Impact of real exchange rate fluctuations on aggregate cocoa and coffee exports in Sierra Leone

The regression and the vector autoregressive VAR models have been employed in this analysis. I use the autodistributed lag regression model to estimate both the short and the long-run impacts. In the VAR model, orthogonalized impulse response functions are employed to estimate the short-run. The regression result shows that while depreciation of the RER increases aggregate cocoa and coffee exports AGX in the current year, this variable is not significant in determining AGX in Sierra Leone. This is due to the fact that AGX have long gestation periods and until this period is over, suppliers cannot actually raise their output and hence exports. The negative effect of the one period lag of RER variable on AGX can be attributed to the fact that in the long run, depreciation in the nominal exchange rate leads to real exchange rate depreciation. This will lead to increase in cost of imported farming inputs in domestic currency terms. The reduction in imports that follows decreases the output and hence cocoa and coffee exports. However, this variable is not significant in determining AGX in Sierra Leone. An increase in the orthogonalized shock to the first difference of log RER causes a short series of increases in first difference of log AGX followed by a decrease, followed by an increase that dies out after four periods. The null hypothesis that the lag of first difference of log RER does not Granger-cause the lag of first difference of AGX cannot be rejected. The paper concluded that in the short and long-run, the RER should not be taken as policy variable to influence AGX in Sierra Leone.

Download Full-text

DETERMINANTS OF REAL EXCHANGE RATE IN ETHIOPIA

International Journal of Research -GRANTHAALAYAH ◽

10.29121/granthaalayah.v4.i6.2016.2652 ◽

2016 ◽

Vol 4 (6) ◽

pp. 183-210

Author(s):

Nandeeswara Rao ◽

TassewDufera Tolcha

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Impulse Response ◽

Variance Decomposition ◽

Capital Inflow ◽

Terms Of Trade ◽

Nominal Exchange Rate ◽

The Real ◽

Long Run ◽

Short Run

Real exchange rate has direct effects on trade particularly on international trade and has indirect effects on productions and employments, so it is crucial to understand the factors which determine its variations. This study analyses the main determinants of the real exchange rate and the dynamic adjustment of the real exchange rate following shocks to those determinants using yearly Ethiopian time series data covering the period 1971 to 2010. It begins with a review of literatures on Exchange rate, real exchange rate, determinants of the real exchange rate and provides an updated background on the exchange rate system in Ethiopia. An empirical model linking the real exchange rate to its theoretical determinants is then specified. This study had employed the cointegration and vector autoregression (VAR) analysis with impulse response and variance decomposition analyses to provide robust long run effects and short run dynamic effects on the real exchange rate. Share of investment, foreign exchange reserve, capital inflow and government consumption of non-tradable goods were the variable that have been found to have a long run relationship with the real exchange rate. The estimate of the speed of adjustment coefficient found in this study indicates that about a third of the variation in the real exchange rate from its equilibrium level is corrected within a year. The regression result of VECM reveals that terms of trade, nominal exchange rate, and one period lag of capital flow were the variables significantly affects the real exchange rate in the short run. However, the impulse response and variance decomposition analysis shows a better picture of the short run dynamics. The their analysis provided evidence that the Shocks to terms of trade, nominal exchange rate, capital inflow and share of investment have persistent effects on the real exchange rate in the short run. In general the regression results of both long run and short run models mostly suggest that the fluctuations of real exchange rates are predominantly responses to monetary policies shocks rather than fiscal policy shocks.

Download Full-text

Does Pak-Rupee Exchange Rate Respond to Monetary Fundamentals? A Structural Analysis

The Pakistan Development Review ◽

10.30541/v57i2pp.175-202 ◽

2018 ◽

Vol 57 (2) ◽

pp. 175-202

Author(s):

Muhammad Arshad Khan ◽

Saima Nawaz

Keyword(s):

Exchange Rate ◽

Interest Rate ◽

Real Income ◽

Jel Classification ◽

Nominal Exchange Rate ◽

Monetary Model ◽

Vector Autoregressive ◽

Long Run ◽

Short Run ◽

Key Drivers

This study empirically examines the contribution of monetary fundamentals in explaining nominal exchange rate movements in the case of Pak-rupee vis-à-vis US-dollar over the period 1982Q2 to 2014Q2. The empirical results support the existence of cointegration relationship between nominal exchange rate and monetary fundamentals. The results reveal that relative money stocks and real income are the key drivers of exchange rate determination in Pakistan in the long-run. For dynamic interaction, the Structural Vector Autoregressive (SVAR) method is applied. Results from the SVAR show that the responses of exchange rate to shocks, originated from money supply, income, interest rate and inflation differentials, are consistent with the predictions of the flexible-price variant of the monetary model of exchange rate in the short-run. More specifically, the results indicate that inflation and interest rate differential explain maximum variations in exchange rate in the short-run. In essence, results suggest that monetary fundamentals are the key drivers of exchange rate fluctuations in Pakistan, especially in the short-run. JEL Classification: F31, F33, C32, F41 Keywords: Monetary Model, Exchange Rate, SVAR, Pakistan

Download Full-text

The Effect of Real Exchange Rate on Trade Balance in a Resource-Rich Economy: The Case of Mongolia

Foreign Trade Review ◽

10.1177/0015732518797184 ◽

2018 ◽

Vol 53 (4) ◽

pp. 211-224 ◽

Cited By ~ 2

Author(s):

Gan-Ochir Doojav

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Trade Balance ◽

Developing Economies ◽

Jel Classification ◽

Vector Error Correction ◽

Vector Error ◽

Long Run ◽

Short Run ◽

Exchange Rate Depreciation

For resource-rich developing economies, the effect of real exchange rate depreciation on trade balance may differ from the standard findings depending on country specific characteristics. This article employs vector error correction model to examine the effect of real exchange rate on trade balance in Mongolia, a resource-rich developing country. Empirical results show that exchange rate depreciation improves trade balance in both short and long run. In particular, the well-known Marshall–Lerner condition holds in the long run; however, there is no evidence of the classic J-curve effects in the short run. The results suggest that the exchange rate flexibility may help to deal effectively with current account deficits and exchange rate risk. JEL Classification: C32, C51, F14, F32

Download Full-text

Research On Monetary Neutrality: Evidence From Exchange Rate And Trade Balance Of G-7 Countries

Journal of Applied Business Research (JABR) ◽

10.19030/jabr.v24i2.1351 ◽

2011 ◽

Vol 24 (2) ◽

Cited By ~ 1

Author(s):

Doh-Khul Kim

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Trade Balance ◽

Monetary Shocks ◽

Font Size ◽

Long Run ◽

Short Period ◽

Short Run ◽

Monetary Neutrality ◽

Nominal Shocks

According to a recent paper by Fisher and Huh (2002), in contrast to a long-run neutrality hypothesis, nominal shocks have long-run effects on a country’s real exchange rate and trade balance. However employing a similar method (VAR) with identical restrictions (long-run neutrality and short-run recursive hypotheses), this paper shows that the effects on the real exchange rate are much shorter in this G-7 country study than what Fisher and Huh (2002) contend. Further, the trade balance improves for a short period of time, from which it can conclude there is a shorter existence of the depreciation effect in response to expansionary monetary shocks, which supports the long-run neutrality hypothesis in an open macroeconomic framework.

Download Full-text

The dynamic effect of exchange-rate volatility on Turkish exports: Parsimonious error-correction model approach

Panoeconomicus ◽

10.2298/pan1504429d ◽

2015 ◽

Vol 62 (4) ◽

pp. 429-451 ◽

Cited By ~ 4

Author(s):

Erdal Demirhan ◽

Banu Demirhan

Keyword(s):

Exchange Rate ◽

Error Correction ◽

Exchange Rate Volatility ◽

Dynamic Effect ◽

Error Correction Model ◽

Impulse Response Functions ◽

Correction Model ◽

Long Run ◽

Export Volume ◽

Short Run

This paper aims to investigate the effect of exchange-rate stability on real export volume in Turkey, using monthly data for the period February 2001 to January 2010. The Johansen multivariate cointegration method and the parsimonious error-correction model are applied to determine long-run and short-run relationships between real export volume and its determinants. In this study, the conditional variance of the GARCH (1, 1) model is taken as a proxy for exchange-rate stability, and generalized impulse-response functions and variance-decomposition analyses are applied to analyze the dynamic effects of variables on real export volume. The empirical findings suggest that exchangerate stability has a significant positive effect on real export volume, both in the short and the long run.

Download Full-text

The Determinants of Pakistan’s Trade Balance: An ARDL Cointegration Approach

THE LAHORE JOURNAL OF ECONOMICS ◽

10.35536/lje.2010.v15.i1.a1 ◽

2010 ◽

Vol 15 (1) ◽

pp. 1-26 ◽

Cited By ~ 13

Author(s):

Waliullah Waliullah ◽

Mehmood Khan Kakar ◽

Rehmatullah Kakar ◽

Wakeel Khan

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Money Supply ◽

Trade Balance ◽

Exchange Rate Regime ◽

Annual Data ◽

Impulse Response Functions ◽

Bounds Testing ◽

Distributed Lag ◽

Long Run

This article is an attempt to examine the short and long-run relationship between the trade balance, income, money supply, and real exchange rate in the case of Pakistan’s economy. Income and money variables are included in the model in order to examine the monetary and absorption approaches to the balance of payments, while the real exchange rate is used to evaluate the conventional approach of elasticities (Marshall Lerner condition). The bounds testing approach to cointegration and error correction models, developed within an autoregressive distributed lag (ARDL) framework is applied to annual data for the period 1970 to 2005 in order to investigate whether a long-run equilibrium relationship exists between the trade balance and its determinants. Additionally, variance decompositions (VDCs) and impulse response functions (IRFs) are used to draw further inferences. The result of the bounds test indicates that there is a stable long-run relationship between the trade balance and income, money supply, and exchange rate variables. The estimated results show that exchange rate depreciation is positively related to the trade balance in the long and short run, consistent with the Marshall Lerner condition. The results provide strong evidence that money supply and income play a strong role in determining the behavior of the trade balance. The exchange rate regime can help improve the trade balance but will have a weaker influence than growth and monetary policy.

Download Full-text

Roles of Political and Economic Environments on Agricultural Commodity Import Demand in Developing Economy: A Case Study of Rice Sub-Sector in Nigeria

International Journal of Economics and Finance ◽

10.5539/ijef.v7n12p84 ◽

2015 ◽

Vol 7 (12) ◽

pp. 84

Author(s):

Sunday B. Akpan ◽

Glory E. Emmanuel ◽

Inimfon V. Patrick

Keyword(s):

Exchange Rate ◽

Capacity Utilization ◽

Import Demand ◽

Nominal Exchange Rate ◽

Domestic Production ◽

World Price ◽

Long Run ◽

The World ◽

Short Run ◽

Industrial Capacity

Nigeria is currently the largest importer of milled rice in the world. The country has implemented several trade policies, set up institutions and incentives to boost domestic production with the intention to meet both domestic and international demands. Despite these attempts and favorable climatic, manpower and edaphic conditions in the country, Nigeria still spent millions of dollars on annual basis on rice imports. Based on this assertion, the study rather examined the roles of political and economic environments on rice import demand from 1960 to 2014 in Nigeria. Time series data were obtained from FAO, Central Bank of Nigeria and National Bureau of Statistics as well as World Bank. Augmented Dickey-Fuller-GLS unit root test showed that all series were integrated of order one. The long-run and short-run elasticity of rice import demand were determined using the techniques of co-integration and error correction models. The trend in rice import revealed that, the country had witnessed significant average positive exponential growth rate of about 15.975% in rice import from 1960 to 2014. The empirical results revealed that, the long run import demand function of rice responded negatively to the world price, industrial capacity utilization, nominal exchange rate, and the value of gross domestic production; whereas, it reacted positively to period of civilian rule, nominal value of external reserve, period of liberalization and the net volume of credit to the entire economy. The symmetric adjustment coefficient of rice import demand to a long run equilibrium stood at 39.65% per annum. In the short run, rice import had a significant negative and elastic relationship with the domestic and world price of rice; while it has significant positive inelastic association with external reserve and net credit to the economy. Based on these results; it is recommended that, the Nigeria government should designed programmes and incentives to boost industrial capacity utilization in the country. Markets determine nominal exchange rate should prevail in the economy. The country should regulate its foreign reserve policy by setting a threshold, above which excess deposit should be plough back to the domestic economy inform of investments rather than support excessive importation.

Download Full-text

Properties of the fundamental equilibrium exchange rate in the Treasury model

National Institute Economic Review ◽

10.1177/002795019916900110 ◽

1999 ◽

Vol 169 ◽

pp. 96-104 ◽

Cited By ~ 4

Author(s):

Keith B. Church

Keyword(s):

Exchange Rate ◽

Real Exchange Rate ◽

Nominal Exchange Rate ◽

Equilibrium Exchange Rate ◽

Natural Rate ◽

The Real ◽

Long Run ◽

Equilibrium Exchange ◽

The Uk ◽

Fundamental Equilibrium Exchange Rate

This article calculates the equilibrium real exchange rate for the UK economy. The long-run trade and supply side relationships from HM Treasury's model are used to estimate the level of the real exchange rate consistent with the UK economy growing at its ‘natural’ rate while achieving a sustainable current account position. The model shows that the real exchange rate associated with macroeconomic equilibrium lies well below the actual rate for most of the 1990s. This result has important implications for possible UK participation in the single European currency as, once the nominal exchange rate is fixed, overvaluation can only be corrected by holding UK inflation lower than that elsewhere. Achieving this may be costly in terms of jobs and output.

Download Full-text

Exchange Rate and Economic Growth

Journal of South Asian Development ◽

10.1177/0973174117702712 ◽

2017 ◽

Vol 12 (1) ◽

pp. 42-64 ◽

Cited By ~ 6

Author(s):

Mohammad A. Razzaque ◽

Sayema Haque Bidisha ◽

Bazlul Haque Khondker

Keyword(s):

Economic Growth ◽

Exchange Rate ◽

Real Exchange Rate ◽

Development Strategy ◽

Analytical Framework ◽

Policy Option ◽

Exchange Rate Policy ◽

Long Run ◽

Exchange Rate Movements ◽

Short Run

This article aims to understand the effects of exchange rate movements on economic growth in Bangladesh. Using a suitable analytical framework to derive an empirical specification, we construct a real exchange rate series and employ cointegration techniques to determine the output response to Bangladeshi currency depreciations. Our results suggest that in the long run, a 10 per cent depreciation of the real exchange rate is associated with, on average, a 3.2 per cent rise in aggregate output. However, a contractionary effect is observed in the short run so that the same magnitude of real depreciation would result in about a half per cent decline in GDP. While the long-run expansionary effect of real depreciations may be appealing for considering exchange rate policy as a development strategy, the likelihood of rising inflationary pressures needs to be kept in mind while pursuing this policy option.

Download Full-text

Assymmetric effect exchange rate to Indonesian agriculture subsector

Jurnal Perspektif Pembiayaan dan Pembangunan Daerah ◽

10.22437/ppd.v9i5.15274 ◽

2021 ◽

Vol 9 (5) ◽

pp. 387-400

Author(s):

Sri Utami Lestari ◽

Dedi Budiman Hakim ◽

Tanti Novianti

Keyword(s):

Exchange Rate ◽

Agricultural Sector ◽

Linear Models ◽

Asymmetric Effect ◽

Agricultural Export ◽

Aggregated Data ◽

Agriculture Sector ◽

Long Run ◽

Negative Effect ◽

Short Run

This study explores the asymmetric effect on the rupiah exchange rate on every subsector agriculture export in Indonesia during 2006-2020. The non-linear ARDL method is used in this study to analyze the asymmetric relationship between exchange rate and export. NARDL method includes short-run and long-run coefficient estimates and embraces the asymmetric effect. The previous studies generally used the linear models on the aggregated data and ignored the differences in each export of the agricultural sub-sector, then they offered ambiguous results. The latest studies have preferred to use the method of NARDL on the agricultural sector in general data. Instead of using agricultural export data for each subsector, this paper considers subsector export data of agriculture. The estimated NARDL results indicate an asymmetric effect of the rupiah exchange rate on exports of the agricultural sub-sector in the long run. In general, there is no asymmetric effect in the short run. Generally, depreciation and appreciation of the Rupiah have a negative effect on exports of the agricultural sub-sector in the long run. However, rupiah appreciation positively impacts lag 2, and depreciation caused a different effect on each sub-sector. The NARDL results suggest that positive movements have lesser impacts than those of negative movements in the exchange rate on the agriculture sector both in the short and long run

Download Full-text