, the tension with Russia and the coup attempt. According to the Toda-Yamamoto causality analysis, there is a positive and one-way Granger causality from real national income and real exchange rate to tourism revenues. [ABSTRACT FROM AUTHOR]

Purpose: The purpose of this article is to investigate the asymmetric impact of exchange rate pass-through (ERPT) on employees' wages via consumer prices in 15 major oil-exporting countries from sub-Saharan Africa over the period 1996-2017 using the panel threshold regression model. Design/methodology/approach: The methodology used in this article was built on non-linear panel threshold regression models developed by Hansen (1996, 1999) threshold regression. The authors first tested for the existence of threshold-effect in ERPT and wage nexus using 1,000 bootstrap replications and 400 grid searches to obtain an optimal threshold. We also estimated that asymmetric ERPT on employees' wages reacts differently when the inflation-threshold exceeds beyond a 15.12% threshold level. Findings: Our findings showed that asymmetric ERPT is incomplete and indicates that an increase by one standard deviation in real exchange rate causes a decline in employees' wages by 2.69%. Research limitations/implications: The policy implications of our results are drawn from the significant threshold estimates. However, a significant threshold value of 15.12 is an inflation-threshold estimates that split our 330 observations into the lower (upper) regimes. Further, an inflation rate beyond the threshold value is likely to have an asymmetric ERPT on employees' wages in the 15 major oil-exporting sub-Saharan African (SSA) countries. Practical implications: The practical implication of the study is when ERPT exceeds the threshold, the effect of real exchange rate variations is passed on to employees' wages. It is widely believed that labor productivity increase with increased minimum wages. Nevertheless, there is contention as regards the effects on employment and poverty. As rising goods prices make the minimum wage increased homogeneous of degree zero. Social implications: Considerable increased ERPT on imported goods reduces employees' wages purchasing ability from import-dependent countries through import prices. Once it has documented, this also reduces welfare via deteriorations of marginal propensity to consume (MPC) and marginal propensity to savings (MPS). Originality/value: This article integrates labor purchasing power into the analysis of ERPT using non-linear dynamic panel heterogeneous threshold regression. It extends the Hansen (1996, 1999) dynamic panel threshold models to exchange rate pass-through in SSA economies. [ABSTRACT FROM AUTHOR]

Purpose: The primary purpose of this study is to examine whether the classification of industries into the tradable and nontradable matters for the Balassa–Samuelson (BS) effect. Design/methodology/approach: The study uses annual data for 38 countries from 1995 to 2014. To examine whether the classification of industries matter, the study proceeds with two approaches, that is, "traditional" and "benchmark". Findings: First, by applying panel cointegration tests of Pedroni and Westerlund, the results validate the BS hypothesis. However, the coefficients of long-run elasticities show appreciation of real exchange rate (RER) due to increase in productivity in the case of "traditional approach", whereas depreciation of RER in the case of "benchmark approach". Second, by applying the Dumitrescu-Hurlin panel Granger causality test, the results reveal the bi-directional causality among RER and productivity for both the approaches. Further, to provide more insights, the study employs a fixed-effects panel threshold model. The results indicate that increase in productivity leads to both appreciation and depreciation of RER depending on threshold regimes. Practical implications: The study ascertains that the evidence of BS effect depends on the choice of approach considered. However, irrespective of the classification, there exists a BS effect beyond a threshold. Originality/value: Although the BS effect is well established in the literature; there is no study examining the importance of classification of industries at a disaggregated level. Furthermore, there is no consideration of threshold effects. [ABSTRACT FROM AUTHOR]

It is expected that this number of increase or decrease will affect the country's economy, as foreign currency inflows are provided thanks to the tourists coming to the country thanks to the tourism sector. At this point, it is a problem to associate the increase or decrease of the number of tourists with the volatility in the exchange rate. So this research, has been prepared to examine the causal relationship between USD exchange rate and the tourism sector in Turkey in the year 2012-2018. In accordance with this purpose; data on exchange rates and tourism revenues, number of tourists, and average spending of tourists were used. First of all, the data used in the study were passed through stages such as seasonality and normal distribution tests, and the series were made stationary and Granger Causality analysis was applied. According to the results of the research, among the average expenditures of the tourists coming with the real exchange rate; it was concluded that there is a correct one-way causality relationship. However, no causality relationship has emerged between the real dollar exchange rate and tourism revenues and the number of visitors. [ABSTRACT FROM AUTHOR]

The aim of this study was to examine the impact of Turkey's technology intensive goods exports on foreign income and foreign exchange. For this purpose, the exports of 26 sectors according to technology intensity, quarterly data covering the 2003: I - 2017: IV periods for real exchange rate and the EU's Gross Domestic Product (GDP) variables were used. In the study, structural fracture unit root tests and structural fracture cointegration test were performed, which are a preliminary tests of the time series. The effect of real exchange rate and foreign income on the exports of 26 sectors classified by technology intensity was estimated by the Fully Modified Least Squares Method (FMOLS). According to the results obtained from the econometric analysis, it was determined that the real exchange rate and foreign demand elasticity of the exports of high and medium-high technology products sectors were higher than the other sectors. [ABSTRACT FROM AUTHOR]

One of the most important factors affecting international trade is exchange rate fluctuations. To date, studies that have analyzed the effect of exchange rates have shown that the effect can vary from sector to sector and from country to country. The fact that this relationship has not been extensively studied in the fisheries industry is the motivation for this study. In this regard, the aim of this study is to determine whether changes in the real exchange rates of countries affect their fisheries production levels. Accordingly, we used the causality test developed by Emirmahmutoglu and Kose (2011), which takes into account both cross-sectional dependencies and heterogeneity. The data set used in this study consisted of 27 annual observations from 38 countries from 1990-2016. The results revealed that changes in the real exchange rate affected fisheries production. This situation shows that changes in exchange rates may affect the international demand for fisheries and serve as a source of motivation for producers. [ABSTRACT FROM AUTHOR]

While many studies have documented the positive effect the real exchange rate (RER) can have on the rate of economic growth in developing countries, the channels of this effect are not yet well understood. The paper contributes to this literature by studying the pass-through of the RER into aggregate relative profit margins in the manufacturing and whole tradables sectors with respect to non-tradables in Mexico during the period 1990–2017. Based on estimates from non-linear error-correction ARDL models, the paper shows the RER affects relative profit margins asymmetrically – with larger reductions after appreciations than increases after depreciations – and that this asymmetry comes from the asymmetric adjustment of both relative costs and to lower extent relative prices. The results support the hypothesis of an RER's tradables-led economic growth channel and help explain why the RER may affect capital accumulation asymmetrically, with stronger negative effects from appreciations than the positive effects of depreciations, as reported in recent research on Mexico. [ABSTRACT FROM AUTHOR]

Previous work has established that an appreciation of the real effective exchange rate (REER) contributes to premature deindustrialization, less productive investment and dependence on commodity booms and busts in emerging markets economies (EME). From the literature, it is less clear, however, what the most important drivers for the cyclical REER movements in EME are. The aim of this study is to provide empirical evidence about the determinants of the REER movements of 15 emerging markets during the last two decades, using statistical analysis and a dynamic panel fixed effects model approach. Our analysis shows that although "commodity" and "industrial" EME are heterogeneous, REER volatility tends to be higher among the former. EME that had more stable REER fared better than those that had a depreciating or appreciating trend (with the notable exception of China). As theoretically expected, commodity prices are an important structural driver of REER movements in "commodity EME". Moreover, the results confirm the existence of the Harrod-Balassa-Samuelson effect, and show the importance of financial inflows. Further, the interventions of central banks were partially successful to avoid more substantial appreciations (depreciations). Finally, we find that lower country risk and, at least in some periods, growing broad money in OECD countries has led to REER appreciations in our sample countries. [ABSTRACT FROM AUTHOR]

The fall of the Icelandic economy in 2008 highlighted the destructive effects of unbridled markets. Yet, in recent years Iceland's annual growth rates have been significantly higher than those of the overwhelming majority of advanced capitalist countries. The aim of this article is to delve into the fragile foundations that the current Icelandic economic boom rests on. We argue that the impressive appreciation of the Icelandic króna, triggered by the rapid expansion of tourism, has made the rapid absorption of unemployment compatible with price stability during the recovery period. By restricting sources of international competitiveness, however, this tourism-led recovery strategy will render the current level of unemployment and real wages inconsistent with internal and external equilibrium in the long run. JEL classification : E24, F31, J24, O33, B51 [ABSTRACT FROM AUTHOR]

Purpose -- The purpose of this paper is to investigate the optimal inflation targets for an appropriate exchange rate policy in 15 major oil exporting countries in Sub-Saharan African (SSA). Design/methodology/approach -- Dynamic heterogeneous panel threshold techniques are used via threshold-effect test and threshold regression. This procedure is achieved through a grid search and bootstrapping replications method to stimulate the asymptotic distribution of the likelihood ratio test of the null hypothesis on no-threshold as against the alternative hypothesis. The p-values validate the threshold estimates. Findings -- Findings revealed that the optimal inflation target has a turning point and its impact on the real exchange rate is up to a threshold level of 14.47 per cent. Furthermore, the inflation rate above the threshold level overwhelmingly revealed its effect on real exchange regimes. Research limitations/implications -- It would have been a good idea to investigate optimal inflation targets for all African countries but due to inadequate data the selection criteria was narrowed to oil-exporting countries in Sub-Saharan Africa. Practical implications -- Inflation targeting beyond the threshold level would have serious implications on the monetary policy. Originality/value -- To the best of the knowledge, this is the first study to look at optimal inflation targets for 15 major oil exporting countries in general and SSA countries in particular. The findings provide a critical analysis of an inflation regime for a typical oil-producing country that oil exports being their source of revenue. [ABSTRACT FROM AUTHOR]

Economists and policymakers often associate external competitiveness with the real exchange rate. This paper seeks to study Bangladesh's external competitiveness by critically examining the determinants of the country's real equilibrium exchange rate. While a number of studies have been done on Bangladesh in this area, no consensus has emerged on the determinants of real exchange rate. Few studies explicitly incorporate net foreign assets when modeling exchange rate change of Bangladesh. This paper plans to bridge this gap by developing a simple model in line with Musa (1984), Faruqee (1995), and Égert (2004). In this model, the current account in the long-run is driven by adjustment in the net foreign assets (NFA) towards a targeted level. Given a country's long-run target for the stock of net foreign assets, the real equilibrium exchange rate then corresponds to a current account balance that is consistent with the income flows from this stock. The model is then tested by applying the autoregressive distributed lag (ARDL) bound testing approach by Pesaran et al. (2001) to the cointegration for the long-run and using the error correction model to examine the short-run dynamic relationship among real exchange rate, dual productivity differentials, net foreign assets, and real absorption. The empirical analysis is based on the annual data series from 1980 to 2014, collected electronically from the online databases of the IMF, the Penn World Table, and the World Bank. The empirical result show that, once shocked, real exchange rate convergence to equilibrium is quick with 64% of the adjustment occurring in the first year. The study finds that increased capital flow, greater real absorption, and faster productivity growth in the tradable sector relative to that of the non-tradable sector lead to real exchange rate appreciation. The estimated parameters are also stable. The paper then discusses policy implications and sheds some lights on the research limitations and future research considerations. For example, the paper recommends that Bangladesh should try to keep its currency relatively weak to protect domestic producers from foreign competition and strengthen their competitiveness to produce for and sell, particularly readymade garments, to world markets. [ABSTRACT FROM AUTHOR]

Objective: The objective was to analyze the behavior of the fruit and vegetable export from Mexico to the United States of America, and the elaboration of the horticultural export function of the Mexican Republic; the period analyzed was from 1993-2013. Methodology: The existing fruit and vegetable commercial situation between Mexico and the United States of America was characterized and the model used was the maximum likelihood method. Results: The results showed a horticultural trade surplus of Mexico over the period analyzed; in the model, it was found that the real price elasticity per ton of exports was 2.41 %, the income elasticity was 1.41 % and the real exchange rate of 1.02 %. The variable that had the greatest impact on horticultural exports was the price; an increase in the international price causes the growth of fruit and vegetable exports. Limitations: Variables such as distance and environmental factors were missing to explain the export of fruit and vegetables. conclusions: it is expected that the surplus horticultural trade balance of Mexico will continue in medium term. The most effective trade policy instrument that the Mexican government can use to influence increasing exports in the short term is the real exchange rate. Mexico could diversify export markets if it takes advantage of the different commercial agreements that currently owns. [ABSTRACT FROM AUTHOR]

The aim of this study is to test the validity of the purchasing power parity hypothesis with the help of panel unit root tests taking into account the cross-sectional dependence as well as structural breaks for ASEAN (Indonesia, Malaysia, Thailand, Philippines, Singapore, Brunei, Vietnam, Laos, Cambodia). For this purpose, monthly data for the period 1995: 01-2017: 05 was used. According to the results of the Panel LM test which takes into account the structural breaks, it was found that the hypothesis of purchasing power parity is valid for ASEAN countries. [ABSTRACT FROM AUTHOR]

This paper studies the relation between government spending composition and long-run behavior of Colombian real Exchange rate given the recomposition since 2004 from public consumption to public investment. Our results suggest that empirical models work better when the relative price of non-tradables is used as a measure of the real Exchange rate instead of an index based on the purchasing power parity. Besides, there is evidence that real exchange rate behavior is mainly explained by supply side factors and that without the recomposition, expected real Exchange rate would have been close to the observed one. [ABSTRACT FROM AUTHOR]

• Effects of trade and financial liberalisation on a developing country economic growth. • Brazilian economic growth dependent on the international scenario. • Effects of the real exchange rate on the Brazilian economic growth. Brazil liberalised its trade and finance in the 1990s as a strategy for higher economic growth. However, the country's GDP growth has been unstable and low compared to its own performance during the industrialization period. This paper builds a model of economic growth that accounts for the main components of effective demand as well as important specificities of emerging economies to explain the economic dynamics after the liberalising reforms. The model is estimated for the case of Brazil from 1990 to 2014 and the results suggest that this economy became highly dependent on the world economic growth and the evolution of the real exchange rate. The main finding is that Brazil experiences higher economic growth only in favourable world scenarios but the evolution of the real exchange rate in this scenario may stimulate investments that only reinforce the existing productive structure, affecting negatively the long-run economic growth. [ABSTRACT FROM AUTHOR]

Highlights • Recent studies have shown that targeting an undervalued real exchange rate stimulates economic growth by expanding tradable sector output. • We examine whether such growth reduces gender gaps in labor force participation by improving labor market opportunities for women. • We find that currency undervaluation improves female labor force participation and reduces gender gaps in labor force participation. • This finding is stronger for developing countries and is robust to various specification checks and estimation techniques. • Findings suggest that the operative channel is an expansion of female employment in manufacturing and industrial sectors. Abstract While a large literature examines the role of fiscal policy in reducing gender gaps in labor market outcomes, scant evidence exists for the role of monetary and exchange rate policies in doing so. Recent studies have shown that targeting an undervalued real exchange rate stimulates economic growth by expanding tradable sector output. We examine whether such growth reduces gender gaps in labor force participation by improving labor market opportunities for women. Using a comprehensive cross-country dataset from 1960 to 2015 for a maximum of 103 countries, we test whether there is a robust relationship between currency undervaluation and female labor force participation. We find that countries that maintain an undervalued real exchange rate realize an increase in female labor force participation, and a corresponding decline in the difference between male and female labor force participation rates. This finding is particularly pertinent for developing countries and is robust to various specification checks as well as different estimation techniques. We also provide suggestive evidence that the operative channel is an expansion of female employment in manufacturing and industrial sectors. Our findings have important policy implications, particularly for countries in earlier stages of their development. Our results indicate that the positive effect of undervaluation on female labor force participation is stronger in developing countries, implying that there may be opportunities for interventions to target a more undervalued real exchange rate in these countries. Hence, competitive exchange rate policies matter not only for raising long-term growth potential, but also for reducing longstanding gender disparities in labor force participation. [ABSTRACT FROM AUTHOR]