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The study of the dynamics of foreign exchange rates is of paramount importance to economic policy makers for developing countries like India that depend on foreign exchange to meet a large part of their import obligations. This paper uses the concepts of entropy to study the regularity/irregularity of the returns from the Indian Foreign exchange (forex) markets particularly during periods of economic instability. We use the Approximate Entropy and Sample Entropy statistics which measure the level of repeatability in the data are used to quantify the randomness in the forex returns for four major currencies namely the US Dollar, the British pound, the EURO and the Japanese Yen with respect to the Indian Rupee from the time period 2006 to 2021. These statistics are chosen as they are both statistical measures for assessing the randomness or regularity of time series data and enable researchers to objectively evaluate the degree of randomness present in the returns series and understand the crucial underlying patters or behaviors. In this research we look at two periods of major financial upheavals, the subprime crisis also known as the Global Financial Crisis (GFC) during 2006-2007 and the recent Covid-19 pandemic during 2020-2021. Our empirical results overwhelmingly confirm our working hypothesis that regularity in the returns of the major Indian foreign exchange rates increases during times of financial crisis. This is evidenced by a decrease in the values of the sample entropy and approximate entropy before and after/during the financial crisis period for the majority of the exchange rates. Our empirical results also show that Sample Entropy is a better measure of regularity than Approximate Entropy for the Indian forex rates which is in agreement with the theoretical predictions. Understanding the returns from foreign exchange rates during financial crises has important policy implications for various stakeholders, including market participants, policymakers, and regulators. It enables them to formulate better risk management and hedging strategies. It also helps policy makers in crisis management and contingency planning and safeguard the stability of the financial system. Exchange rate movements are interconnected across global markets, and crises often have cross-border implications. Collaborating on crisis management strategies across countries can help foster stability in international markets. [ABSTRACT FROM AUTHOR]

The debate on the exchange rate -oil price nexus usually rests on the fact that oil price is quoted in US dollar (USD) and therefore, fluctuations in oil price may affect the exchange rate behavior of trading nations through the USD. However, it might be inaccurate to generalize the dynamic of the nexus for both net oil-exporting and net oil-importing economies particularly when exchange rates in these economies are running under floating regime. As a result, we revisit the dynamics of returns and volatility spillovers between exchange rates and oil prices in the turbulent period of COVID-19 from the perspective of the oil-exporting/oil-importing dichotomy, using the cases of Nigeria and South Africa. According to the results of the various pre-estimation tests, we find the VARMA-DCCGARCH model to be the best fit for modelling the interdependence of exchange rates and oil prices in the investigated economies. Empirically, "we show that regardless of the oil-exporting or oilimporting peculiarity of an economy, unanticipated events in exchange rates and oil prices in the current period have the potential to fuel volatility in their returns in the preceding period. Also, not only is the magnitude and direction of the spillovers different under the different waves of COVID-19 but also sensitive to whether an economy is oil-exporting or oil-importing. Thus, while South Africa and Nigeria are among the top 5 African countries with the highest incidences of COVID-19, the permanency or transitory dynamics of the shocks to exchange rates and oil prices during the COVID-19 pandemic appears to be sensitive to whether an economy is oil-exporting or oilimporting. It is in view of this, among other things, that we herein infer that while the immediate policy response to an exogenous shock such as COVID-19 may be global and general for all countries, as is the case with the lockdown initiative, the long-run efforts at recovering from the shock may require that the peculiarities of the individual economies be taken into consideration, as is obvious from the findings of this study. [ABSTRACT FROM AUTHOR]

This study was carried out to evaluate the recent trends and implications of foreign direct investment (FDI) in Bangladesh. Due to its cost-effective workforce, potential market, rapidly growing economy, advantageous geographical location, and other pertinent factors Bangladesh has become one of the most enticing developing countries for foreign direct investment (FDI). Both quantitative and qualitative analyses were used. The trends and implication of FDI was assessed through different variables such as Net FDI inflow in Bangladesh, FDI inflows as percentage of GDP of Bangladesh, sectoral FDI inflow in Bangladesh, net FDI inflows from top 10 countries and by sectors, net FDI flow by EPZ and non-EPZ areas, no. of employment by FDI, FDI inflow by components, GDP, export, import, balance of payment, foreign exchange rate, inflation and corporate tax rate, which were then analyzed using different statistical measures, such as growth percentage, trend equations, the square of the correlation coefficient and correlation matrix. Thirteen trend equations and R-squared were tested for different relevant variables of FDI. To estimate the implication of FDI in Bangladesh, seven hypotheses has also been tested. Among them, the trend values were positive for eleven variables. The square of correlation coefficient (R-squared) of most of the equations is more than 0.7, indicating well fitted trend equations. According to the results of this analysis, FDI has positive correlation between GDP growth, exports, imports, employment in EPZs, and exchange rates. However, there is a significant negative correlation between corporate tax rate and inflation rate. By introducing beneficial FDI policies, providing substantial investment incentives, streamlining pertinent regulations, minimizing bureaucratic procedures, and through better infrastructure Bangladesh must act swiftly to entice more foreign investors. Despite adopting lenient FDI regulations, the government musthave to ensure facilities like more export processing zones, easy access to IT facilities, maintaining stable foreign exchange rates, encourage FDI from leading nations, an attracting new foreign investment source. By implementing these policies into practice, Bangladesh can boost up economic growth and may attract more FDI. This study proves that there is room for FDI to increase in the future and supporting economic growth of Bangladesh. [ABSTRACT FROM AUTHOR]

The Southern African Customs Union is the oldest customs union in the world and the member states form a currency union with the South African Rand being the regional currency anchor. Therefore, currency movements amongst SACU member are dependent on the developments on the Rand which, in turn, can affect stock market development in the region. We examine the time-frequency relationship between exchange rates and stock market returns in SACU countries using continuous wavelet transforms. Our empirical analysis is two-staged. Firstly, we employ wavelet power spectrum to examine the time-frequency properties of the individual series. Secondly, we use wavelet coherence analysis and phase dynamics to examine the synchronization between the variables in a time-frequency space. Our findings show stronger (weaker) exchange rate-stock returns relations are found during periods of higher (lower) inflation whereas we observe a stronger (weaker) relationship during periods of lower interest rate environment. Moreover, we find more significant long-run relationships for countries with more independent monetary policy (South Africa and Botswana) whereas these relations are more prominent over the short-run for countries with pegged exchange rates (Eswatini and Namibia). We also observe that periods of oil and currency shocks impact the exchange rate-stock returns relationship in SACU countries with pegged exchange rates (Eswatini and Namibia). Our findings bear important implications for different stakeholders. For instance, this study has implications for exchange rate policy as it addresses the issue of whether the exchange rate can be used to improve market performance or exchange rate developments spillover into the stock market. Furthermore, corporate managers and stock market participants would be interested in our findings as it identifies periods of market inefficiency when exchange rates can be used to beat the stock market. [ABSTRACT FROM AUTHOR]

From 1996 to 2016, Brazil faced great fluctuations in both its exchange and interest rates and simultaneously a huge growth of its agriculture has taken place. Examining the literature that deals with the relationships among these three variables (interest rate, exchange rate and agriculture GDP) we verified that monetary and exchange shocks can affect directly and/or indirectly (through relative prices) the agriculture GDP. However, these effects can be coincident or contrary between them. What actually happened in Brazil from 1996 to 2016? This article aimed to access the direct and indirect effects of monetary and exchange rate shocks on Brazil´s agriculture GDP taking into consideration years ranging from 1996 thru 2016. Using quarterly data for the 1996-2016 period, autoregressive vector models (VAR and VEC) were estimated. The exchange rate and monetary shocks were analyzed considering three different interest rate types, namely: the current Brazil´s Federal Funds Rate (Nominal SELIC rate), real interest rate of agricultural loans, and ex-ante real interest rate. We also analyzed the effect of the exchange rate separately on prices paid and on prices received by the agriculture (both make up the relative prices of agriculture) using an ARDL (Distributed Lag Self-Regressive Model) model with monthly data. Our econometric results revealed that both direct and indirect effects of monetary shocks were negative on the agriculture growth while the direct and indirect effects of exchange rate shocks were mutually contradictory themselves on the Brazil´s agriculture GDP. Because of the technical changes that have taken place during the 2000s and the 2010s, which turned some of the most representative crops more dependent on imported inputs, and the hedging behavior that the firms have adopted during the first two decades of the 21st century, which protects them from exchange oscillations, the agricultural sector lost sensitivity to the exchange rate variations in some extent. Regarding policy implications, it could be said that monetary policy can be efficient in the promotion of the agricultural sector, and, in fact, Brazilian government has been doing such through the rural credit subsidized interest rate. Exchange policy, on the other hand, proved to be inefficient in favoring the agriculture, or, in other words, the government can freely exercise exchange policy without regards to harm the agricultural sector. [ABSTRACT FROM AUTHOR]

Most developing countries rely heavily on foreign direct investment (FDI) inflows for economic growth and stability. However, political risk and the foreign exchange rate could direly affect FDI inflows as investors seek stable markets. The most recent example of political risk interactions, the exchange rate and FDI has been the trade war between the United States (US) and China, where the US increased tariffs on Chinese goods worth over $16 billion. A crucial debate is needed regarding the importance of FDI inflows in developing countries, such as South Africa. FDI is observed as a crucial component in providing resources, and it is critical in facilitating globalisation and providing financial assistance to countries in need, especially developing countries such as South Africa. This study aimed to examine the long- and short-run effects of political risk ratings and foreign exchange rate fluctuations on FDI inflows in South Africa. The literature review provided evidence of longand short-term relationships between political risk ratings, the real effective exchange rate, and the GDP's balancing variable on the dependent FDI inflows. The study utilised both the autoregressive distributed lag (ARDL) and non-linear autoregressive distributed lag (NARDL) models to analyse quarterly data from 1995 to 2020. The Variables included in the study were political risk, the real effective exchange rate, FDI inflows and GDP. The study revealed that political risk ratings and the real effective exchange rate have long-run effects on FDI inflows. The real effective exchange rate has an asymmetric long-run effect. It was also found that FDI inflows respond more to real effective exchange depreciations than real effective exchange rate appreciations, implying that the exchange rate is an important economic factor in explaining the investment inflows. Consequently, the study recommends that policymakers deploy responsive policy measures to deal with currency fluctuations and political instability. In South Africa, the negative effect of political risk affects FDI and impacts the overall country risk ratings and the country's ability to borrow. The study also recommends that further research be employed to understand other impacts on FDI inflows and the interaction of political risk and the real effective exchange rate on other critical economic factors. [ABSTRACT FROM AUTHOR]

Nigeria government has been playing the role of internalizing economic externalities, dealing with issue of unemployment and overall welfare of the populace. However, in the presence of huge and rising government expenditure, unemployment, and inflation rate still persist. This therefore called for a revisit of what determines government expenditure. There are three issues yet unresolved in the debate of what drives government expenditure. These are omitted variables bias, aggregation bias and asymmetry issue. To deal with aggregation bias, we focus on the components of government expenditure, that is, capital and recurrent. To address the issue of asymmetry, nonlinear autoregressive distributed lag was employed. Data are obtained for relevant variables spanning 1981- 2021. Model of government expenditure developed by Peacock and Wiseman (1961) combined with Devarajan et al (1996) and Giavazzi, et al (2000) models are utilized. The following results are obtained. First, government capital expenditure is countercyclical while recurrent expenditure is procyclical. Second, some drivers of government expenditure, such as exchange rate and oil price, exhibit asymmetry behavior. Asymmetric tax revenue shows potential to drive capital expenditure but significantly and positively influences recurrent expenditure. Asymmetric behavior of oil revenue and exchange rate also engenders capital expenditure. However, asymmetric behavior of degree of openness and inflation rate negatively affects capital expenditure. Asymmetric behavior of tax revenue and oil revenue posted positive effect while exchange rate and degree of openness have negative effect on recurrent expenditure. Period of election is also a strong positive determinant of recurrent expenditure both in the short and long run. Following the nature of cyclicality of the component of government expenditure, the priority of government could be on capital expenditure since it will provide essential public goods required for the economy to flourish. Bearing in mind that oil revenue is volatile, it is imperative for government to rely more on tax revenue than oil revenue. Engaging in forward exchange rate might be appropriate to deal with any possible exchange rate fluctuation. [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]

It is widely accepted that oil booms induce wealth effects that cause appreciation of the domestic currency, which harms the competitive manufacturing sector exports. This has been named the "Dutch disease" and has been examined in many studies; however, very limited attention has been paid to the impact of Dutch disease on manufacturing sub-sectors. This paper examines the impact of an oil boom on manufacturing sub-sectors in oil-rich developed and developing countries. It assesses the oil boom effect on medium-high technology exports in a panel data sample of 39 oilrich countries for the period 1990-2015. It also investigates the effect of an oil boom on hightechnology exports in a panel data sample of 31 oil-rich countries for the period 1990-2016. We employ the panel data fixed effect with Driscoll-Kraay standard errors approach to tackle several panel data problems that are normally present in such analyses: heteroscedasticity, serial correlation, and cross-sectional dependence. Using real oil revenue and oil production as a proxy for the oil boom, the results of the study show that an oil boom significantly reduces medium-high technology exports and high-technology exports at the global level of oil-rich developed and developing countries. These results confirm the presence of the resource movement effect of the Dutch disease, which hinders economic growth and development. When the full sample is split into regional groupings, these results are observed in Middle Eastern and African countries, Asian and Pacific countries, and European and North American countries, suggesting that these countries are also affected by the Dutch disease. However, Latin American countries produce opposite results. An oil boom significantly increases both medium-high- and high-technology exports, contradicting the Dutch disease argument. The results of this study suggest that policy makers in countries experiencing the Dutch disease problem should improve institutional quality, develop human capital, promote economic diversification, and enhance investment in manufacturing sub-sectors. They should also minimize the appreciation of the real exchange rate, attract FDI in the manufacturing sector, and reduce the cost of doing business. This will help them to utilize oil wealth more effectively and efficiently, enhancing economic growth and development, therefore avoiding the Dutch disease problem. [ABSTRACT FROM AUTHOR]

This paper uses the global vector autoregressive (GVAR) modelling approach to study (1) the effects of negative output shocks on Bangladesh's following trading partners on Bangladesh's economy: the United States, China, Eurozone, India and Saudi Arabia (2) positive global oil price shocks. To represent Bangladesh's macroeconomics, the GVAR model contains four key macroeconomic variables as endogenous variables. They are (1) real gross domestic product (GDP), (2) real exchange rate, (3) short-term interest rates, and (4) inflation. The specified GVAR model is estimated using quarterly data from 32 countries/regions from 1993Q4 to 2016Q4. The findings of this paper are consistent with theoretical predictions that external shocks can and will be transmitted to an open economy operating under a fixed or managed floating exchange rate system. For example, quantitatively, if the real output of Bangladesh's trading partners' falls by 1%, its output will fall by 0.39%, while the inflation rate of Bangladesh's trading partners' rises by 1%, and Bangladesh's inflation rate will increase by 1.38%. Although the negative output shock of the US economy will not significantly affect the Bangladeshi economy, the negative output shock of the Chinese economy will have a negative and significant effect on the Bangladeshi economy. The negative output shock on the US economy has caused the real exchange rate of Bangladesh's currency to appreciate and raised its short-term interest rate, although it is not statistically significant. Contrarily, a negative output shock to China or other economies devalues the real exchange rate of the Bangladeshi currency, although it is not statistically significant. However, Bangladesh's interest rates have not responded to negative output shocks from its trading partners (except the United States and Saudi Arabia), and they are not statistically significant. One policy implication of Bangladesh's inflation being overly sensitive to external inflation shocks is that Bangladesh can and should make its currency exchange rate more flexible to protect its economy from external price shocks. Unexpectedly, the external oil price shock did not seem to have a significant impact on the Bangladeshi economy. One explanation is that the impact of foreign inflation on Bangladesh's economy may have reflected the impact of oil prices. [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]

This paper studies recent inflation dynamics in Egypt with the objective of assessing whether structural factors are behind the trend rise in inflation since 2003. Using an autoregressive distributed lag (ARDL) model, we uncover the role of two significant determinants of long-run inflation dynamics: excessive monetary growth, and a rise in the intensity of relative price variability. These two variables are shown to play a key role in explaining inflation developments over the period January 2000 to October 2018 after controlling for the impact of exchange rate devaluations, energy price liberalization, adverse supply-side shocks and movements in international commodity prices. While the latter group of variables was influential in triggering inflation waves over the short to medium term, our empirical results show that excessive monetary growth and increased variability in relative prices are the main drivers behind the trend rise in inflation. The paper also estimates an unrestricted vector autoregressive (VAR) model to further study the direction of causality between inflation and relative price variability. Results from the forecast error variance decomposition show that relative price variability accounts for the largest proportion of the variance decomposition for inflation, further confirming its central role in driving inflation dynamics. In addition, the impulse response functions also indicate the strong response of inflation to positive RPV shocks, while inflation appears to have an insignificant effect on RPV. Furthermore, our ARDL model demonstrates superior predictive ability when its out-of-sample forecast performance is compared with benchmark models. The policy implications of our findings point to the immediate need to curb excess money growth in the economy, and also the pertinence of treating the issue of price liberalization using a holistic long-run plan as opposed to the historically-adopted piecemeal approach. [ABSTRACT FROM AUTHOR]

The fast-growing of the sub-Saharan Africa (SSA) countries over the past decade highlight that successful economic integration can assume many forms, instead of standard patterns. In this sense, this paper provides empirical evidence of the vulnerability of the West African Economic and Monetary Union (WAEMU) and Cape Verde, that adopted fixed exchange rate regimes. For this reason, we developed a global vector autoregressive GVAR model, a data shrinkage procedure, where large sets of variables are reduced to a small set of factors. It allows describing systems of higher dimensional complexities and simulating shocks in a cross-regional approach with the use of common factors. First, we specified and identified a weight matrix for the selected countries, used to reproduce this policy framework, conditioning the parameters to an interdependent trading structure. Next, a variety of tests were estimated, e.g., stationarity, structural break tests and exogeneity tests. We use the generalized impulse response functions to simulate shocks originating from European Monetary Union (EMU), China and the United States (US) on GDP, the CPI, the interest rate and the exchange rate of the SSA countries. Our results were also controlled by the productivity structures of the countries, characterized as agricultural-exporting, commodity-importing, commodity-exporting, and trading based types. In decreasing order of magnitude, shocks originating from Europe (-0.94%), China (-0.73%) and the US (-0.25%) led to a persistent decrease in the GDP and to depreciation of the exchange rate of the region. However, they were not significant for inflation. Shocks in interest rates suggest passive monetary policy. While our empirical evidence does not indicate distinct effects of shocks emanating from the economy-type structures, it points out that these structures are clearly vulnerable to external shocks. To reduce uncertainties and transaction costs from the EMU, SSA countries may consider gradually abandoning the fixed exchange rate regime with the Euro in the medium term and anticipate the development of new multilateral trade agreements. In the long term, it is highly indicated that these countries invest in export diversification and structural transformation. [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]

The three main theories of exchange rate behaviour, namely, the flow-oriented theory, the stockoriented theory, and the arbitrage pricing theory posit that there is a relationship between exchange rate movements and stock returns. In light of mixed and inconclusive results in existing studies on the relation between exchange rate and stock returns, this paper reinvestigates the sensitivity of the total value of stock transactions in Belgium (as a percentage of GDP) to changes in the real effective exchange rate over the period 1980-2014. We also examine the link between stock transactions in Belgium and the United States (as percentages of GDP). Annual data on the three variables are obtained from the World Development Indicators of the World Bank Group. Due to non-stationarity in time series data, the cointegration technique is applied. The results of the Dickey Fuller-Generalized Least Squares (DF-GLS) unit root test indicate that the variables are I (1). The Johansen (1995) cointegration test provides evidence of a long-run relation between the three variables. The results of the cointegration analysis indicate a significant positive long-run relation between stock transactions in Belgium (as a percentage of GDP) and the real effective exchange rate. The results also indicate a significant positive long-run relation between stock transactions in Belgium and the United States. The long-run coefficients are significant at the 1% significance level. The short-run adjustment coefficient has the expected negative sign, which indicates adjustment toward long-run equilibrium. Diagnostic tests are performed to test for autocorrelation and normality in error distribution. The model fails to reject the null hypothesis of no autocorrelation at lag order. The model fails to reject the null hypothesis that the errors are normally distributed. The stability test is also satisfied. Dynamic forecasts indicate an increase in the total value of stock transactions in Belgium over the next ten years. Orthogonalized shocks to the real effective exchange rate and the total value of stock transactions in the United States are found to have permanent effects on the total value of stock transactions in Belgium. The important policy implications following from the empirical analysis are presented and discussed. [ABSTRACT FROM AUTHOR]

Despite the ability to determine whether an economy is experiencing inflation, there is no consensus on what causes it. In this study, the attempt will be made to identify the determinants of inflation in Kuwait. Kuwait was chosen on the grounds that it is a small rich country with significant surplus of money and highly dependent on oil revenues and imports of goods and services. In addition, it experiences little fluctuations in the value of its currency. Furthermore, Kuwait runs two competing banking systems: Islamic and conventional. While the Islamic banking system excludes paying or receiving interest from all its transactions, interest governs all transactions incurred by the conventional banking system. Hence, Kuwait forms a unique case to study causes of inflation. Hence, the current study examines whether inflation measured by the consumer price index (CPI) is effected by exchange rate, interest rate, taxation, imports, current account, unemployment, gross domestic product (GDP), and money supply. To identify variables affecting the level of inflation in Kuwait, annual data were collected from the World Bank Data Bank for the period between 1979-2015. The relationship between inflation and other economic variables were tested by performing a multiple linear regression analysis. The findings of the study demonstrated that changes in CPI are positively and significantly influenced by changes in interest rate spreads, imports of goods and services and money supply. Negative and significant association appeared between changes in the CPI and changes in tax revenue and current account balance. Although changes in the GDP and unemployment were among the factors that were responsible for changes in CPI, their effects were not statistically significant. Studying the determinants of inflation in Kuwait is of interest for scholars and policy makers alike. For the former, studying a rich and a small country like Kuwait with surplus of liquidity would add a new dimension to the literature. For the latter, it would assist them in adopting appropriate policies to deal with future inflationary problems. Bearing in mind that this study is covering almost four economic cycles, it will give a clear picture about the reasons underlying inflation in Kuwait. [ABSTRACT FROM AUTHOR]

The quests for aid arise when developing economies lack inadequate fund to embark on long-term development projects that will promote growth. Generally, aid inflow is expected to lead to capital formation and growth in the sub-Saharan African countries (SSA). The high unemployment rate, poverty rate, and weak growth still witnessed in the region, questioned the exact role of aid. This paper investigates the effect of aid on inflation and exchange rate in 35 sub-Saharan African countries (SSA) between the periods 2000 to 2016 by employing the panel vector error correction model (PVECM) approach following the co-integration properties of the variables. The variables used in the study are aid (official development assistance), inflation rate (INF), and real effective exchange rate (REXR). Control variables such as import as a percentage of GDP (IMPORT), investment as a percentage of GDP (INV) and export as a percentage of GDP (EXPORT) was also employed in the study. Findings from the study revealed that the variables are cointegrated i.e. has a long-run relationship. The outcome of the study also revealed that aid flow is associated with the depreciation of the real exchange rate in the region (SSA). In addition, the study showed that a shock in aid flows would cause a rise in the inflation rate in the region. The study also revealed that a rise in aid would lead to an increase in investment and export in the region (SSA). Furthermore, the study revealed that a shock in aid would cause a rise in import. Based on the result of the study, the study recommends the need for government in the region to determine the optimal aid that will ensure growth and eradicate/reduce poverty in the SSA region. Also, the development partners should assess the monetary conditions of the recipient's economy before the disbursement of aid. Furthermore, the governments in the region are encouraged to utilize the inflow of aid in the importation of capital goods so as to increase the competitiveness of their export in a bid to improve the standard of living of the populace, eradicate poverty and foster growth in the region. [ABSTRACT FROM AUTHOR]

This study addresses the relative paucity of research on the effect of exchange rate volatility on export performance in Southeast Asia by examining this relationship for the ASEAN-5 group, which includes Thailand, Malaysia, Singapore, Indonesia and the Philippines. In doing so, our study develops an export function model with domestic output, world output, terms of trade and exchange rate volatility as explanatory variables, and export volume as the dependent variable. To capture exchange rate volatility, we use of the real effective exchange rate, as opposed to the traditional bilateral exchange rate, as it accounts for price levels in the countries under study. From a statistical perspective, export volatility is derived from the real effective exchange rate using a GARCH model. Estimates for each of the ASEAN-5 countries are produced from panel data. Unit root tests indicate that all of the variables' series are integrated of order one, and hence they are stationary only in first-difference form. A Johansen-Fisher panel cointegration test rejects the null hypothesis of no cointegration. As such, the main model includes an error correction term, and, in order to ensure that the unobserved country-specific variables are not correlated with the right-hand side variables, a fixed effects estimator is used. The results suggest that changes in both domestic and world output have a positive effect on export volume, while a deterioration in the terms trade has a negative effect on export volume, at least for countries in this region. Lastly, exchange rate volatility has a negative impact on the export performance of the ASEAN-5. Our results suggest that, even though it is not possible to completely eliminate exchange rate volatility, governments can adopt appropriate macroeconomic policies to minimize the volatility of their respective currencies. In particular, given that the ASEAN-5 countries have adopted floating exchange rate systems, their corresponding central banks can intervene in the market in order to minimize exchange rate volatility. Additionally, these central banks might work to reduce volatility in their respective price levels as well. [ABSTRACT FROM AUTHOR]

It has become well-known now that stock markets play a key role in stimulating economic growth process. As economists and politicians alike, battle in finding ways of growing economies, it becomes imperative to establish the drivers of stock market development as they have an ultimate bearing on the stimulants of economic growth. In recent years, studies on the stock market determinants have sprung up, however, with results far from being conclusive. What turned out to be determinants in one study may not be in another study. Therefore, in this paper, we examine the key determinants of stock market development in Brazil using annual time-series data spanning from 1980 to 2016. The study was motivated by the growing important role of stock market development in economic development, on the one hand, and the conflicting findings on the determinants of stock market development, on the other hand; coupled with little to no study coverage of the topic on Brazil. Unlike some previous studies that used cross-sectional data, the current study has used time-series techniques that take into consideration the Brazilian country-specific issues. Furthermore, the current study has also employed the ARDL bounds testing procedure to determine the determinants of stock market development in Brazil. This procedure is well known for its superior small sample properties; hence it is considered more suitable for this study. The results of the study reveal that the stock market development in Brazil is positively determined by trade openness, banking sector development and exchange rate, irrespective of whether the analysis is done in the long run or in the short run. Contrary to the results of some previous studies, investment and stock market liquidity are found to have a negative influence on the development of stock market in Brazil - both in the long run and in the short run. The study, therefore, recommends that policies that favour international trade, bank-based financial sector development and exchange rate stability should be pursued in Brazil, as this would translate into further stock market development. [ABSTRACT FROM AUTHOR]

It is important for the policy makers to know what kinds of shocks are responsible for macroeconomic fluctuations or recession to formulate appropriate policy responses. This paper exploits a stylized model to identify the sources of macroeconomic and exchange rate fluctuations in the US. The model consists of a productivity equation, a demand function, an exchange rate augmented Phillips curve, a monetary policy rule and an exchange rate equation (uncovered interest parity (UIP) condition). The stylized model implies a set of short-run restrictions that allow for the identification of the structural shocks in a vector autoregression model in order to test the model's consistency with data. We use real GDP for output, GDP deflator for price, Federal fund rate (FF) as monetary policy. The other two variables are unemployment rate and Nominal effective exchange rate (NEER). Throughout the analyses oil price is used as an exogenous variable. The Sample period starts from 1980q1, and ends at 2008 q2 to avoid possible non-linearity arise from 2008 financial crisis. Results show that more than half of the fluctuation in unemployment and output is explained by two shocks namely productivity/technology shock and aggregate demand shock. Monetary policy shock can explain around 15 per cent while supply and exchange rate shock explain less than 10 percent of the variation in unemployment and output. These results from our simple model are compatible with those from more sophisticated models found in current literature. Hence, our model is more appealing to the policy makers. Further, to gauge the importance of monetary policy in stabilizing the economy, a counterfactual simulation exercise is performed. The exercise shows that monetary policy has stabilized inflation and unemployment, though at the cost of increasing variability in output. The findings of this paper emphasize that policy makers should be aware of the importance of demand side shocks such as policy uncertainty and money supply. A positive uncertainty shock (an increase in uncertainty) may reduce investment and may slow the economic recovery. On the other hand, a prolong period of expansionary monetary policy may make the inflation expectations less anchored. Therefore, the policy makers should try to keep the impact of policy uncertainty at the minimum level and should follow prudent monetary policy. [ABSTRACT FROM AUTHOR]

Background and Statement of the Problem: It has been established that countries with high political and economic risks will draws investment funds away prospective investors from other countries, thus, such countries are at greater risks of loss of confidence in her currency stability and movement of capital to more stable economies. The aforementioned problems may discourage growth, macroeconomic stability, human capital development and institutional changes. Thus, there is the need to investigate the asymmetric cointegrating relationship, if any among the rate of exchange, trade balance and growth in Nigeria. Research Methodology and Data: With the primary assumption of the likelihood of an asymmetric adjustment process in the disequilibrium, the study deployed the M-TAR (Momentum - Threshold Autoregressive) and the TAR (Threshold Autoregressive) models. Annual data on imports, exports, domestic real income, world real income, domestic consumer price index and US consumer price index were used and this comes from the World Bank Development Indicators for the period 1960-2016 and all data are denominated in US-Dollars. Research Findings: The result shows that for the TAR model, cointegration exists among the three variables (economic growth, balance of trade and real exchange rate). An asymmetric adjustment disequilibrium process also exists. The point estimates suggest that the adjustment speed is lower when the balance of trade is worsens. The asymmetric ECM suggests that trade balance, real exchange rate and growth respond to disequilibrium and that the coefficient of domestic income and exchange rate are negative and that of foreign income is positive and statistically significant. Policy Implication: Government of Nigeria should concentrate her policy efforts towards import substitution strategy that will facilitate the production of currently imported goods locally, thereby creating sustainable employment and development of industrial manufacturing sector in Nigeria. [ABSTRACT FROM AUTHOR]

Nigeria is a mono-economy that depends largely on the revenue from crude oil exports and the country's economic policies revolve around the revenue generated from oil. However, despite the increased revenue the country generates from crude oil export, the level of development is still inadequate and Nigeria still continues to experience deficits in its current account balance. This study investigates the effect of oil price and exchange rate on current account balance in Nigeria using annual time series data for the periods 1986 to 2016. Assessment of the properties of the data suggests Vector Error Correction Model (VECM) as an appropriate method of analysis. The study revealed the presence of a long-run relationship between the variables. The study also revealed that depreciation in the real exchange rate would lead to improvement in the country's current account balance, while a shock in oil price would produce a positive response in the current account balance of the country. This implies that a rise in oil price will lead to improvement in the country's current account balance. In addition, the study also shows that oil price accounts for the major variation in the country's current account balance. The policy implication of the result from this study is that proactive management of the exchange rate policy following anticipated movement in current account balance can help stabilize the exchange rate. Hence, Nigeria's best policy option to stabilize the exchange rate and other economic indices is to improve the current account position by diversifying the economy from oil and promoting non-oil exports. Finally, a systematic reduction in propensity to consume foreign imports that could otherwise be produced locally should be aggressively pursued using fiscal and legislative instruments. This will ensure that the gain from increase in oil price is not lost due to disproportionate demand in foreign exchange to support a high import consumption pattern. [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]

A limited number of recent studies have tested the relationship between some of the macroeconomic indicators and banking sector development. Among them, there are only few single developing-country studies, which tried to examine the direct impact of exchange rate volatility on the banking sector with mixed results. This paper examines the relationship between exchange rate volatility and banking sector development in 16 emerging economies over the period of 1980-2011. In this study we employ Pessaran, et al. 2001 bounds testing approach to cointegratoin and developed the short-run and long-run models. Our findings indicate that banking sector development responds significantly to exchange rate volatility in the majority of emerging economies in which 9 out of 16 confirm the short-run effect and 10 out of 16 exhibit the long-run effect. A strongly negative link between exchange rate uncertainty and liquid liabilities is confirmed. We find that the short-run effect effects last into the long-run effect only in 7 emerging economies. Furthermore, assessing the real exchange rate changes in long run confirmed that appreciation impede the banking sector development and eventually financial market development in majority of emerging economies. Meanwhile, our estimated results show the evidence of the significant impact of real income on banking sector development in almost all countries, implying that higher economic growth leads to higher banking activities and more investment. Given several country-specific results, based on their different economic and financial structure, we suggest that it is very crucial to implement appropriate monetary policy for emerging economies to stabilize their economic growth through the banking sector development upon unexpected exchange rate shocks. Under any kind of uncertainty in a country's financial system, chances for enjoying a well-developed banking sector in emerging economies would fade. All negative effects of exchange rate volatility will reduce efficiency of financial market and long-term growth of economy. In order to achieve these economies' long-run economic growth goals, we suggest that, the banking sector development and eventually financial market development should be considered a long-term objective for all emerging economies. In this paper, possible rationales for contrary short-run and long-run effects are also discussed. [ABSTRACT FROM AUTHOR]

The possibility of random walk movements in the log-returns of exchange rate series as well as the characterization of returns by periods of tranquility and volatility is of interest in financial time series modelling. These features make the analysis of exchange rates to be important in the design of policy, portfolio and risk management whenever international trade and finance is discussed. This paper investigated the level of exchange rates market efficiency and volatility at three market phases of US Dollar-South African Rands and US Dollars-British Pounds exchange rates for the daily periods from 2 January 1995 to 8 June 2016. This paper applied the modified Hurst exponent' and volatility modelling techniques on the series log-returns, absolute and squared log-returns used as proxies to volatility. The results of the modified Hurst exponent techniques on the log-returns and squared log-returns show that the future path of the exchange rates returns in these markets are not governed by their immediate past in the second and third identified phases. Thus, the two markets have been in the state of weak form of efficiency since 2001 to the current transition, with UK exchange rate market more efficient than South African exchange rate market. Using the efficiency and volatility indices to classify the two exchange rate markets as well as the market phases, we observe similar transition in the level of market efficiency in these markets, this which is as a result of trade partnership between the two countries. In terms of market volatility, we cannot make a clearer judgement between the two economies. This paper has repositioned the stability foreign exchange rates of South Africa, a member of Group of 20 (G20) countries, with that of a member of the G7 countries, that is, the UK. To the government, risk and portfolio managers, the findings emanating from this paper indicated that the South Africa's Rand is also stable like the British Pound, and thus, can be traded on the international currency market without fear of excessive loss/gain. [ABSTRACT FROM AUTHOR]

The positive impact of remittances on development indicators of recipient countries is well documented in literature. Remittances have been a major source of economic support for dependents of migrant workers in their home countries. Nigeria receives the largest amount of remittances in Africa and the third among developing economies; receiving 21 Billion US Dollars in 2015. Large remittance inflows could however hurt the recipient economy when the flows are significant relative to the size of the recipient economy. With increasing remittance inflows relative to other capital inflows into Nigeria, remittances could have undesired outcomes, with the possibility of the exchange rates appreciation and a loss of competitiveness in the tradable sector. Using the Dynamic Ordinary Least Squares (DOLS) and data covering 1981 to 2014, this paper explores the empirical evidence regarding the impact of remittances on the real exchange rate in Nigeria. DOLS improves on OLS by coping with small sample and dynamic sources of bias to determine the long-run effect/coefficients of remittances and other variables on economic development. The DOLS also deals with the potential endogeneity problem of explanatory variables. Specifically, studying the nature of the variables, there is a possibility of reverse-causality running between the exchange rate and remittance, foreign direct investment. This situation therefore can raise the possibility of endogeneity. The potential of simultaneity bias, small sample bias and endogeneity among the regressors is dealt with by the inclusion of lagged and lead value of first differences of the regressors. In this design, the dynamic OLS estimator performed well relative to other asymptotically efficient estimators Our findings suggest that remittance inflows have been associated with a rise in the real exchange rate in Nigeria. The coefficient on remittances (REMI) is positive and statistically significant. Thus, high remittance inflows have been associated with a rise in the real exchange rate in Nigeria. This implies that high remittance inflows have exerted depreciating pressure on the country's currency. Thus, contrary to the Dutch disease proposition, high remittance inflows into Nigeria have not resulted in an overvalued exchange rate but a low-valued exchange rate. [ABSTRACT FROM AUTHOR]

The Asian crisis of the 1990s brought into question the adequacy of soft pegs for developing countries. The alternatives suggested by the literature are fixed exchange rates and inflation targeting. This study uses data for 142 developing countries whose monetary policies are classified into three mutually exclusive categories: fixed exchange rates (or hard pegs), inflation targeters, and the reference group (soft pegs). Since the dependent variable is unordered and categorical, a multinomial probit model of monetary policy choice is estimated, in which each country chooses from the three monetary policies the one that provides the highest utility. The multinomial probit model is a choice probability model that allows the three choices to be evaluated simultaneously: based on independent variables that represent country characteristics such as openness to trade, vulnerability to external shocks, fiscal dominance and central bank characteristics, the model reports two sets of results - the log of the ratio of the probability for a country to choose inflation targeting relative to soft pegs, and the log of the ratio of the probability for a country to choose fixed exchange rates relative to the reference choice. The study finds that relative to soft pegs, inflation targeters are less open to trade, are more developed, have more diversified exports and have more independent central banks (as reported by the presence of both lower turnover rates for Central Bank governors and tighter restrictions on government borrowing to finance the budget deficit). Countries with fixed exchange rates are more developed and their central banks have less actual independence than those in the reference group. After accounting for the above country characteristics, the results suggest that fiscal dominance (proxied by variables such as government consumption expenditure, central government debt, share of government purchases and cash surplus/deficit, all expressed as percentage of real GDP) does not play a role in the choice of monetary policy. Average inflation rates were also added to the previous estimations, and the inflation coefficients did not attain statistical significance in any of the specifications suggesting that inflation levels do not influence the choice of monetary policy. [ABSTRACT FROM AUTHOR]

The existing empirical studies on the effectiveness of RBI intervention in the exchange rate market are based on single equation/GARCH models. Recognizing the interdependence between exchange rate returns, conditional volatility of exchange rate and RBI intervention, this study uses a simultaneous equations framework to examine the efficacy of intervention by RBI. Additionally, we control for the impact of macro-economic fundamental variables and micro-structure variable in our model. The econometric methodology used in the study includes two steps. In the first step, DF-GLS, Ng-Perron and, Lee and Strazicich unit root tests are used to examine the stationarity of the variables. In the second step, the simultaneous equations model is estimated using the generalized method of moments (GMM)-IV. This study is based on secondary data at monthly frequency, spreading from 1996:08 to 2016:10.The main findings of the study are as follows. The results of unit root tests suggest that all variables included in the analysis are stationary. The system GMM-IV estimates of the model indicate that exchange rate returns are influenced by RBI intervention, output growth differential, money supply growth differential, stock market returns, capital flows, EUR-USD exchange rate returns, change in trade balance differential and order flow. Additionally, the estimates of exchange rate volatility equation suggest that RBI intervention significantly decreases exchange rate volatility. Further, we find that volatility in capital flows has significant and positive impact on exchange rate volatility. The estimates of the central bank intervention equation suggests that exchange rate returns have a significant and negative impact on RBI intervention in foreign exchange rate market. We also find evidence for the presence of asymmetry in RBI intervention. The key implications of the study indicate that RBI intervention is effective in stabilizing the Indian exchange rate market in the face of both domestic and external shocks. Furthermore, exchange rate returns are significantly affected by RBI intervention, macro-economic variables and micro-structure variable. The findings of this study may be useful for formulating India's monetary policy. [ABSTRACT FROM AUTHOR]

From 1977 until 2014, the real effective exchange rate in France declined. Over the same period, the total value of stocks traded in proportion to the nation's GDP increased. The data is consistent with economic theory - currency depreciation was followed by an increase in the total value of stock transactions (in proportion to GDP). The results of most regression analyses have shown that the relationship between currency depreciation and stock transactions are not always consistent with economic theory. The effect of currency depreciation on stock transactions can be either positive or negative due to various reasons, one of which is the omission of an important variable. Phylaktis and Ravazzolo (2005) showed that the lack of a significant relationship between exchange rate movements and stock transactions could be due to excluding the influence of the world capital markets. This paper builds on Phylaktis and Ravazzolo (2005) and tests the hypothesis that currency depreciation increases the total value of stock transactions in France. Annual data is obtained from the World Development Indicators of the World Bank. The total value of stocks traded is expressed as a percentage of GDP. The real effective exchange rate index is the nominal effective exchange rate divided either by a price deflator or by an index of costs. A trivariate VECM is estimated for the period 1977-2014. The paper investigates the short-run and long-run relationships between the real effective exchange rate and the total value of stocks traded in France. The effect of the U.S. stock market, representing the world capital markets, is also examined. The Dickey-Fuller Generalized Least Squares unit root test indicates that the variables are I(1). The Johansen cointegration test indicates a long-run relationship between the variables. Since AIC selected a model with 4 lags and the maximum rank of the cointegrating matrix is found to be 1, the VECM is estimated with 4 lags and 1 rank specification. The short-run results indicate that the adjustment coefficient is statistically insignificant; thus the estimated results are plausible in the short-run but not in the long-run. The short-run results indicate a significantly negative relationship between the real effective exchange rate and the total value of stock transactions in France; thus there is a close association between the stock market and the foreign exchange market in France. The short-run relationship between stock transactions in the U.S. and France is also found to be significantly negative. [ABSTRACT FROM AUTHOR]

The effects of exchange rate and oil price on inflation have been fundamental issues in the macroeconomic literature. As a result, a number of studies have been devoted to examining the effects of exchange rate and oil price on inflation using various econometric approaches to measure the effects. However, most of the empirical studies employed restrictive models. This study, therefore, investigates the asymmetric effects of exchange rate and oil price shocks on inflation in Nigeria using monthly data obtained from the Central Bank of Nigeria (CBN) Statistical Bulletin for the period 2006M1-2016M6. The study employs the impulse response functions (IRFs) to determine the reaction of inflation to shocks from exchange rate and oil price. The IRFs are estimated from the vector autoregressive error correction (VECM) model. The results suggest that the immediate effect of a shock to the exchange rate in 12 months is about 50% increase in the price level. While the effect of an exchange rate depreciation shock is about 41% increase in the price level, the effect of an exchange rate appreciation is about 14% decrease in the price level. Similarly, the immediate effect of a shock to the oil price in 12 months is about 52% increase in the price level. While the effect of an increase in oil price in 12 months is about 43% increase in the price level, the effect of a decrease in oil price is surprisingly about 29% increase in the price level. Moreover, there is an evidence of significant effects of exchange rate and oil price shocks on inflation in the long run. The policy implication of this study, for an oil exporter such as Nigeria, is that monetary policymakers will have to keep the inflation rate at the comfort zone and stabilize the Nigerian currency. From a structural policy perspective, the falling crude oil price has certainly strained Nigeria. The country should, therefore, reshape its policy to redouble efforts to diversify its trade activities from oil. [ABSTRACT FROM AUTHOR]

Exchange rate misalignment results in resource misallocation and could hamper overall economic growth. Persistent undervaluation leads to high levels of inflation which in turn creates macroeconomic instability while overvaluation leads to trade imbalances with consequential balance of payment problems. Since the redenomination exercise in 2007, the Ghana cedi has been consistently depreciating. This has sparked a lot debate in the public media and among academics concerning possible misalignment of the cedi. This paper investigates the behaviour of the Ghanaian cedi using the behavioral equilibrium exchange rate approach for the period 1980Q1 to 2013Q4. The Johansen cointegration and error correction modelling framework is employed in estimating a model of the real effective exchange rate. Unlike previous studies, this paper employs the real effective exchange rate computed by authors due to certain adjustments made in the International Monetary Fund, International Financial Statistics series. The results point to significant misalignment of the exchange rate with undervaluation before the redenomination in 2007 and overvaluation afterwards. The empirical finding of this study has implications for policy direction. Monetary authorities should seek to strike a balance between the two extremes of overvaluation and undervaluation. This may be achieved by pursuing a pure floating exchange rate system where the exchange rate is allowed to follow the path dictated purely by market forces, without any intervention by the Central Bank. Alternatively, a properly managed float system of exchange rates may be pursued. Hence, given the current state of overvaluation, a once-off devaluation of a minimum of 20% could be considered to bring the exchange rate close to its equilibrium. Subsequently, monetary authorities should closely monitor deviations from the equilibrium path and engage in timely interventions. In addition, policy should be directed at strengthening the economy's fundamentals with particular attention to the export and productive sectors by creating a conducive business environment that promotes private investment and supports the production of high quality goods of international standard both for the external and domestic market. [ABSTRACT FROM AUTHOR]

The intention of this study is to examine the effectiveness of the monetary transmission channels in Bangladesh.A five-variable unrestricted Vector Auto Regression (VAR) technique is used to examine the relative effectiveness of monetary transmission channel using quarterly data for the sample period from 2004.M7 to 2016.M1. Bangladesh has initiated several policy reforms in monetary policy and exchange rates since 2002 to increase the transparency and efficacy of the monetary transmission channels. For example, there was a significant change in the policy level in Bangladesh at the end of May 2003, when Bangladesh entered into the flexible exchange rate regime.Repurchase Agreement (Repo) and Reverse Repo were introduced in July 2002 & April 2003, respectively for banks and financial institutions as an indirect monetary policy tool for day-to-day liquidity management in response to temporary and unexpected disturbances in the supply of and demand for money. Various government treasury bills have been used to conduct an open market operation to alter money to its desired level. In this backdrop, to assess the policy effectiveness on goal variables, several monetary transmission channels have been analyzed e.g., the interest rate or money channel, bank lending or credit, and the exchange rate channel.The Impulse Response Functions (IRFs) and Variance Decompositions (VDCs) derived from VAR show that money supply and the policy rates both have significant impact on output and the price level in Bangladesh implying that monetary transmission channels are effective in influencing macroeconomic variables particularly output and inflation. The VDCs and IRFs derived from from VAR show that an increase in money supply tends to increase GDP growth, decreasesthe lending rate and increases private sector credit. On the other hand, an increase in the policy rate decreases inflation and also decreases GDP growth. Transmission channel through the real exchange rate increase exports, which in turn increase output. Therefore, the polciy implications of this study is monetary authority can use money suppy and the policy rate to increase output and control inflation in Bangladesh. [ABSTRACT FROM AUTHOR]

Rapid economic growth propelled China to become South Africa’s largest trade partner, and the recent economic slowdown in China and collapse of commodity prices threatens to reverse this trend. Previous estimations of South Africa’s bilateral trade functions document strong income effects on trade, but evidence for the effects of the exchange rate and its volatility are decidedly mixed. In this paper we argue that this ambiguity is due in part to the omission of information about the level and volatility of commodity prices. We note that South Africa’s exports to China are heavily concentrated in metal ores, and the practice of deflating the nominal exchange rate by either a consumer price index or deflator is a poor proxy for the commodity price movements that matter for exporters. In this paper we use quarterly data from the period 1993-2014 to estimate South Africa’s bilateral export function with China using Chinese GDP, the real bilateral exchange rate, exchange rate volatility, iron ore and precious metals price indices, and their respective volatilities. We specify an error-correction model designed to model departures from, and adjustment to, the long-run equilibrium, and thereby distinguish short-run and long-run effects, and we employ the bounds testing approach of Pesaran, Shin and Smith (2001) to test for long-run cointegration among the variables. The baseline model results in large and statistically significant estimates for income and real exchange rate elasticities that are in the expected direction. The elasticity estimate for exchange-rate volatility suggests a negative but statistically insignificant effect. This ambiguity resonates with much of the literature. In our augmented models we include separate variables to capture the effects of iron ore and precious metals prices and their volatility, resulting in considerable improvement in model fit in both a static and dynamic sense. In the long run, the positive price elasticity is consistent with an upward-sloping export supply curve, and the negative and relatively elastic effect of commodity price volatility suggests an uncertainty effect that reduces exports. Importantly, the inclusion of the commodity price variables improves the precision of other estimates, increasing our confidence in a similar uncertainty effect emanating from volatility in the bilateral exchange rate. Our results highlight South Africa’s continued vulnerability to the commodity price cycle. To escape this boom and bust cycle, South Africa’s government must emphasize public investment and embrace structural reforms aimed at diversifying its export sector. [ABSTRACT FROM AUTHOR]

Bangladesh Bank, the central Bank of Bangladesh is committed to maintain price stability and facilitate economic growth through conventional monetary policy. Although Bangladesh entered the regime of floating exchange rate in 2003, central bank intervenes to minimize excessive fluctuation in exchange rate through foreign exchange intervention policy. While these two policies work simultaneously, there was no study to examine the performance and effectiveness of these policies and understand their interaction in the framework of a joint analysis. The paper intends to fill up this gap. The paper develops a structural vector autoregression (SVAR) model to understand how foreign exchange intervention and conventional monetary policy affects the economy along with the endogenous reaction of policy variables. The intervention policy and conventional monetary policy are jointly analyzed to understand the interaction between them and also their impact on exchange rate and other economic variables i.e., price levels, real economic activity and real financial asset prices. The SVAR model is identified through relevant exclusion restriction based on the literature and the reality of the economy of Bangladesh. Monthly data of the relevant variables from July 2003 to December 2014 are used to estimate the model. Impulse response function is used to reveal the impact of policy and other shocks.Results reveal that foreign exchange intervention shocks have significant effects on the Taka / US $ exchange rate and the contribution of foreign exchange intervention shocks to exchange rate fluctuation is larger than that of monetary policy shocks. However, intervention shock has virtually no impact on price level, economic activity and real asset price supporting sterilization. On the other hand, while conventional monetary policy has insignificant effect on relevant variables when its effect is examined excluding foreign exchange intervention policy, it has mostly significant impact on economic variables when joint analysis is conducted. Both monetary policy variable and foreign exchange intervention variable react to each other significantly, suggesting the usefulness of this joint analysis. Results also reveal appropriate policy reaction to economic situation. Central Bank’s policy interventions are working pretty well in achieving internal and external stability of the value of local currency. Hence, present framework of exchange rate intervention and monetary policy may be continued without any major overhaul. However, monetary policy has limited impact on economic activity measured by industrial production. Hence, to the extent growth is adversely affected by inflation and exchange rate fluctuation, the central bank may work towards achieving higher growth indirectly by maintaining low inflation and exchange rate stability. [ABSTRACT FROM AUTHOR]

In an attempt to rescue the U.S. financial market and to stimulate the economy, the Federal Reserve introduced a number of non-conventional monetary policy tools. Termed as "credit easing" and aimed at lowering both the short-term and the long-term interest rates and thereby boosting the consumption and investment demand and, in turn, stimulating the economy, this policy had the effect of altering both the size and composition of the Federal Reserve's balance sheet. These nonconventional policy tools were thought to be necessary when conventional policy tool, such as, the federal funds rate target had almost reached zero. These policy tools were implemented in the forms of: (a) lending to financial institutions, (b) providing liquidity to key credit markets, and (c) purchasing longer-term securities. There have been several studies on the impact of the recent U.S. monetary policy. But these studies mainly focus on its effect on the interest rate, the commodity prices, and the exchange rates. None of these studies have examined the impact of U.S. monetary policy on a specific country, a specific group of countries, or the world economy. Also, these studies do not use a general equilibrium model that takes into account both the goods market and the money market equilibrium condition. We develop a general equilibrium model of income, in which the domestic real GDP is a function of domestic currency's exchange rate and the foreign monetary base. We, then, apply the model on a panel data on the United States and the BRICS countries to see if U.S. credit easing has any effect on BRICS countries' real GDP. Our study finds that the recent U.S. monetary policy of credit (quantitative) easing has an adverse effect on BRICS countries' real GDP. This finding seems intuitive, because, the increase in the U.S. money supply caused by its pursuance of the credit easing policy will lower the interest rate in the U.S. increasing the relative prospective rate of return on investment in the United States. This increased relative rate of return causes increased capital flow into the U.S. from abroad including the BRICS countries. The capital outflows, in turn, lower the investment and, consequently the real GDP in BRICS countries. Also, the random effect is negative for Brazil and Russia, while it is positive for China, India, and South Africa, suggesting that the U.S. monetary policy has a greater negative impact on the real GDP of Brazil and Russia than on that of other BRICS countries. The policy implication of our finding is that an easy monetary policy, such as, quantitative easing does lower the interest rate and increase domestic investment and thereby stimulate the economy. Therefore, some of the policy measures the BRICS countries can take to insulate their economies from a negative impact of the U.S. monetary policy is to implement a similar (easy) monetary policy in their own countries or exercise a direct control on capital outflow. [ABSTRACT FROM AUTHOR]

Exchange and interpersonal relationships are central to the functioning and sustainability of socio-economic activities, including innovation. Grassroots innovations (GI) are dynamic and relational phenomena that evolve with grassroots innovators’ beliefs, expectations and obligatory relationships for varied resources, and the actualization of their desire to make novel and beneficial products. In this paper, the dynamics of exchange and interpersonal relationships that underpin the GI phenomenon are explored through the lens of exchange theory and the consideration of the psychological contract. While exchange theory provides an explanation for the interdependent and dyadic socio-economic relations present in GI, the psychological contract provides a view on the perceptions and expectations that are embedded in exchange and innovation activities. These two theoretical lenses serve as a foundation for the research to engage with the subjective reality of the grassroots innovators’ experiences. In examining the subjective reality of the innovation experiences of the grassroots innovators; the research thereby discerns the dominant form of exchange and socio-economic structure that fosters GI from ideation to commercial scaling. Through the use of phenomenological exploration and detailed thematic analysis of the innovation experiences of the thirteen Indian grassroots innovators, the research determined the nature and spirit of the relational commercial exchanges that both entail and foster GI. The paper starts off with the discussion of the theoretical foundations of the research. Thereafter, the paper briefly discusses the research methodology and the exchange dynamics present in GI. In assimilating the research findings, the paper enlists the features of exchanges embedded in GI phenomenon and highlights the capacity of relational commercial exchanges in fostering GI. The paper further proposes, through this discussion, an interpretive framework for understanding how exchange influences the development of GI. Finally, the paper concludes with an identification of the dynamics of exchange within the GI process, and ascertains the necessary conditions for GI to flourish in commercial space. [ABSTRACT FROM AUTHOR]

This study investigated the effects of exchange rate volatility on firm performance in Nigeria, by examining cross sectional data for the most active 20 companies listed on the Nigerian Stock Exchange. The study developed three dynamic panel models that account for heterogeneities among the companies and it extended recent research by allowing international investors and corporations to base their investment decisions on the exchange rate volatilities between the Nigerian Naira and their home country currencies. The method used in the study is the dynamic panel data approach applying the Arrelano-Bond dynamic panel-data and Arellano-Bover generalized method of moments (GMM) estimators. The variables used in the study to proxy firm performance are the rate of return on assets (RRA), asset turnover ratio (ATR), and portfolio activity & resilience (PAR) variable. While RRA variable is obtained by simply dividing the firm’s profits by the total assets of the business, ATR variable and the PAR variables are obtained by dividing the firm’s sales revenue by the assets employed in the business and by dividing the percentage change in sales by the percentage change in gross domestic product GDP. The exchange rate volatility variable is simply obtained by taking the square of the mean adjusted relative change in the official exchange rate. The result of the paned data estimate shows that there is no significant difference between the Arrelano-Bond dynamic panel approach and Arellano-Bover generalized method of moments (GMM) estimators. The result of the three estimates revealed that exchange rate volatility has significant negative impacts on the rate of return on assets, asset turn ratio and the portfolio activity & resilience, thus, establishing that there exist a significant negative impact of exchange rate volatility on firm performance in Nigeria between 2004 and 2013. Overall, the study suggests that the higher the exchange rate volatility in an economy the less efficient will firms operating in the economy and by implication the lower will be firms’ operating performance. [ABSTRACT FROM AUTHOR]

Stochastic Frontier Approach (SFA) provides both cross-sectional and inter-temporal comparisons of the effects of financing constraints. SFA besides inferring the strength of financing constraints based on the sign and significance of cash flow variable, measures the constraints for each individual firm and at each point in time. It measures directly not only the marginal impact of firm characteristics, such as size & leverage on financial constraint but also at different levels of firm characteristics in a continuum, enabling the firm to decide to either a required minimum or maximum level of cash holding to significantly reduce the financing constraint. SFA used in this study asserts that financing constraints have a symmetric effect on a frictionless level of investment forcing the realized investment to be lower than the frictionless outcome. Therefore, SFA helps to estimate this unobserved investment frontier and any discrepancy of actual investment from the frontier due to financial factors. Closer the actual investment to the frontier, more investment efficiency gain a firm enjoys. So, the error term in regression model is a combination of two parts: (i) two sided noise terms and (ii) one sided (non-negative) technical inefficiency term. SFA estimates financially constrained investment by taking cognizance of modeling one sided deviation from the investment frontier as a function of firm characteristics (such as cash flow, leverage ratio, size and retention ratio of firms). Financing constraints are identified by imposing one-sided distributional assumption on the effect of financing constraints. We examine the financial constraint of some listed firms in Bangladesh following the SFA approach and find that they are under severe financial constraint. The estimated investment efficiency index (IEI) demonstrates a loss of almost 80% of the rate of investment due to financing constraints. The effects of internal financing and external financing on firms’ investment activities are different. It is found that increase in international financing (cash flow) can ease the financing constraints in addition to reduce the uncertainty of the company’s follow-up financing. However, using external financing, firm is likely to increase the uncertainty of future financing. These results suggest that firms in Bangladesh should rely more on internal financing to secure investment opportunities and improve the investment efficiency. [ABSTRACT FROM AUTHOR]

Subsequent to the floating of the US dollar in 1973, liberalization of capital flows and the associated exponential growth of cross-border financial transactions during the last three decades, important volatility and uncertainty has been seen in exchange rates (Arize, 1998). Academicians, policy makers, researchers and economists have always raised eyebrows with regards to the potential impact of exchange rate volatility on trade. Taking into account the foregoing, recent volatility in world known currencies and given that African countries rely heavily on manufacturing trade for their survival, this paper analyses the impact of exchange rate volatility on manufacturing trade in a sample of 18i African countries spanning the period 1995-2012 using an import-export model and dynamic panel data econometrics. As measures of exchange rate volatility, the Z score and EGARCH as employed. In a dynamic setting, contrary to what static results suggest, random coefficient estimates reveal that both REER and its volatility are statistically significant in explaining real manufacturing imports and exports using both measures of exchange rate volatility. However, foreign income, contrary to the law of income elasticity of demand is inelastic in explaining the exports. When VaR estimation is employed, however, only when EGARCH is employed, does exchange rate volatility adversely affect real manufacturing imports and exports. The negative impact of exchange rate volatility on manufacturing exports means that the governments of the African states should look for policies to stabilize their external trade position. As the results, the African economies should seek the help of developed and emerging nations in developing their financial markets, more explicitly well-developed hedging instruments and markets. In the same vein, governments should come up with the necessary policies to promote the introduction of institutions to provide such services. The results of the study also have important insights to offer in terms of government macroeconomic policies to stabilise external trade in the African countries such as diversification of markets and payment alternatives and on a regional scene to start thinking about a regional currency pegged to a major world currency. [ABSTRACT FROM AUTHOR]

The study examines the co-movement between oil price and macroeconomic indicators such as exchange rate and stock indices of major oil importing countries. We differ from previous studies by examining the macroeconomic dynamics of major oil-importing countries during all economic cycles across different frequencies, using wavelet coherence analysis. We use nominal price rather than real price to make the results more meaningful for traders and institutional investors. Our analysis is based on 3012 observations covering the period 2003-14 for fifteen major oil importing countries. Wavelet coherence analysis indicates a high coherence between oil price and macroeconomic indicators across all the countries during the financial crisis. The nominal exchange rates tend to have a negative relationship with benchmark oil prices except Japan in the long run and South Korea in the medium run. Stock indices tend to have a positive relationship with benchmark oil prices in both long and medium run. S&P is leading the oil price, whereas SSE50, Nikkei 225, NIFTY, KOPSI, DAX, CAC, IBEX, FTSSI, FTSEMIB, AEX, TWSE, XU 100, LQ45 and BEL 20 are lagging the oil price in the long run. In the medium term, except for NIFTY, oil price is leading the stock market index. Overall, the results indicate that the oil price and stock indices of the major oil-importing countries are correlated in the long and medium term, but not in the short term. The lead-lag relationship between oil price and macroeconomic indicators are observed to change across frequency and time. While exchange rate offers diversification benefits, stock market indices provide no diversification avenues, since the pattern of co-movement of stock market indices and oil prices are similar across all oil importing countries. The results have implications for individual traders and institutional investors while designing their portfolio for short, medium and long term time horizons. [ABSTRACT FROM AUTHOR]

Subsequent to the floating of the US dollar in 1973, liberalization of capital flows and the associated exponential growth of cross-border financial transactions during the last three decades, important volatility and uncertainty has been seen in exchange rates (Arize, 1998). Academicians, policy makers, researchers and economists have always raised eyebrows with regards to the potential impact of exchange rate volatility on trade. Taking into account the foregoing, recent volatility in world known currencies and given that African countries rely heavily on manufacturing trade for their survival, this paper analyses the impact of exchange rate volatility on manufacturing trade in a sample of 18i African countries spanning the period 1995-2012 using an import-export model and dynamic panel data econometrics. As measures of exchange rate volatility, the Z score and EGARCH as employed. In a dynamic setting, contrary to what static results suggest, random coefficient estimates reveal that both REER and its volatility are statistically significant in explaining real manufacturing imports and exports using both measures of exchange rate volatility. However, foreign income, contrary to the law of income elasticity of demand is inelastic in explaining the exports. When VaR estimation is employed, however, only when EGARCH is employed, does exchange rate volatility adversely affect real manufacturing imports and exports. The negative impact of exchange rate volatility on manufacturing exports means that the governments of the African states should look for policies to stabilize their external trade position. As the results, the African economies should seek the help of developed and emerging nations in developing their financial markets, more explicitly well-developed hedging instruments and markets. In the same vein, governments should come up with the necessary policies to promote the introduction of institutions to provide such services. The results of the study also have important insights to offer in terms of government macroeconomic policies to stabilise external trade in the African countries such as diversification of markets and payment alternatives and on a regional scene to start thinking about a regional currency pegged to a major world currency. [ABSTRACT FROM AUTHOR]

This study investigated the effects of exchange rate volatility on firm performance in Nigeria, by examining cross sectional data for the most active 20 companies listed on the Nigerian Stock Exchange. The study developed three dynamic panel models that account for heterogeneities among the companies and it extended recent research by allowing international investors and corporations to base their investment decisions on the exchange rate volatilities between the Nigerian Naira and their home country currencies. The method used in the study is the dynamic panel data approach applying the Arrelano-Bond dynamic panel-data and Arellano-Bover generalized method of moments (GMM) estimators. The variables used in the study to proxy firm performance are the rate of return on assets (RRA), asset turnover ratio (ATR), and portfolio activity & resilience (PAR) variable. While RRA variable is obtained by simply dividing the firm's profits by the total assets of the business, ATR variable and the PAR variables are obtained by dividing the firm's sales revenue by the assets employed in the business and by dividing the percentage change in sales by the percentage change in gross domestic product GDP. The exchange rate volatility variable is simply obtained by taking the square of the mean adjusted relative change in the official exchange rate. The result of the paned data estimate shows that there is no significant difference between the Arrelano-Bond dynamic panel approach and Arellano-Bover generalized method of moments (GMM) estimators. The result of the three estimates revealed that exchange rate volatility has significant negative impacts on the rate of return on assets, asset turn ratio and the portfolio activity & resilience, thus, establishing that there exist a significant negative impact of exchange rate volatility on firm performance in Nigeria between 2004 and 2013. Overall, the study suggests that the higher the exchange rate volatility in an economy the less efficient will firms operating in the economy and by implication the lower will be firms' operating performance. [ABSTRACT FROM AUTHOR]

Subsequent to the floating of the US dollar in 1973, liberalization of capital flows and the associated exponential growth of cross-border financial transactions during the last three decades, important volatility and uncertainty has been seen in exchange rates (Arize, 1998). Academicians, policy makers, researchers and economists have always raised eyebrows with regards to the potential impact of exchange rate volatility on trade. Taking into account the foregoing, recent volatility in world known currencies and given that African countries rely heavily on manufacturing trade for their survival, this paper analyses the impact of exchange rate volatility on manufacturing trade in a sample of 18i African countries spanning the period 1995-2012 using an import-export model and dynamic panel data econometrics. As measures of exchange rate volatility, the Z score and EGARCH as employed. In a dynamic setting, contrary to what static results suggest, random coefficient estimates reveal that both REER and its volatility are statistically significant in explaining real manufacturing imports and exports using both measures of exchange rate volatility. However, foreign income, contrary to the law of income elasticity of demand is inelastic in explaining the exports. When VaR estimation is employed, however, only when EGARCH is employed, does exchange rate volatility adversely affect real manufacturing imports and exports. The negative impact of exchange rate volatility on manufacturing exports means that the governments of the African states should look for policies to stabilize their external trade position. As the results, the African economies should seek the help of developed and emerging nations in developing their financial markets, more explicitly well-developed hedging instruments and markets. In the same vein, governments should come up with the necessary policies to promote the introduction of institutions to provide such services. The results of the study also have important insights to offer in terms of government macroeconomic policies to stabilise external trade in the African countries such as diversification of markets and payment alternatives and on a regional scene to start thinking about a regional currency pegged to a major world currency. [ABSTRACT FROM AUTHOR]

The paper studies the dependence pattern between stock market and foreign exchange market of three South Asian countries; namely Bangladesh, India and Sri Lanka by using five copula functions, to reveal asymmetric dependence structure. This paper focuses South Asia because of its promise as portfolio investment destination. The dependence structure between stock market and foreign exchange market assists MNCs, private equity firms, international portfolio managers and policy makers in international investment decision making. The paper also studies tail dependence (upper and lower). Markets crash together rather boom together, which can be traced by tail dependence parameter. Correlation, Kendall's tau and Spearman's rho reveal linear dependence. However, Copulas reveal non-linear dependence between non-normal distributions. In this paper, Copula functions are applied between marginal distributions of stationary uni-variate return series. Using daily return series for the period of July 31, 2009 to July 31, 2013, ARMA-GARCH type model are applied to obtain marginal distributions of return series. The results from marginal models indicate that volatility dies immediately after a crisis; meanwhile positive news creates more volatility than negatives. The results from copula models indicate existence of asymmetric dependence, with upper tail dependence for all pairs, implying dependence increases in bull market situation (price increase in financial instruments). Both Bangladeshi and Indian pairs provide some diversification possibility, against no diversification for investing in Sri Lankan market. Moreover, Bangladesh and India demonstrated as promising investment destination in terms of risk -return criteria. Foreign investors are recommended to employ proper risk and investment management strategy in order to earn capital gain, by following diversification strategy. Conversely, investment recipient countries are recommended to establish a stable, well regulated stock market, with high stock market capitalization to GDP. Besides, monetary policy should stabilize the exchange rate of currency to attract foreign investors. Copula based dependence measures assist foreign investors and investment recipient countries to change their related strategies and policies; subsequently they will be able to maximize their utility functions. [ABSTRACT FROM AUTHOR]

Brazil and USA are important trading partners. Brazil as a resource-rich country in Latin America and a vibrant emerging economy draws enormous US trade and investment interests. Inclusion in BRICS lifts Brazil as an emerging global economic force and BRICS as a group poses economic challenges to the developed world. The Brazil-US growing trade and fluctuating Real-Dollar exchange rate are a fascinating issue of empirical exploration. The principal objective of this paper is to study the dynamics between Brazil-US nominal trade balance and nominal Real-Dollar exchange rate. Monthly data are utilized from January 1999 through December 2013 since Brazil allowed floatation of Real beginning in January 1999. They are obtained from the Direction of Trade and International Financial Statistics, published by the IMF. The standard cointegration methodology is implemented. This is appropriate since macroeconomic and financial variables are very likely to be time-variant. The application of OLS on nonstationary variables would produce misleading inferences in presence of spurious correlation. Consequently, the efficient DF-GLS and NG-Perron tests for nonstationarity and their counterpart KPSS test for stationarity are applied. All of them confirm nonstationarity of both time series variables. Stationarity in both variables is restored on first-differencing of the level data depicting I(1) behavior. Consequently, the Johansen-Juselius procedure is implemented for cointegrating relationship. Both max and trace test statistics unveil no cointegration between nominal bilateral trade balance and exchange rate. In this backdrop, VAR model is estimated, as appropriate. The evidences on short-run bidirectional causal flows are strong with significant interactive feedback effects. In the case of reverse causality, the evidences are highly insignificant. The impulse response analysis depicts the existence of short-run bilateral J-curve that shows initial deterioration in trade balance for a while following exchange rate depreciation before improvement into positive territory. In this paper, the J-curve shows that currency depreciation by Brazil against the US dollar to improve its trade balance with the USA may work only in the short run. Progressive improvement in trade balance in the long run would, in fact, depend on prudent monetary and fiscal actions to enhance Brazil's global competitiveness through improvement in labor productivity and modern technology adoption. [ABSTRACT FROM AUTHOR]

Mixed results on the validity of Purchasing Power Parity (PPP) relationship in South Asian countries motivates this paper to conduct a further inquiry. Existing studies lack appropriate treatment of cross-country dependence in the testing procedure. In this paper we employ a method that allows us to identify the degree of cross-sectional dependence (CSD) and apply panel unit root test to accommodate this dependence on the real exchange rate series of five South Asian countries in the South Asian Association of Regional Cooperation (SAARC) which include Bangladesh, India, Pakistan, Sri Lanka and Nepal. We find evidence of strong cross-country dependence, cross-country correlation being 0.735. Our panel unit test results support the validity of long-run PPP in the sample countries. This result is in contrast to the previous studies in similar countries which did not accommodate CSD in their estimation. This finding implies that real shocks do not have any permanent effect on the real exchange rate and other things remaining the same, no active policy intervention is warranted for the sustainability of external balance. [ABSTRACT FROM AUTHOR]

This paper examines the relationship between Foreign Direct Investment (FDI) and the real exchange rate for low-income countries of Sub-Saharan Africa, using a panel data approach and Two-Stage Least Squares (2SLS) method. The results show that while the depreciation of the real exchange rate draws more FDI to Sub-Saharan African countries, the real exchange rate volatility causes greater instability in FDI inflows to these countries. The results are robust across different measures and model specifications. In addition, we conclude that the use of the pegged exchange rate as an incentive to attract FDI inflow, in the presence of increasing real exchange rate instability, creates greater price instability, as a result, FDI inflows are largely influenced by the real exchange rate. [ABSTRACT FROM AUTHOR]

This study applies the threshold autoregressive (TAR) method proposed by Caner and Hansen (2001) to test the validity of long-run purchasing power parity (PPP) in 14 transition countries, using monthly real effective exchange rates over the period January 1994- June 2012. The empirical results indicate that PPP holds only in five countries (i.e., Cyprus, Lithuania, Latvia, Poland, and Slovenia). Furthermore, we found that the adjustment toward PPP is nonlinear. [ABSTRACT FROM AUTHOR]

This study examines the macroeconomic factors underlying FDI flows to India using cointegrating VAR with I(1) exogenous variables. The results indicate that conventional determinants such as a depreciating exchange rate, higher domestic returns, higher domestic output and better infrastructure are conducive to FDI flows to India. The results also indicate that macroeconomic instability has adverse effects while credit worthiness is conducive to FDI flows. A negative relation between trade openness and FDI is observed suggesting that FDI flows to India may be tariff jumping in nature. Empirical estimates also indicate that an increase in global FDI flows to other emerging economies reduces FDI flows to India indicating that India competes with other emerging economies in receiving FDI. Further, the results show that higher foreign output is conducive to FDI flows indicating procyclicality of FDI with economic performance of foreign countries. [ABSTRACT FROM AUTHOR]

The main purpose of this study is to examine the effects of the exchange rates, international prices, and the demand shocks on inflation in Fiji. How the domestic inflation in a pegged exchange rate system is aligned with international price shocks is an important monetarist idea, and this is tested in this study. This study employs annual data from 1975 to 2010. The multivariate cointegration tests are done after the unit root tests, and further, the Vector Error Correction (VEC) model shows that the changes in Fiji's CPI are Granger caused by the long-term trends in all other variables, and the CPI in Australia, and devaluation-year dummies are used as exogenous variables in the VEC model, and the changes in exchange rate and changes in demand shocks are the independent variables but made endogenous in the VEC model. The impulse response function also shows that due to the exchange rate depreciation, inflation has increased for many years in Fiji. The policy implication of our study is that as a monetary policy instrument, the flexibility of the exchange rate policy is indispensable for Fiji to appropriately absorb the international supply and price shocks. [ABSTRACT FROM AUTHOR]