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Change in stock prices and development of the market vary depending on decisions made by investors. Decisions made by investors are determined by corporate performance, the country's economic situation, political developments and changes in macroeconomic factors. In this study, the relationship between stock prices of airlines and macroeconomic variables was analyzed. To accomplish this, daily macroeconomic data of 14 airlines covering the years 2009-2018 were analyzed by Toda Yomamato and Hatemi-J asymmetric causality tests, and macroeconomic factors (Brent oil price, dollar exchange rate and interest rate) determining stock prices were identified. According to the results of the Toda and Yomamato causality test, it was found that there was a significant relationship among variables of the dollar exchange rate, the price of oil and stock prices of airlines. Except for one airline, there was no significant relationship between interest rate and stock price. According to the results of the Hatemi-J asymmetric causality test, it was found that there were significant relationships among variables of the dollar exchange rate, oil price, interest rate, and airline stock prices. In light of these findings, innovation and adoption of alternative fuel technology by the aviation industry and airlines can be a successful alternative to oil price risk. Results on exchange rate and interest rate changes indicate that airlines and related governments should focus on policies that increase growth of the aviation industry. [ABSTRACT FROM AUTHOR]

We estimate the determinants (terms of trade, tradable to non-tradable price differentials, interest rate differentials, forward exchange rate and risk premium) of the Mexican bilateral real exchange rate (q) for the short and long run by using an Autoregressive Distributed Lag model (ARDL, Pesaran and Shin et al. (2001)) for Mexico (2001.01–2022.12). The inclusion of commercial and financial variables and finding empirical evidence of cointegration only for 2009.01–2022.12 are the main contributions. Our results indicate no cointegrating relationship either for the entire sample, or for 2001.01–2008.12. This finding has to do with the increasing international financialization process, after the 2008–2009 Great Financial Crisis. Using a double log model we find that: a) there is a strong short-run autoregressive effect of q of up to 4 lags (0.75), b) that the Balassa-Samuelson Effect is the largest in the model (-0.27 and -1.11 for short and long terms), c) the next most important factor is the terms of trade (-0.126 and -0.51, respectively), d) there are considerable, although lesser, effects of financial variables: forward exchange rate (0.0155 and 0.063, respectively) and risk-premium (0.009 and 0.036, respectively), e) there is a clear long-term trend of real depreciation expressed by the trend of 0.0020, which suggests that the PPP hypothesis applies. [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]

This paper aims to examine the determinants of the exchange rate based on the portfolio balance model. Using the Autoregressive Distributed Lag Model (ARDL), we empirically evaluate the effect of private net foreign assets and the traditional factors affecting the exchange rate dynamics in Mexico from 1990-2019. The main results suggest that: i) the portfolio approach constitutes a consistent system to explain the behavior of the exchange rate; ii) an increase in economic activity and interest rate differentials triggers an appreciation of the exchange rate; iii) an increase in the inflation gap and private net foreign assets causes a depreciation. [ABSTRACT FROM AUTHOR]

In this paper, we address how the monetary authority should react to financial market status and exchange rate movements in a small open economy New Keynesian model with financial frictions due to asymmetric information between savers and borrowers. We show that the small economy with financial frictions is more susceptible to the exogenous shocks under the fixed exchange rate regime than under the flexible exchange regime. The small economy experiences a more prolonged and deeper economic recession under the fixed exchange rate regime than under the flexible exchange rate regime. The monetary policy taking into account external finance premium is better than the interest rate rule without considering the financial market status. [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]

This paper studies the channels through which shocks from one country transmit in the global economy. Using local projections with instrumental variables (LP-IV), we document significant effects of US monetary shocks on output, interest rates, and trade flows in a large panel of countries. We find substantial heterogeneity in the foreign output responses depending on international trade. This association is due to the output share of international trade (extensive margin) and not the elasticity of trade (intensive margin), the exchange rate, or the foreign interest rate responses. To distinguish between the direct and indirect transmission of shocks, we further collect detailed data on bilateral trade linkages and combine the LP-IV approach with spatial econometric models. The indirect spillovers account for nearly half of the total response of foreign output, indicating substantial amplification engendered by the trade network. But the heterogeneity in the total effects is almost entirely due to the direct effects. Moreover, accounting for network effects within this framework leads to estimates of the mean output response up to one-third larger in magnitude than in the nonspatial specifications. Thus, studies that do not explicitly model cross-country linkages may present an incomplete view of international business cycles. [ABSTRACT FROM AUTHOR]

The aim of this paper was to evaluate whether the country-level macroeconomic variables exchange rate, economic growth and interest rate impacted the short- and long-term capital structure of publicly traded companies in the Brazilian electricity sector, between the first quarter of 2010 and the fourth quarter of 2020. Regressions with panel data with fixed effects were used, from a database that had observations of 42 companies between the first quarter of 2010 and the fourth quarter of 2020. The results showed that the macroeconomic variables impact the short and long term financing decisions of publicly traded companies in the Brazilian electricity sector, in the time frame covered by the work. Interest rate should be highlighted, which showed a significant negative correlation with short-term and long-term indebtedness, indicating that the higher the interest rates, the less companies are indebted. [ABSTRACT FROM AUTHOR]

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

This study applies a Markov switching error correction model to describe the single most important real exchange rate (Deutsche mark versus US dollar) over the flexible exchange rates period from 1973 to 2004. We show an alternative way of modelling non-linear adjustment to the purchasing power parity (PPP) besides standard threshold models. The model merges the two possible sources of non-linearity by additionally allowing the probability of a mean-reverting regime to increase with the distance from PPP. The interest rate differential as an additional determinant of real exchange rate behaviour in a Markov switching framework is introduced in the model. The study finds that the real dollar exchange rate during the post-Bretton Woods era is well described by a Markov switching error correction model with (PPP) as long-run equilibrium. There is one mean reversion regime where PPP and the interest parity condition are valid. Contrary, the second regime is characterised by persistent mean aversion, where a regime switch does not become more likely with increasing distance from PPP. The unconditional half-life of shocks is about 1.5 years. [ABSTRACT FROM AUTHOR]

This paper investigates the multidimensional spatial effects of risk spillovers among Chinese financial institutions and the dynamic evolution of financial risk contagion in the tail risk correlation network over different time periods. We first measure risk spillovers from financial submarkets to the stock market, identifying five periods using structural breakpoint tests. Then, we construct a spatial error financial network panel model by combining complex network and spatial econometric theory to explore the spatial spillover variability. Finally, we calculate the Bonacich centrality of nodes in the tail risk network and analyze the dynamic evolution of the financial impact path during the different time periods. The results show that the multidimensional spatial spillovers of financial risk among financial institutions are obvious and time varying. The spatial spillovers of financial institutions are positively correlated with the turnover rate and negatively correlated with the exchange rate, interest rate and return volatility. Financial institutions of the same type in the tail risk network display intraindustry risk clustering, and the systemically important institutions identified based on Bonacich centrality differ significantly across time. Moreover, when risk spillovers increase, external shocks' destructive power and speed of transmission to the network rise. [ABSTRACT FROM AUTHOR]

The paper develops a model in which the relation between the real exchange rate and the real wage, in the context of conflictive income distribution, is made explicit. It is noted that the central bank tries to regulate the distributive relation exchange rate and real wages through the changes in the interest rate. The theoretical point is that, under certain circumstances, a relatively depreciated or high level of the real exchange rate might reduce real wages and have a negative impact on economic growth. The paper also provides some evidence for the Argentine case, and suggests that the Classical Developmentalist elasticity pessimism seems, in the case of Argentina, to be validated. Also, the use of the exchange rate as an instrument to bolster redistribution away from the working class, and to promote investment and growth is also not born in the data. [ABSTRACT FROM AUTHOR]

This paper proposes a methodology for the estimation of the current account equilibrium exchange rate - the exchange rate that guarantees the intertemporal current account equilibrium for a country. Moreover, the methodology is tested throughout appropriate econometric technics (VECM Models) for Argentina, Brazil, Chile, and Colombia, using quarterly data from around 2000 (according to data availability for each country) to 2020. The model includes both long-term structural variables such as terms of trade, goods and service trade as percentage of GDP and GDP per capita as well short term policy variables such as interest rate differential and EMBI plus. Apart from proposing an innovative methodology for estimating the current account equilibrium exchange rate, the paper brings important insights in terms of chronicle and cyclical appreciation (depreciation) of the exchange rate in LA countries. In addition, it shows high correlation between the exchange rate negative (positive) misalignments and the current account deficits (surpluses) in the countries analyzed. [ABSTRACT FROM AUTHOR]

An assessment of debt dynamics and its sustainability is very important in formalizing prudent and effective macroeconomic policies especially for the economies with weak macroeconomic fundamentals and alarming debt levels. Keeping in view the recent debt escalation in Pakistan, this study aims to explore the important factors that influence the public debt dynamics in case of Pakistan and to evaluate its sustainability. This study applies the debt dynamic approach for empirical assessment of drivers of changing debt levels and analysis of public debt sustainability. Furthermore, ARDL approach is utilized to study the short- and long-run debt dynamics using historic data from 1975 to 2021. This study is distinct from already existing work on debt assessment in Pakistan as it examines both important dimensions of public debt (determinants & stability) by employing the novel dynamic debt modelling approach and using most recent data. The study finds a positive and significant impact of fiscal deficit, exchange rate depreciation and interest rate on public debt in Pakistan. The debt sustainability analysis also reveals the instability of public debt for the entire study period except for few years. The regression results corroborate with the findings from stability analysis, and the main driving forces for increasing the debt burden of the country are found to be the fiscal indiscipline along with the rising cost on account of ER depreciation and higher interest rates. [ABSTRACT FROM AUTHOR]

Liquidity management has an important place in the asset and liability management of banks. The aim of this study is to empirically investigate the intra-bank and macroeconomic factors that affect liquidity in 20 Turkish commercial banks. Financial data of commercial banks operating in the 2002-2022 period and macroeconomic data for the same period are taken into account. In the panel data analysis where liquidity ratios liquid asset ratio (LAR), acid-test ratio (ATR) and current ratio (CR) were taken as dependent variables, a negative relationship between liquidity ratios and deposits to liabilities ratio (DR), financial asset ratio (FAR), fixed asset ratio (FIXR), economic growth rate (gross domestic products - GDP), central bank interest rate (INT), loans to assets ratio (LR), net interest margin (NIM), non-performing loans ratio (NPL); a positive correlation with liquidity ratios and equity ratio (equities to assets ratio, CAP), inflation rate (INF), natural logarithm of asset size (TA), foreign exchange rate (XR) was found. In the study, no statistically significant relationship was found between foreign exchange liquidity ratio (FXLR) and liquidity ratios. Despite its profitabilityreducing effect, banks need to manage their liquidity sensitively and effectively in order to maintain the trust of customers and market, especially during crisis periods. [ABSTRACT FROM AUTHOR]

We document how the entire distribution of exchange rate returns responds to changes in global financial conditions. We measure global financial conditions as the common component of country-specific financial condition indices, computed consistently across a large panel of developed and emerging economies. Using quantile regression, we provide a characterisation and ranking of the tail behaviour of a large sample of currencies in response to a tightening of global financial conditions, corroborating (and quantifying) some of the prevailing narratives about safe haven and risky currencies. Compared to most standard approaches, our methodology delivers a more nuanced picture of exchange rate behaviour, allowing for example to make probabilistic statements about the likelihood of observing large swings in returns given the prevailing global financial environment. We also identify macroeconomic fundamentals associated with different tail dynamics: currencies of countries with higher interest rates, low levels of international reserves and large fiscal deficits display more marked increases in the likelihood of large losses in response to a tightening of global financial conditions. [ABSTRACT FROM AUTHOR]

This study investigated the determinants of cocoa export earnings in Nigeria between 1980 and 2019. Secondary data spanning between 1980 and 2019 were collected from reputable sources such as Food and Agriculture Organisation Statistical Database (FAOSTAT), National Bureau of Statistics (NBS) and Central bank of Nigeria (CBN). Descriptive Statistics, Augment Dickey Fuller Johnson co-integration, and vector error correction (VECM) were the analytical tools employed in the study. Results indicated that variables of the model were stationary after first difference and were co-integrated. VECM results shows that domestic production of cocoa negatively influences cocoa export earnings in the short run, while cocoa output and gross domestic product (GDP) had direct relationship with cocoa export values in the long run, but exchange and interest rates had negative effect on cocoa export values over the study period. It is concluded that domestic production, GDP, exchange and interest rates were the variables determining the cocoa export earnings over the study period. It is recommended that policy reforms on coco production and value chain, flexible exchange and a single digit interest rates would improve cocoa earnings and its contribution to GDP. [ABSTRACT FROM AUTHOR]

We test the hypothesis that public banks reduce monetary policy power for Brazilian economy, during the 2000-2018 period. Previous studies have shown that companies with access to government driven credit present smaller fall in investment and production after a contractionary monetary policy shock. Nevertheless, these studies are based on microeconomic data and ignore cost-push effects of monetary policy. We employ state dependent local projections (Jordà, 2005) to compare monetary policy power (defined as the sensibility of inflation to changes in basic interest rate) between periods of high credit of public banks and periods of high credit of private banks. We do not find evidence that monetary policy is less powerful in periods of high credit of public banks. Even though periods of high credit of public banks present a lower effect over output, those periods present less persistent price puzzles than periods of high private credit. We conduct several robustness tests to confirm our results. We attribute those results to lower flexibility in interest rates of credit from public banks, what leads to lower transmission in financial costs, lower reduction in capital stock and lower puzzle in exchange rate. [ABSTRACT FROM AUTHOR]

The study analyses the impacts of climate change on macro prices (food prices, interest rate, and exchange rate). Secondary data from 1960-2019 are used, and the nonlinear autoregressive distributed lag method is employed accordingly. The results reveal that there is a long-run relationship among the variables employed. In addition, asymmetry only exists between food prices and exchange rate in the short run while it only subsists for all macro prices, except interest rate as a dependent variable, in the long run. Also, the relative effects of climate change on macro prices grade food prices with the highest effect. In fact, the continual need for climate policies in both financial and real sectors to douse the effect of climate change on macro prices cannot be overemphasised. Therefore, this study recommends that the Nigerian government and policymakers should ratify and pursue policy initiatives and strategies based on both negative and positive changes in macro prices. [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]

The paper discusses the determination of inflation in Brazil, especially after the great recession of 2015-2016, to assess the adequacy of manipulating interest rates to control the rise in prices due to permanent cost pressure. The burden of using the interest rate to fight cost inflation is to create a highly conventional level of the real interest rate, which benefits the rentier class in a financialized economy. In the light of the post-Keynesian macroeconomics, a high-interest rate convention keeps the economy with a low growth rate and a low investment rate, which in the case of the Brazilian economy has resulted in a regression in the productive matrix and productivity stagnation, and both contribute to perpetuating cost pressures on prices. The empirical analysis corroborates the discussion about recent inflation having its origin in cost pressures over which the interest rate impact for its control is limited. We complement the empirical analysis by testing the response to the SELIC interest rate of the variables used to explain the fluctuation of market prices and administered prices: commodity price index, exchange rate and activity level. As expected, the impact of an increase in the interest rate appreciates the exchange rate, favouring inflation control and reducing the level of activity but has no impact on the commodity price index. [ABSTRACT FROM AUTHOR]

Derivatives markets show that their structure is always characterized by periods of strong price fluctuations. This is true regardless of the underlying asset of the futures contracts considered, whether they are commodities, interest rates, exchange rates, shares, stock market indices, etc. By locking in future prices, the primary objective of these markets is to limit the risks faced by operators. This article proposes a new method of optimizing the coverage ratio by futures contracts to minimize price variance and thus apply this new technique to reduce the risk associated with Brent price volatility for the period from January 2010 to December 2020. The variance minimization model of Ederington's (1979) is the first and most widely used coverage model and the one that dominates the literature on this area which helps to find the optimal coverage ratio, and is also the objective function in our particle assay optimization algorithm in MATLAB and we will better interpret our results with statistical analysis and lastly, we will evaluate the effectiveness of the coverage model. [ABSTRACT FROM AUTHOR]

There are some tax security measures in the Corporate Tax Law practice in Turkey. One of these tax security institutions, "Thin Capitalization", is regulated in Article 12 of the Corporate Tax Law No. 5520. The aforementioned regulation is based on the principle that the debts borrowed by the institutions from their partners or persons related to the partners, exceeding three times the equity capital of the institution at any time during the accounting period, is not considered as a borrowing, but as a capital that has been put into the institution in disguise. According to this practice, it is not possible to consider the part of the negative exchange rate differences that arise due to the increases in foreign exchange rates, which corresponds to the thin capitalization, as an expense in the determination of corporate earnings, regarding the interests corresponding to the said borrowings, which are accepted as capital, and foreign currency borrowings. In parallel with this, the part of the positive exchange rate differences that arise as a result of the decrease in exchange rates, which corresponds to the thin capitalization, should not be taken into account as foreign exchange profit in determining the corporate income. The purpose of this study is to evaluate the foreign exchange borrowings and exchange differences obtained from partners or related parties in order to meet the financing needs of institutions within the thin capitalization. [ABSTRACT FROM AUTHOR]

The current literature usually ignores the dependence between the rate of exchange and two interest rates, i.e., domestic and foreign ones, for the availability of analytical solutions to foreign exchange option prices, while such settings potentially limit the performance of these models. To address this, we introduce two new factors into the Heston–Hull–White model when foreign exchange options are evaluated. This newly formulated three-factor Heston–Hull–White model still admits a closed-form solution to foreign exchange option prices, which is successfully figured out based on the numeraire change technique and the obtained analytical expression of the characteristic function. Based on options on foreign exchange rate between US and Australian Dollar, both the three-factor and one-factor Heston–Hull–White models are calibrated using the Adaptive Simulated Annealing. When evaluating the performance of both models with in- and out-of-sample errors, the greater forecasting ability of the new model equipped with the two new factors over the one-factor Heston–Hull–White model is identified. • A three-factor stochastic volatility and interest rate model is formulated. • A full correlation structure is imposed among underlying, volatility and short rate. • An exact and analytical pricing formula for foreign exchange options is derived. • An empirical study shows the importance of introducing the two new factors. [ABSTRACT FROM AUTHOR]

We investigate the international propagation of tax rate shocks originating in the USA using a global vector error correction model. We identify shocks to corporate and personal income tax rates by using narrative series as external instruments, following the proxy-SVAR methodology. The main results are the following: (1) In terms of fiscal multiplier, domestic effects of corporate tax shocks are stronger than those of personal income tax shock; (2) spillovers are in most cases positive and significant, albeit of small size; (3) the boost to exports in recipient economies, stimulated both by stronger US demand and, to a lesser extent, by real exchange rate depreciation, is the main transmission channel; and financial channels (through long-term interest rates) also play a role. [ABSTRACT FROM AUTHOR]

Selecting an appropriate statistical model to forecast exchange rates is still today a relevant issue for policymakers and central bankers. The socalled Meese and Rogoff puzzle assesses that exchange rate fluctuations are unpredictable. In the literature, a lot of studies tried to solve the puzzle finding both alternative predictors (e.g., interest rates, price levels) and statistical models based on temporal aggregation. In this paper, we propose an approach based on mixed frequency models to overcome the lack of information caused by temporal aggregation. We show the effectiveness of our approach with an application to CAD/USD exchange rate predictions. [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]

This paper is aimed at assessing the spillover effects of the US Economic Policy Uncertainty (EPU) in macroeconomic variables of major Latin American Countries (LAC): Mexico, Colombia, Brazil, and Chile. To do that, we estimate a set of two-country Structural Vector Autoregressive (SVAR) models for 1997-2019; each model includes the US and one of the LAC. We use the following variables: EPU indexes, exchange rates, consumer price indexes, industrial production (IP), and interest rates (IR) of the US and the studied LAC. The main finding is that positive shocks in the US EPU index lead to currency depreciation for all four LAC; the largest effect is for Mexico. Other statistically significant results are a brief and small positive impact on Colombia's IP and a positive impact on Mexico's IR. The remaining LAC's estimates are statistically insignificant. For this reason, we applied Rossi and Wang's (2019) robust Granger causality tests that considers structural breaks. Finally, the estimates before and after the 2008 financial crisis suggest that LAC became slightly more responsive to US EPU shocks after the crisis. [ABSTRACT FROM AUTHOR]

The article is devoted to developing a forecasting mechanism unifying all macroeconomic puzzles, which violate fundamental macroeconomic relationships among variables of the monetary transmission mechanism in Ukraine. The violations mentioned above caused by breaking one-law price (PPP puzzle), uncovered interest rates rule (UIP puzzle), plausible emergence of new sophisticated financial instruments and causality of international risk-sharing conditions under the financial capital spillover. The authors calculated the residuals in the VAR model of monetary transmission mechanism (MTM) to analyze the correlations between shocks and disturbances in these variables. Furtherly these correlations were put in constructing the restriction matrix for building structural vector autoregressive model. The correlations between shocks and disturbances were employed for estimating the impulse response functions used for determining the duration of half-life shocks for the real exchange rate. The obtained results allowed noticing that relationships between macroeconomic variables in the monetary transmission mechanism were not similar if considering the established foreign exchange arrangement. In particular, during 2007-2020, relationships among MTM variables were violated. Besides, a half-life duration of the real exchange rate was far longer. While in cases for Ukraine before switching to floating exchange rate regime and after it became less explicit and half-lives were shorter. The findings allowed confirming the impact of the currency arrangement switching on violation of traditional linkages between the variables of foreign exchange rate channel of MTM. Thus, it showed that during the fixed arrangement, absolutely all reactions were violated. Although after the introduction of a flexible exchange rate, the sign of REER correlation with foreign trade terms has changed to positive and more strengthened. Therefore, it has demonstrated a positive impact on the dynamics of real GDP and lower inflation. The findings of the current study could be used to improve existed methodical approaches for establishing structural constraints on variables responses to the shock of the exchange rate. The algorithm for designing optimal monetary policy strategies could take place in empirical data and forecasting exchange rate volatility. [ABSTRACT FROM AUTHOR]

Hot money flows refer to short-term foreign currencies entering the country's economies through short-term loans and portfolio investments. The purpose of the study is to determine the impact of hot money flows in Turkey on stock exchange index, exchange rates and interest rates. For this purpose, BIST-100 Index closing values, US dollar exchange rates and five-year Treasury bond interest rates were considered to explain hot money data. The data are in an annual frequency and the analyses were made for the period between 1989 and 2019. The structural equation model was applied in the study. The model fit index values that helped to determine the success rate of the established model was examined before passing on to the analysis. According to the model fit index values, it was determined that the model was compatible with the data. It was found that hot money has a positive effect on the stock exchange index and a negative effect on interest rates and exchange rates. [ABSTRACT FROM AUTHOR]

Objective: The aim of this study is to examine monetary policy transmission mechanisms in four Central and Eastern European countries (the Czech Republic, Hungary, Poland and Romania), in the presence of fiscal and exchange rate effects. Research Design & Methods: We implement a structural vector autoregression (SVAR) approach for modelling the interdependencies between monetary and fiscal policies, output gap and consumer price inflation (CPI). In our six-variable model, which includes the budget balance, the output gap, CPI, the central bank reference rate, the lending rate and the real exchange rate (RER), short-run restrictions on the contemporaneous structural parameters imply that the budget balance responds to changes in the output gap and lending rate, while the central bank reference rate is a function of output and inflationary shocks. Findings: The results of our research show that the effects of an increase in the central bank's short-run interest rate on inflation, output gap and the RER are quite heterogeneous across the CEE countries. As the monetary policy response to inflation seems to be significant and rather uniform across countries, though with a different time pattern, there is no evidence of its reaction to the output gap (except for Romania in the long run). Among other results, budget surplus has a strong anti-inflationary impact in all countries but at the expense of a short-lived output slowdown (except for Hungary). The RER undervaluation is likely to stimulate output (Romania) or depress it (Poland), with a neutral stance in the two other countries. As expected, an increase in the lending rate is followed by a fall in output on impact, while there is no significant effect on inflation. Implications/Recommendations: Our study argues in favour of a much stronger response of the central bank reference rate to the output gap in the CEE countries. As suggested by the experience of Poland, an immediate response of the central bank to inflation could explain the lack of the price puzzle when an increase in the reference rate is associated with a sustained increase in consumer prices. An anti-inflationary monetary policy stance should be strengthened by fiscal tightening, while in a recession a higher budget deficit is likely to boost output and prevent a deflationary spiral. Contribution: The article presents the application of the extended IS-MP-IA model to the modelling of monetary policies by the central banks of the CEE countries that practice a floating exchange rate regime. [ABSTRACT FROM AUTHOR]

Applying Ismailov and Rossi (2018), I newly construct the Korea FX uncertainty based on the density distribution of historical forecast errors. This uncertainty index properly captures the rare but significant events in the Korean currency market and provides information distinct from other uncertainty measures in recent studies. I show that 1) FX uncertainty arising from unexpected depreciation has a stronger impact on Korea- U.S. exchange rates and that 2) macro variables, such as capital flows or interest rate differentials, have predictive ability regarding Korea FX uncertainty for short horizons. These findings enable us to predict the events of sudden currency crashes and understand the Korea-U.S. exchange rate dynamics. [ABSTRACT FROM AUTHOR]

The main objective of the study is to determine financial relations between principal macro-economic indicators in Turkey empirically. In this respect, it is necessary to examine whether there is a pass-through effect of inflation and interest rate on the exchange rate and to examine the relation between inflation and interest rate. The period between April 2018 and January 2003 is used in the analysis, data on average monthly exchange rate, inflation and interest rates. In the study, cointegration analysis was done with ARDL bound test approach and then was done also causality analysis with Toda-Yamamoto test. According to the findings obtained from the study it has been found to be unidirectional causality from exchange rate to inflation and interest rates. According to the results, the effect of the exchange rate on the interest rate and inflation is valid. On the other hand according to the findings it has been identified cointegration relationship between interest rates and inflation in Turkey and concludes that the verification of the Fisher hypothesis has been reached. [ABSTRACT FROM AUTHOR]

This paper analyzes the composition of Brazilian basket exports and investigates the main factors that explain the high share of natural resources exports in the period from 2000 to 2018. For this, it applies the cointegration methodology by estimation of an Autoregressive Distributed Lags (ARDL) model to evaluate the effects of international commodity prices, real exchange rate, foreign demand and interest rate on natural resource exports. The results show the relevance of external demand (China effect) and commodity prices to explain the long run performance of those exports, leaving the basket exports vulnerable to cyclical variables that can be reversed over time. [ABSTRACT FROM AUTHOR]

Suppose that the interest rates obey stochastic differential equations, while the exchange rate follows an uncertain differential equation; this paper proposes a new currency model. Under the proposed currency model, the pricing formula of European currency options is then derived. Some numerical examples recorded illustrate the quality of pricing formulas. Meanwhile, this paper analyzes the relationship between the pricing formula and some parameters. [ABSTRACT FROM AUTHOR]

We propose a simple identification scheme for the causes of the violations of uncovered interest parity. Our method uses the serial dependence patterns of excess returns as a criterion for judging performance of economic models. We show that a mean reverting component in excess returns, representing a violation of uncovered interest parity, mainly contributes to generating different serial dependence patterns of excess returns: rational expectations risk premium models tend to generate negative serial dependence of excess returns, while expectational errors models tend to generate positive serial dependence. [ABSTRACT FROM AUTHOR]

This paper examines the international spillover effects of China's monetary policy shock on macro and financial variables in 26 countries along the Belt and Road (B&R) from 2000 to 2019. We find that a surprise Chinese monetary tightening brings about a widening in the short-term interest rate spread, a drop in the equity price, nominal depreciation against the RMB and real depreciation, and an improvement in the trade balance, on average, across the 26 B&R countries. Moreover, substantial heterogeneous effects emerge in the responses of the foreign real exchange rate and the trade balance in different groups in terms of the 26 countries' trade weights with China, capital openness, and national income levels. Finally, all the empirical evidence reveals that the expenditure switching effect plays an important role in facilitating the international transmission of China's monetary policy shock. • Estimates China's monetary policy shock series via a large Bayesian VAR model. • Examines the cross-border transmission of the shock via local projections. • Finds significant spillover effects of China' monetary policy shock abroad. • Finds heterogeneities in the spillover effects for different country groups. • Finds the expenditure switching effect is key in the monetary policy transmission. [ABSTRACT FROM AUTHOR]

The paper analyzes and compares the effects of domestic monetary policy using DSGE, DSGE-VAR, and VAR based on a two-country open economy model of Korea and the U.S. According to impulse response analysis, a domestic interest rate hike raises won value in the case of DSGE and DSGE-VAR models, while in the case of the unrestricted VAR model, it lowers won value. In the marginal data density standard, DSGE-VAR (µ=1) is superior to DSGE or Bayesian VAR over the sample period. Conversely, in the in-sample RMSE criterion, especially for the won/dollar exchange rate, VARs are superior to DSGE or DSGE-VAR. It is necessary to study further if these differences are caused by model misspecification or omitted variable bias. [ABSTRACT FROM AUTHOR]

The article reports that according to a research changes in real interest rates and the money supply influence commodity prices. Topics discussed include information on interrelationships between interest rates and exchange rates; information on increase in foreign purchases of U.S. assets along with higher level of the U.S. interest rates; and strategies adopted by the U.S. Federal Reserve for normalizing its balance sheet.

Developing countries in general need flexibility and a sufficient number of instruments to prevent excessive volatility. Evidence does not support the orthodox belief that, with free floating, international financial markets will perform that role by smoothly adjusting exchange rates to their "equilibrium" level. In reality, exchange rates under a floating regime have proved to be highly unstable, leading to long spells of misalignment. The experience with hard pegs has not been satisfactory either: the exchange rate could not be corrected in cases of external shocks or misalignment. Given this experience, "intermediate" regimes are preferable when there is instability in international financial markets. [ABSTRACT FROM AUTHOR]

We use the wavelet coherency analysis in order to investigate the relationship between the exchange rate changes and its major financial determinants for selected emerging economies. Our analysis shows that the changes in exchange rate are correlated with interest rate differentials, risk premium, the FED's monetary policy implementation and its policy uncertainty. Moreover, the co-movement between the exchange rate changes and its financial determinants substantially changes across frequencies and over time. The co-movement patterns also vary to a large extent across “fragile” emerging markets. Finally, the strongest co-movement of exchange rate changes is with the risk premium in all countries. [ABSTRACT FROM AUTHOR]

Lack of intrinsic value, hybrid nature of commodities and recent financialization of commodity markets make of understanding precious metals price moves complicated. Predicting future development of precious metals market can be more feasible if we discover what drives these markets and describe nature of the drivers. The aim of the paper is to explain metal price movements by assessing an impact of multiple economic and financial factors. Based on the literature review we study 8 possible macroeconomic and financial drivers. The data are collected from Bloomberg. We use mixed-data-sampling methodology that enables me to study drivers of various frequencies (daily and monthly) simultaneously in a single model. Results show that the interest rate, the exchange rate, stock levels, stock index returns and crude oil returns are generally significant to drive precious metal markets. The stock index has the most significant impact on the metals returns that is negative. Furthermore, the results divide precious metals into two groups with gold and silver on the one hand and platinum and palladium on the other. The first group is worse explained by considered drivers. Moreover, the interest rate does not have any impact on the price development of gold and silver and crude oil returns influence the pair negatively, contrary to the second pair of platinum and palladium. [ABSTRACT FROM AUTHOR]

Interest rates are currently very low in the countries. In these countries bonds are issued with low or negative yields. In this paper, I empirically investigate the factors that affect the price of bonds. I follow international arbitrage pricing theory to determine the relationship between factors and the price of bonds. The international arbitrage pricing theory applies a multi-linear regression model. The regression model is used for emerging markets and developing markets separately. I have a unique data set of 46 countries. The main data are the monthly returns on government bonds in the period 2010 - 2015. Exchange risk influences the bond prices. Currency movements can bring further yield for investors. [ABSTRACT FROM AUTHOR]

Foreign currency debt provides additional access to capital and offers funds in favorable and flexible terms to microfinance institutions (MFIs). Yet, we find that the use of foreign currency debt, on average, leads to higher microcredit interest rates. We also find that MFIs operating in countries with pegged exchange rate regimes and profit MFIs are better able to mitigate foreign currency risk. The results of the paper suggest that local currency debt is a better option for MFIs if the goal is to provide microcredit at lower interest rates. [ABSTRACT FROM AUTHOR]

We analyze conventional and unconventional monetary policies in a dynamic small open-economy model with financial frictions. In the model, financial intermediaries or banks borrow from the world market and lend to domestic households. Banks can borrow abroad up to a multiple of their equity; in turn, there is a limit to how much bank equity households can hold. The combination of external and domestic frictions results in an economy-wide credit constraint and an endogenous interest rate spread. It also magnifies the amplitude and persistence of aggregate responses to exogenous shocks. In response to external balance shocks, fixed exchange rates are contractionary and flexible exchange rates expansionary (although less so in the presence of currency mismatches); the opposite is true in response to increases in the world interest rate. Unconventional policies, including central bank direct credit, discount lending, and equity injections to banks, have real effects only if financial constraints bind. Because of bank leverage, central bank discount lending and equity injections are more effective than direct credit. Sterilized foreign exchange intervention is equivalent to lending directly to domestic agents. Unconventional policies are feasible only to the extent that the central bank holds a sufficient amount of international reserves. [ABSTRACT FROM AUTHOR]

The paper estimates the fiscal cost of an increase in the Brazilian policy interest rate - the SELIC - by considering not only the direct effect on the yield of public bonds that are indexed to the SELIC, but also indirect effects on: (i) the yield of public bonds that are indexed to the exchange rate and inflation, and (ii) the stock of public net debt through adjustments in the value of international reserves measured in domestic currency. Projections are based on the estimation of the relationship between interest rates, exchange rates and inflation by means of a vector auto-regression. We conclude that the inclusion of such indirect effects has an ambiguous effect on the response of the implicit interest rate on public net debt to shocks in the SELIC, when adjustments in the value of international reserves are not considered. However, the inclusion of the latter amplifies the fiscal cost of a more restrictive monetary policy. These results call for a better coordination between monetary, fiscal and exchange rate policies in Brazil. [ABSTRACT FROM AUTHOR]

The impact of news releases related to the inflation targeting regime on the financial market is analyzed by estimating a bivariate VAR GARCH-BEKK-in-mean model. We use daily data, from January 2006 to May 2017, of stock prices index (IBOVESPA), exchange rate (BRL/USD) and interbank deposit rate (DI360). We developed a positive and negative news index to measure the impact of news releases based on Caporale et al. (2016) and Caporale et al. (2018). Although the literature on the subject is vast, this paper fills relevant gaps in three ways. First, we investigate the bidirectional relationship between monetary policy related news releases and the behavior of asset prices before and after the 2008 crisis in Brazil. Second, we consider the relationship between the second moments of the variables of interest, using the conditional volatility as a proxy for uncertainty. Third, we provide a time series approach to measure the effect of macroeconomic related news releases on financial asset returns. The results indicate there are mean spread effects from news for the exchange rate and the Brazilian stock index: (i) the GARCH-in-mean parameter is statistically significant for positive and the difference of news for the DI360; (ii) monetary policy and external shocks are statiscally significant as expected with exception of the external shocks for the Brazilian stock index; and (iii) there are volatility spillovers and changes of this volatility after the crisis for stock index and DI360. [ABSTRACT FROM AUTHOR]

Understanding the costs and benefits of alternative monetary policy rules is important for economic welfare. Within the context of a small open economy model and building on the work of Mihov and Santacreu (2013), the author analyzes the economic implications of two monetary policy rules. The first is a rule in which the central bank uses the nominal exchange rate as its policy instrument and adjusts the rate whenever there are changes in the economic environment. The second is a standard interest rate rule in which the central bank adjusts the short-term nominal interest rate to changes in the economic environment. The main finding of the analysis is that, if the uncovered interest parity condition that establishes a tight link between the interest rate differential in two countries and the expected rate of depreciation of their currencies does not hold, the exchange rate rule outperforms the standard interest rate rule in lowering the volatility of key economic variables. There are two main reasons for this: First, the actual implementation of the exchange rate rule avoids the overshooting effect on exchange rates characteristic of an interest rate rule. And second, the risk premium that generates deviations from the uncovered interest parity condition is smaller and less volatile under an exchange rate rule. [ABSTRACT FROM AUTHOR]