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Exchange Rate Regimes, Foreign Exchange Volatility and Export Performance in Central and Eastern Europe: Just Another Blur Project?
Abstract
This paper attempts to analyze the direct impact of exchange rate volatility on the export performance of ten Central and Eastern European transition economies as well as its indirect impact via changes in exchange rate regimes. Not only aggregate but also bilateral and sectoral export ows are studied. To this end, we rst analyze shifts in exchange rate volatility linked to changes in the exchange rate regimes and second, use these changes to construct dummy variables we include in our export function. The results suggest that the size and the direction of the impact of forex volatility and of regime changes on exports vary considerably across sectors and countries and that they may be related to specic periods.
... Indeed, both models lead to omitted variables bias. To solve this problem, some studies use export determination models, which include both supply-side and demand-side variables in the regression (Égert and Morales-Zumaquero 2008;Senhadji and Montenegro 1998;Warner and Kreinin 1983;Chen et al. 2011;Utkulu and Seymen 2004;Dinçer and Kandil 2011;Solakoglu 2010). ...
... Certain studies also include GDP or industrial production index of the exporter to include supply-side effects (Giovannetti and Sanfilippo 2009;Bayar and Tokpunar 2014;Amann et al. 2009;Coşar 2002;Vergil 2010;Égert and Morales-Zumaquero 2008;Ramos and Zarzoso 2010;Bayar et al. 2015). Ghimire et al. (2013) include per capita value added of the sector among independent variables. ...
... In estimating sectoral export equations, usually panel data are used, where crosssectional dimension is sectors. Among the most frequently used estimation methods are standard panel estimations of fixed effects or random effects (Égert and Morales-Zumaquero 2008;Rahmaddi and Ichihashi 2013;Manova 2008) and panel generalized least squares (Akbostancı et al. 2008;Uzay et al. 2012). To account for endogeneities in the independent variables, instrumental variables methods, such as two-stage least squares and panel generalized method of moments, are also frequently used (Amann et al. 2009;Giovannetti and Sanfilippo 2009;Ramos and Zarzoso 2010;Dinçer and Kandil 2011). ...
Export is an important component of national income. It is one of the main determinants of the development level of countries. Both developed and developing countries formulate policies to increase their exports, to increase quality, technology and value added of exported products and to gain competitive advantage in world markets. Export equations provide valuable information regarding this decision making process. Aim of this study was to conduct a survey on extensive literature on estimation of export equations. The literature on export equations can be grouped mainly into four levels of analysis from macro to micro: aggregated level exports, country-level, sector-level and firm-level analyses. In this study, we have surveyed the literature on each level. In the last part, a survey of econometric techniques used in estimation of export equations has been provided, as well.
... Since the onset of generalized floating, international economists have long debated the likely impact that exchange rate uncertainty has on international trade, but the varied results have given no thorough guidance on this relationship. Although there are many studies on how exchange rate instability interacts with trade (for instance, McKenzie and Brooks 1997;McKenzie 1998;Arize et al. 2000;Aristotelous 2001;Vergil 2001;Rey 2006;Égert and Morales-Zumaquero; Bouoiyour and Selmi 2014 a, etc.), the obtained evidence is mixed. ...
... The third category found in a small number of studies, reveals that in the agricultural sector, exchange rate uncertainty has no significant effect on international trade (such as Franke (1991) and Achy and Sekkat (2001)). To explain this result, Égert and Morales-Zumaquero (2007) and Bouoiyour and Selmi (2014 d) assert that a high degree of competitiveness in one sector decreases vulnerability to exchange rate volatility. Specifically, 7 if a country is a price maker (i.e., it plays an important role in setting its own prices in international markets), its economy may recover quickly after a crisis and better cope with external shocks. ...
... With studies of nominal exchange rate volatility (NT) as the reference category, the empirical works that regress exports on the real exchange rate variability (RT) typically display less positive effects of exchange rate volatility on international trade. Since it is only over long periods that real exchange rate volatility diverges from its nominal value, the negative coefficient associated to RT dummy corroborates the view that forward markets have a "pulling" role in mitigating the detrimental effects of sizable exchange rate variability on where the nominal exchange rate moves into a target, the inclusion of the differential price volatility seems legitimate (Égert and Morales-Zumaquero 2007;Bouoiyour and Selmi 2014 a, b). What is new here compared to Ćorić and Pugh (2010) and Haile and Pugh (2011) is that trade policies may play a significant role on the effect of exchange rate volatility on international trade. ...
This article surveys literature that investigates the effects of exchange rate volatility on international trade. We perform meta-regression analysis on 41 studies with 807 estimates. We show that the empirical works exhibit substantial publication selection and show a significant genuine exchange rate 10 volatility effect on trade flows after correction of publication bias. In addition, the literature reveals a pronounced heterogeneity
with respect to model specifications, samples, time horizons, and countries’ characteristics. These findings are supported by separate assessment of primary studies with, respectively, total exports and sectoral exports as the dependent variable.
... Bangladesh has switched to floating rate system from the fixed exchange rate regime in early 2003 (Annual Report, Bangladesh Bank, 2003Bank, -2004. Prior experience of such regime changing of small countries show that regime change incurs excessive volatility which depresses exports of that country (Aristotelous, 2001, andEgert, &Amalia, 2008). Bangladesh prime export (73% of total exports comes only from RMG, (Bangladesh Bank, 2023) item is RMG mainly to the EU and North America (two biggest RMG importer regions in the world). ...
... Bangladesh has switched to floating rate system from the fixed exchange rate regime in early 2003 (Annual Report, Bangladesh Bank, 2003Bank, -2004. Prior experience of such regime changing of small countries show that regime change incurs excessive volatility which depresses exports of that country (Aristotelous, 2001, andEgert, &Amalia, 2008). Bangladesh prime export (73% of total exports comes only from RMG, (Bangladesh Bank, 2023) item is RMG mainly to the EU and North America (two biggest RMG importer regions in the world). ...
Bangladesh adopted floating exchange rate system in May 2003. After that regime change, the country has faced a relatively higher volatility of nominal exchange rate than previous regime. Economic theories on volatility suggests that trade flow is adversely affected in response of fluctuation of the exchange rate. Bangladesh is the second largest readymade garments (RMG) exporter in the world and it is the main export product of the country. In this research, Difference in Difference (DID) model introduced by Card and Krueger (1994) is used for the yearly data of 1983 to 2022 to discern this impact of volatility on the RMG exports of Bangladesh. The result shows that RMG exports is negatively affected due to the exchange rate volatility and the estimated figure shows that on Bangladesh‘s average RMG exports has been lessened to the USA and EU regions by US$1.04 billion and 1.02 billion, respectively, owing to the volatility incurred by the regime change. Therefore, as volatility obviously has hindered RMG exports, the central bank of Bangladesh should stay alert to avoid high volatility of the nominal exchange rate to keep the RMG exports flow uninterrupted.
... Having in mind the importance of considering the impact of exchange rates on the trade of CESEE countries, while the literature dealing with the issue is very modest (Kočenda & Valachy, 2006;Égert & Morales-Zumaquero, 2008), this research analyses the impact of volatility and misalignment of bilateral exchange rates on bilateral exports. The approach based on the simultaneous examination of both mentioned types of exchange rate changes is a recent trend in the literature, and the analysis of bilateral exports at the sectoral level, i.e. at a product group level, according to the recent literature (Péridy, 2003;Wang & Barrett, 2007;Byrne, Darby & MacDonald, 2008;Caglayan & Di, 2010, etc.), should result in clearer identification of the effects. ...
... Therefore, the recommendation of the recent literature is to use disaggregated data when analysing the impact of exchange rates on international trade. Thus, the existence of different export elasticities of certain product groups to exchange rate changes is taken into account, which results in stronger evidence regarding the link between exchange rates and export (McKenzie, 1998;Égert & Morales-Zumaquero, 2008;Byrne et al., 2008;Auboini & Ruta, 2013), providing clearer implications for economic policy. ...
Abstract: The research aims to examine the effects of exchange rate changes on the value of bilateral export of differentiated products in the selected CESEE countries, while controlling the impact of traditional gravity variables. Identifying the determinants that affect the export of high value-added products is of particular importance for this group of countries, while analyzing the effects of exchange rate changes is a contribution to the previous researches. In order to comprehensively understand the relationship between the observed variables, a quantile panel regeression was used to estimate the gravity equation. Examining the heterogeneity of the impact of exchange rate changes and other selected trade factors along the export distribution is another contribution of the paper, given that bilateral trade researches are usually based on assessing the average impact. The results indicate that the CESEE countries’ export of differentiated products is significantly influenced by exchange rate changes. Exchange rate volatility has a negative impact, which grows at higher levels of export. The heterogeneity of the impact depending on export level was also confirmed for other determinants discussed in the paper.
Keywords: exchange rate volatility, exchange rate misalignment, export, gravity model, quantile panel regression
... The relationship given by (12) ...
... B Proof of (12) Using the multivariate copula function (9a) and ε it ∼ N (0, σ 2 εi ), the conditional density func- ...
We suggest a new method dealing with the problem of endogeneity of the threshold variable in single regression threshold models and seemingly unrelated systems of them based on copula theory. This theory enables us to relax the assumption that the threshold variable is normally distributed and to capture the dependence between the error term and the threshold variable in each regime of the model independently of the marginal distribution of the threshold variable. This distribution can be estimated non-parametrically conditionally on the value of threshold parameter. To estimate the slope and threshold parameters of the model adjusted for the endogeneity of the threshold variable, we suggest a two-step concentrated least squares estimation method where the threshold parameter is estimated based on a search procedure, in the first step. A Monte Carlo study indicates that the suggested method deals with the endogeneity problem of the threshold variable satisfactorily. As an empirical illustration, we estimate a threshold model of the foreign-trade multiplier conditional on the real exchange rate volatility regime. We suggest a bootstrap procedure to examine if there are significant differences in the foreign-trade multiplier effects across the two regimes of the model, under potential endogeneity of the threshold variable. JEL classification: C12, C13, C21, C22
... In all these, the impact of the magnitude and the direction of movement of the rate very within sectors of a country and across countries. In a study by Egert and Morales-Zumaquero (2005) on exchange rate regimes, foreign exchange volatility and export performance in Central and Eastern Europe (for 10 countries) concluded that exports received different impacts from the size and direction of volatility and regime changes. Thus, they were not generally conclusive for all the countries on the exchange rate-exports link even though they applied both time series and panel data. ...
... The selection of a general trade balance equation and specifically for export has varied over the empirical arena. This study adopts and modifies the deterministic method used by Egert and Morales-Zumaquero (2005) who examined the relationship between exchange rate volatility and trade flows. The functional form of export is standard according to empirical literature, as exports performance is influenced by both foreign and domestic factors. ...
The study investigated the impact of exchange rate policy on exports performance in Ghana for the period 1970 to 2008, with 1989 as the structural break point for the disaggregated pre-and post-Structural Adjustment Programme (SAP) analyses. This was to examine the effectiveness of exchange rate policy regime on Ghanaian exports. The study utilised current quantitative econometric techniques. One of the striking results is that real exchange rate has not been effective in enhancing exports performance for the study period. When viewed from the perspective of pre-and post-SAP, the results indicate that, exchange rate was not instrumental in promoting exports in both periods. In both periods, exchange rate policy does not seem effective and significant in promoting exports. However, there is much difference in impact of domestic income on export performance in both periods, while it was effective in the pre-SAP period, on the contrary, it discourages exports during the trade reforms. Thus, it is concluded that if the existing flexible exchange rate policy regime is to enhance exports, the Ghanaian policy makers need to implement complementary policies that would have favourable private sector engagement to spur exports growth. JEL Classification Code: E61, F14, F31, F41.
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This article analyses the effects of foreign exchange commitment and exchange rate unification policies on Iran’s non-oil exports during the last three decades. In addition, the effects of these policies on non-oil exports have empirically been estimated. For this purpose, an export supply model was estimated using the econometrics technique of Auto Regressive Distributed Lag (ARDL) and reliable Iranian data for the last three decades. The empirical results of this paper shows that during the entire period of 1977-2008, foreign exchange commitment policy has caused non-oil exports to decline, but exchange rate unification policy has had positive effects on Iran’s non-oil exports.
Keyword(s): NON-OIL EXPORTS, EXCHANGE RATE, EXCHANGE RATE POLICIES, FOREIGN EXCHANGE COMMITMENT POLICY, EXCHANGE RATE UNIFICATION POLICY
... All this happened relatively swiftly, often within troubled economic developments and conflicting monetary policies, and undoubtedly affected exchange rate volatility. In addition, economic integration brought increased international trade openness; it has been documented that exchange rate volatility weakens exports, this impact varying across sectors and across CEE countries (Égert and Morales-Zumaquero, 2005), and that a decrease in exchange rate volatility has a positive effect on demand shock convergence (Babetskii, 2005). Further, on the institutional level, exchange rate stability is defined as one of the Maastricht prerequisites for monetary integration 3 : as stressed and analyzed by Orlowski (2003), candidate countries for EMU accession need to demonstrate the capability to manage inflation and exchange rate risk premium as a necessary prerequisite for their successful monetary convergence. ...
... Over the years, foreign trade turnover has increased dramatically such that now the ratio of foreign trade turnover to GDP has reached values of around 80% for Poland to almost 150% for Slovakia. A reverse link is documented by Égert and Morales-Zumaquero (2005), who analyzed the direct impact of exchange rate volatility on the export performance of ten Central and Eastern European transition economies as well as its indirect impact via changes in exchange rate regimes. Their results suggest that the size and direction of the impact of foreign exchange volatility and of regime changes on exports is negative, vary considerably across sectors and countries, and that they may be related to specific periods. ...
We analyze exchange rate volatility in the Visegrad Four countries in the course of their abandoning tight regimes in favor of more flexible ones. We construct a new measure of volatility based on standard interest rate parity theory to filter away variability that is due to movements in interest rates. We find that introduction of floating regimes tends to increase inherent exchange rate volatility and under flexible regimes the level of interest differential tends to decrease exchange rate volatility, while interest differential volatility tends to increase it. We complement the results with those obtained via an ARCH-type estimation. This shows that volatility during the flexible regime period was to a large extent driven by surprises and gained magnitude with respect to the period of tight regimes. While the degree of persistence in exchange rate volatility was substantial, it decreased uniformly under the flexible regimes. Our findings can be used to assess exchange rate stability during the pre-accession period and especially during the period prior to entering the EMU.
... Among the countryspecific studies are Adeniyi et al (2012); Dregera et al. (2016); Alley (2018); Babatunde (2013). Those that concentrated on the multi-nation context include: (Bal and Rath (2015); Benbouziane and Benamar (2007); Muhammad et al (2011); Basher et al (2016); Egert and Morales (2005); Aimer (2016)). While studies that dwelt on oil-exporting countries include: (Buetzer et al., 2012;Akram and Holter, 1996) who analyzed the exchange rate determination via oil price and discovered mixed results. ...
This study examined the determinants of the exchange rate in a mono-resource economy, during the period of currency and oil price fall in Nigeria. The aim of the study is to ascertain the potentiality of economic diversification (non-oil export) in saving the falling value of the domestic currency, as well as, its stability. The study employed the use of monthly data from the Central Bank of Nigeria and Nigeria National Petroleum Corporation from January 2008 to December 2020 using the ARDL and NARDL models to achieve the stated objectives. In the literature, several empirical studies analyzed the relationship between exchange rates, oil price, and oil export and came to the logical conclusion that a rise in the price of oil would bring about a rise in the exchange rate, all things being equal while the reverse is the case. To add to the existing body of knowledge this study did not only look at the relationship between the variables but also examined the determinants of the exchange rate in a mono-resource economy and ascertained the potentiality of economic diversification in bringing succor to the falling exchange rate in the midst of falling oil price. The NARDL result corroborates the findings of previous studies on the relationship between exchange rate, oil price, and the performance of non-oil export. It maintains that positive changes in oil prices would lead to the appreciation of domestic currency while negative changes in oil prices would lead to the depreciation of the domestic currency. With this analysis, the study recommends the diversification of the economy and revitalization of the non-oil sector. Since import proves to have a negative impact on the exchange rate, the revitalization of the non-oil sector stimulates domestic consumption and thus reduces import bills which raise the demand for the dollar...
... We intentionally do not utilize the aggregate multilateral data sample since we have no acceptable reason to assume that the effect amongst country pairs will have the same level and direction (McKenzie, 1998). Egert and Morales-Zumaquero (2008) stated that an investigation of disaggregated export data at the very specific level will be fruitful in a sense that it gives us more precise information about how the exchange rate variability and misalignment affect the export performance. Regarding this issue Byrne et al. (2008) indicated that an estimation which utilises an aggregated data tend to give bias result due to the different characteristic of each commodities in term of price elasticity and degree of risk-aversion. ...
This study investigates the short-run and long-run impact of real exchange rate misalignment and volatility on Indonesian export to the US by exploiting the disaggregated data of export volume. The proxy of real exchange rate misalignment was obtained by estimating the fundamental equilibrium exchange rate (FEER) model, and the exchange rate volatility was measured by employing the GARCH (1,1) model. We employed the ARDL bound test approach to check the existence of a long-run equilibrium between export volume and the variable under consideration. Both the short-run estimation using the error correction model and the long-run model indicates that half of the commodities are significantly and positively affected by real exchange rate misalignment. However, only a small number of commodities are significantly affected by the exchange rate volatility.
... A study of exchange rate regimes and exchange rate volatility effects on international trade for ten Eastern European countries, namely Bulgaria, Croatia, the Czech Republic, Hungary, Poland, Romania, Russia, Slovakia, Slovenia, and Ukraine, for the period 1990 to 2003 was performed by Égert and Morales-Zumaquero (2008). Several of the countries in the sample were transitioning into the European Exchange Rate Mechanism. ...
This paper summarizes several research works which deal with the different effects that the volatility of exchanges rates has on the economy. Among those effects, the most studied have been the effects on international trade and economic growth. Over the last five decades, there has been a debate at the theoretical level and different views at the empirical level on whether the gains from flexibility got under flexible exchange rates outweigh the losses from increased uncertainty which often prevails in such environment of flexible exchange rates. In particular, the impact of exchange rate volatility, both on international trade and economic growth, has been often discussed. This paper attempts to summarize some of the main results of these debates, concerning, in particular, the empirical evidence thus collected.
... The extent to which exchange variability and misalignment shifts and drifts from a derived equilibrium in a given period has widely been found to negatively and significantly impact on export performance in many (developing) economies while as a matter of controversy it is also insignificant in other regional trade blocs especially the developed (Egert, Morales et al, 2005). ...
As the East African community trade bloc enhances economic integration there must be recognition of the actions related to real exchange rate management and their impact on exports and economic growth. It has been reported by many scholars that developing economies are quite very sensitive to exchange rate volatility and the effects of under or over valuation of domestic currency relative to major currencies in flexible market regimes. Exchange rate deviations from the equilibrium real exchange rate have also been reported to generally impact negatively and significantly on export performance of such countries. There is no known panel study that establishes the impact of exchange rate volatility on export performance of at least four East African Community trade bloc states. As the bloc moves towards a monetary union, it is very crucial that management of the RER movements is harmonized to control volatility and misalignment.
This study reviewed macroeconomic fundamentals that affect RER movements and investigated long term impact of real exchange rate volatility for four EAC states and misalignment on exports for Ugandan economy. RER volatility was estimated using the GARCH (1, 1) method in STATA while misalignment was derived from an approach that uses RER fundamentals. Annual time series data from International Financial Statistics, World Bank Tables and UNCTAD database were used and tests of cointegration followed ADF and Johansen approaches while unit roots followed the ADF method. The study reveals that real exchange rate volatility and misalignment are both detrimental to export growth in the long run for EAC trade bloc economies with empirical evidence indicating both factors negatively impact on exports.
... As argued before, this can be attributed to the randomness involved in the estimation of F x 2 (x 2t ), in the first-step, based on the nonparametric method. 12 Fourth, our method is also found to perform satisfactorily for the case that the random variables u i,t , z t and x 2t are generated by Archimedean copulas Clayton, Joe and Frank and/or their combinations Clayton-Frank and Joe-Frank, across the regimes of the model (see Table 2). This result means that our method is robust to copula misspecification and cases of non-linear dependence between u i,t and z t . ...
We suggest a new method dealing with the problem of endogeneity of the threshold variable in structural threshold regression models based on copula theory. This method enables us to relax the assumption that the threshold variable is normally distributed and to capture the dependence structure between the threshold regression error term and the threshold variable independently of the marginal distribution of the threshold variable. For Gaussian and Student’s t copulas, this dependent structure can be captured by copula-type transformations of the distribution of the threshold variable, for each regime of the model. Augmenting the threshold model under these transformations can control for the endogeneity problem of threshold variable. The single-factor correlation structure of the threshold regression error term with these transformations allows us to consistently estimate the threshold and the slope parameters of the model based on a least squares method. Based on a Monte Carlo study, we show that our method is robust to non-linear dependence structures between the regression error term and the threshold variable implied by the Archimedean family of copulas. We illustrate the method by estimating a model of the foreign-trade multiplier for seven OECD economies. JEL classification: C12, C13, C21, C22
... If exchange rate change becomes unpredictable, the risks increase the uncertainty of import trade which leads to risk-averse and risk-neutral traders reducing or leaving their trading activities in contracts denominated in a foreign currency which ultimately decreases trade flows (Arize, 1998). In contrast to this, it can be argued that positive trade flow impacts stemming from uncertainty in the exchange rate due to higher risk represent a greater opportunity for profit and may, therefore, increase trade (Égert & Morales-Zumaquero, 2008). From an empirical point of view, however, the relationship between exchange rate risk and import trade levels is still mixed. ...
The paper examines to what extent exchange rate volatility affects Vietnam’s bilateral import value. The two-step system generalized method of moments (GMM) was employed on panel data over a 10-year period. Exchange rate volatility was generated by two measures, including generalised autoregressive conditional heteroskedastic (GARCH) and moving standard deviation (MOVSD). A variety of diagnostic tests which ensure the consistency of GMM estimates were discussed. The main findings confirm that all explanatory variables demonstrated the expected signs, and exchange rate volatility has positive impacts on Vietnam's import flows. However, there is a large overall difference between the results produced with those two volatility measures.
... He found that all three indicators suggest a gain in competitiveness for the German economy and a corresponding loss for Italy, Portugal and Spain.Chen et al. (2012)present econometric evidence that appreciation adversely affected the export performance of the debtor countries (Greece, Ireland, Italy, Portugal, and Spain), over and above the average impact on euro area exports.Coudert et al. (2013)while assessing real exchange rate misalignments for euro area countries from 1980 to 2010, find that the peripheral member countries have been suffering from increasingly overvalued exchange rates since the mid‐2000s, as their real appreciation has not stemmed from improving fundamentals in terms of productivity or external position. Égert andMorales-Zumaquero (2005)analyse the direct impact of exchange rate volatility on the export performance of ten Central and Eastern European transition economies as well as its indirect impact via changes in exchange rate regimes. On the basis of standard export equations, augmented with FDI, they find that a rise in forex volatility, measured either directly or via changes in the exchange rate regime, hinders exports, and that this negative impact is transmitted with some delay rather than being instantaneous. ...
This paper analyses inflation in Montenegro, a country which uses euro outside the euro area, and investigates the factors which contribute to price differentials in Montenegro relative to the euro area. Furthermore, the paper examines whether changes in the real effective exchange rates, which in Montenegròs case follow the path of price differentials, may have any influence on countrỳs competitiveness.
... Financial risks could affect production, market access, purchasing of improved seeds/inputs and insurance ( Jaffee et al., 2010). For instance, Egert and Morales Zumaquero (2008) revealed that financial related risks such as exchange rate volatility influenced export performance negatively in some Central and Eastern European countries. According to Shou et al. (2013) finance serves as a major firm power resource in relation to organization's operational performance. ...
Purpose
The purpose of this paper is to examine the key risk components (probability and consequence) and their respective thresholds affecting agri-food supply chain operations in Ghana. In addition, it seeks to understand the relationship between the major risk sources and to fathom the risk/disruption impact on agri-food supply chain performance in Ghana.
Design/methodology/approach
Cross-sectional survey data were collected using a structured questionnaire. The risks threshold associated with agri-food supply chain were categorized using the risk matrix scale and classification described in the Project Management Body of Knowledge (Project Management Institute, 2013). Next, the Pearson correlation was used to understand the relationship between the various risks and agri-food chain performance. Lastly, to investigate how firms’ supply chain operations have been affected by risks/disruptions, an ordinary least square regression model was employed to quantify the impact of some major risk sources on agri-food chain performance in Ghana.
Findings
The results in this paper show variations in risks’ probability, impact and threshold in agri-food supply chain. While risk sources such as periodic change in interest/exchange rate policies and volatility in customer demand are high-rated risks, uncertain land policies/tenure and poor quality control are low rated risks in the operations of the chain. The performance of the agri-food chain significantly but negatively correlates with all the major risks studied. Whereas demand, supply, weather, logistics/infrastructure and financial risk sources significantly undermined the chain’s performance, risks emerging from biological/environmental, management/operational, policy/regulations and political-related issues insignificantly affect the performance of agri-food supply chain in Ghana.
Research limitations/implications
This research is an area biased. However, some insightful managerial implications can be drawn from this paper to manage agri-food chain operations in a similar unstable environment. The result implies that risks are inevitable in agri-food chain but they differ in terms of menace to the chain’s operation. Therefore, to manage agri-food supply chain risks effectively, managers should periodically identify, quantify and categorize risk sources before making risk response decisions. In addition, the results show that risks account for about half of the overall agri-food chain performance in Ghana. This infers that managers/practitioners could improve the performance of the agri-food chain if limited resources are allocated to plan and effectively respond to major risks sources (such as demand, supply, finance, weather and logistical/ infrastructural services-related risks) undermining the performance of the chain.
Originality/value
This research contributes to the agri-food chain risk literature and provides managers/practitioners with empirical evidence of risk thresholds and their corresponding major impact on agri-food chain’s performance. Since risks explained about half of agri-food chain performance in Ghana, this research would prompt decision makers to improve on their risk assessment and responds (e.g. by employing efficient demand, supply and weather forecasting systems, logistic/infrastructure services, hedge to finance, etc.) to improve the chain’s performance.
... Čadek et al. (2011) performed an analysis of hedging in the case of Czech companies and found that the majority of exports are realized through the euro. Similar conclusions can also be found for the other V4 countries in the study by Égert-Zumaquera and Morales (2008). An important factor in the characteristics of foreign trade V4 is the degree of integration of trading partners. ...
The paper deals with the relationship between exchange rates and foreign trade. The aim of this paper is to reveal the long-term effects of the level of exchange rates on the trade balances of the Visegrad Countries. As the different product categories are characterized by different price elasticity, exchange rate uncertainty sensitivity and countries are differentiated by consumer and producer behavior patterns, this paper uses territorial and commodity structuring of foreign trade data. An empirical analysis is performed for the period 1999
... Export firms are not homogenous at each point in time: while some firms are demand constrained, others are supply side constrained; moreover, demand or supply constrained character of a firm may change over time; so export equations are estimated as a weighted average of supply and demand functions (King 2000). The export determination model combines the export demand and export supply models by adding to the export demand model supply side variables like profitability, input costs and domestic demand pressure (Égert and Morales-Zumaquero 2008;Utkulu and Seymen 2004;Dinçer and Kandil 2011;Chen et al. 2011). In this study export determination approach is used. ...
This study aims to determine the most important factors affecting sectoral exports dynamics of Turkey and to estimate sectoral exports elasticities. It then relates sectoral elasticities to factor and technology intensities. The study uses three recent panel data estimators, Mean Group, Augmented Mean Group and Common Correlated Effects Mean Group estimators, all of which take into consideration slope heterogeneity and the last two also taking into consideration cross-sectional dependency. The results obtained show that foreign demand and productivity are important determinants of Turkish exports. In addition, sectoral elasticities vary across sectors, tending to be greater in some sectors where factor and technology intensities are the main distinctive features.
... The rationale behind this practice is that when exporters expect marginal revenue to decline as the exchange rate volatility increases, they will be induced to increase export volumes in order to make up for the likelihoods of reduction in marginal revenue. According to De Grauwe (1988), Kroner and Lastrapes (1993) and Égert and Morales-Zumaquero (2008), some traders may increase trade when they expect the environment to deteriorate further in the future due to the persistent exchange rate volatility. This will induce current trade as traders rush to conclude transactions and make up for the expected decline in activity and profit in the event when exchange rate volatility persist for an extend period. ...
Orientation: High exchange rate volatility has implications for business and policy decisions and exchange rate movements are important in debates around trade and trade policies. Research purpose: The purpose of the research was to determine the impact of exchange rate volatility on exports in emerging markets. Motivation for the study: A lack of clarity in literature regarding this relationship increases the risk of improper planning by export organisations as well as implementing suboptimal economic policies. Research design, approach and method: This research analysed the effect of exchange rate volatility on emerging market exports using a sample of nine emerging countries from 1995 to 2010. Panel data analysis was conducted. Volatility was measured by Generalised Autoregressive Conditional Heteroscedasticity and conventional standard deviation in order to determine if the instrument of volatility used influenced the nature of the relationship between exchange rate volatility and exports. The Pedroni residual cointegration method was used to test for panel cointegration in order to determine if there was a long-run relationship. Main findings: The results showed that exchange rate volatility had a significant negative effect on the performance of exports, regardless of the measure of volatility used. It was also evident that a long-run relationship did exist. Practical/managerial implications: The study concluded that the policy mix that will reduce exchange rate volatility (such as managed exchange rate regimes) and relatively competitive exchange rates were essential for emerging markets in order to sustain their exports performance. Contribution/value-add: This research provided policy makers of emerging market economies with new evidence pertaining to the relationship between exchange rate volatility and the performance of exports. This research contributed to the existing knowledge on the topic and provides a base for future research on related topics.
... Real effective exchange rate is derived from nominal effective exchange rate index adjusted for relative changes in domestic and foreign commodity price indices. Some studies use consumer prices, but according to Egert and Morales-Zumaquero (2008), this index contains administered prices, indirect taxes and imported products, which can not reflect exactly the relative commodity price. Indeed, we consider here producer price indices as proxy of differential commodity prices. ...
... Real effective exchange rate is derived from nominal effective exchange rate index adjusted for relative changes in domestic and foreign commodity price indices. Some studies use consumer prices, but according to Egert and Zumaquero (2008), this index contains administered prices, indirect taxes and imported products, which can not reflect exactly the relative commodity price. Indeed, we consider here producer price indices as proxy of differential commodity prices. ...
... It is even more difficult in case of services, because of unavailability of some -one can say basic --data, such as export and import prices, and thus exchange rates, which are usually one of the variables analyzed in this kind of models (see for example McKenzie 1998). The equation we use is adapted from Égert and Morales--Zumaquero (2005). According to them the export performance of country i in the period of time t can be measured as follows: ...
Global FDI inflows dropped by nearly 40% from 1.7 trillion USD in 2008 to less than 1 trillion USD in 2009 as UNCTAD reported. While developed economies noticed significant fall in FDI inflows (by 93% in USA, 57% in UK), many economies have been attracting foreign investors through local sources, such as labor cost, infrastructure, skilled labor force. Poland as an economic leader in Central Europe has recently been a very attractive location for foreign businesses. The market offers many advantages of a stable economy. As a leading European destination of BPO and shoring investments, Poland receives increasingly larger number of advanced processes and functions. Therefore in many cases it becomes leading service provider (in the business services sector) in this part of Europe. BPO/SSC units serve their mother investors and many other companies both domestically and internationally. The concept of FDI effects in the economy led us to the topic of international trade in services. We claim that when the vital motivation of investment is to take advantage of the local resources (resource seeking and efficiency seeking motives of FDI, vertical investment), not to serve the local market (market seeking motive, horizontal investment), then the majority of services produced are exported. In other to prove this statement we use data of FDI in manufacturing, services and research and development in ten Central and Eastern European countries and exports of the same sectors and examine the relationship between the two in the years 1999-2008 trying to face our results with many concepts revealed in recent papers (Barry, Görg, McDowell [2003]; Helpman [2006]).
... Few studies showed that higher exchange rate instability can enhance international trade flows (Assery and Peel (1991), Kiheung and Wooree (1996) and McKenzie and Brooks (1997)). Still other strand of literature reached conclusion suggesting an ambiguous relationship between exchange rate uncertainty and exports (Daly (1998), McKenzie (1998), Egert andZumaquero (2007) and ). ...
The core focus of this paper is to analyze the dynamic interactions between changes in exchange rate (nominal and real terms) and exports to GDP ratio in Russia. To this end, we apply a new approach based on a time varying dynamic coherence function, called, evolutionary co-spectral analysis. Our results put in evidence that coherence pattern differs over time, suggesting that nonlinearities are an important issue when assessing the focal relationship. These observed outcomes change substantially in terms of magnitude when subtracting energy, while differential price stills the major player. We can attribute these findings to the limited effectiveness of exchange rate policy and the inefficiency of sterilization coupled with a lack of competitiveness of banking sector.
... Broda (2004) finds that up to a third of exchange rate volatility can be accounted by shocks to terms of trade under floating exchange rate regimes. Additionally, Egert and Morales-Zumaquero (2005) find that exchange rate volatility has a negative impact on exports. ...
This paper employs a panel vector autoregressive model (PVAR) to study the dynamics of the overall exchange rate volatility. PVAR estimation results, based on panel data for 29 economies, are used in simulating impulse response functions. Since economic shocks may affect high-frequency and low-frequency components of volatility differently, using a conventional time-domain approach to study volatility may leads to spurious results. Accordingly, the paper also studies the dynamics of the most destabilizing (high-frequency) components of exchange rate volatility, which are isolated using spectral methodology. While our investigation reveals interesting dynamic interrelationships between macroeconomic as well as financial variables and exchange rate volatility, we find little evidence of significant difference in the responses of macroeconomic and financial variables to the overall volatility vis-à-vis the high-frequency components thereof. The feedback effects from exchange rate volatility to macroeconomic and financial variables are found to be much stronger for developing countries relative to developed economies. These findings are confirmed by variance decompositions and are largely immune to several robustness checks.
Despite the extensive literature on the exchange rates volatility and international trade, there is no consensus in the literature. This study examines how South African exports demand is affected by exchange rate volatility. The sample period covers the period from the year 2000 first quarter to the beginning of 2021 first quarter. To estimate the volatility of the exchange rates, in this study, we have used the Generalised Autoregressive Conditional Heteroscedastic (GARCH) mode. While we use Autoregressive Distributed lags (ARDL) models to estimate the impact of exchange rates volatility on domestic exports. The findings suggested that there is a positive relationship between exchange rate volatility and exports. Hence, policies such as bilateral trade agreements are important to promote export growth.
This paper studies control function (CF) approaches in endogenous threshold regression where the threshold variable is allowed to be endogenous. We first use a simple example to show that the structural threshold regression (STR) estimator of the threshold point in Kourtellos, Stengos and Tan (2016, Econometric Theory 32, 827–860) is inconsistent unless the endogeneity level of the threshold variable is low compared to the threshold effect. We correct the CF in the STR estimator to generate our first CF estimator using a method that extends the two-stage least squares procedure in Caner and Hansen (2004, Econometric Theory 20, 813–843). We develop our second CF estimator which can be treated as an extension of the classical CF approach in endogenous linear regression. Both these approaches embody threshold effect information in the conditional variance beyond that in the conditional mean. Given the threshold point estimates, we propose new estimates for the slope parameters. The first is a by-product of the CF approach, and the second type employs generalized method of moment (GMM) procedures based on two new sets of moment conditions. Simulation studies, in conjunction with the limit theory, show that our second CF estimator and confidence interval for the threshold point together with the associated second GMM estimator and confidence interval for the slope parameter dominate the other methods. We further apply the new estimation methodology to an empirical application from international trade to illustrate its usefulness in practice.
We analyze the exchange rate exposure of firms in Russia and European Union (EU) accession countries from Central and Eastern Europe: Poland, Hungary, and the Czech Republic. We control for potential effects of exchange rate regimes, the subprime mortgage and Russian financial crisis, EU accession, and the turn-of-the-year effect. We find significant exposure for 60% and 52% of firms in the CEEC-3 and Russia, respectively. Magnitude and direction of firms' exposure depends on the currency pair (versus either the euro or U.S. dollar) and differs between CEEC-3 and Russia. Differences may result from dissimilar exposure channels in the respective economies.
Bu çalışmanın amacı 1980 sonrası dönemde liberal politikaları benimseyen Türkiye’deki Doğrudan Yabancı Yatırımlar (DYY) ile döviz kuru oynaklığı arasındaki ilişkiyi incelemektir. Çalışmada 2001:M1-2020:M2 dönemi aylık verileri kullanılarak DYY ile döviz kuru oynaklığı arası ilişkiler, simetrik (Toda-Yamamoto) ve asimetrik (Hatemi-J) nedensellik testleri ile belirlenmiştir. Simetrik nedensellik testi sonuçlarına göre, DYY'den döviz kuru oynaklığına doğru tek yönlü bir ilişki vardır. Asimetrik nedensellik testi sonuçlarına göre ise DYY ve döviz kuru oynaklığı değişkenleri arasında iki yönlü ve anlamlı nedensel ilişkiler mevcuttur. Elde edilen bu sonuçlar, Türkiye ekonomisi için döviz kuru oynaklığının azaltılmasının önemini ortaya koymaktadır.
In this study, a sectoral export determination equation of Turkey is estimated using a very detailed panel data of 1,029 sectors in SITC Rev 3 four digit level for the period 1995–2015. In addition to standard export determination variables; the variables showing technology and sophistication level of the export products of Turkey were included among the independent variables; using both some traditional classification measures (Lall (2000), Oxford Development Studies, 2, 100–109) and a new measure developed by Hidalgo et al., (2009), “The Building Blocks of Economic Complexity.” Proceedings of the National Academy of Sciences 106(26): 10570–10575. Moreover, also some indicators of competitiveness in world markets were included among independent variables. Method of estimation is augmented mean group, which takes into consideration cross sectional dependencies and parameter heterogeneities. Results of the regression suggest that product quality and design are becoming more important and price competition becomes less important in gaining competitive edge in world markets for Turkey. There is a transition of Turkey's exports towards medium technology products.
This study aims to examine the relationship between consumer confidence and the real exchange rate for the period of 2004:1-2018:6 for Turkey. For this purpose, unit root structure of consumer confidence index and real exchange rate is examined with ADF (Augmented Dickey Fuller) and PP (Phillips-Perron) tests. Moreover, structural break situation is investigated with Andrews and Zivot (1992)-ADF and Lee and Strazicich (2013)-LM (Lagrange Multiplier) tests. According to findings, series have unit root at level, and reflects the 2008 Financial Crisis and 2009 European Debt Crisis based on break dates. After that, the causal relationship between consumer confidence and real exchange rate is investigated with standard causality and Toda and Yamamoto (1995) causality tests with Chi-square and bootstrap standard error distribution based on VAR (Vector Auto-Regression) model. According to findings, real exchange rate is a Granger cause of consumer confidence index, but not vice versa. As a result, there is a prima facie causal effect of exchange rate market to consumer confidence for this period in Turkey.
Abstract: The purpose of this study is to check the J-Curve phenomenon in Pakistan. Different econometric techniques have been used in this study. We found that shocks in real exchange rate have insignificant attributes on the forecast error variance in the trade ratio. We found J-Curve in Pakistan but this does not provide enough information to devaluation policy in Pakistan. It is possible for the country to devalue against one country and appreciate against others. In this situation, the directions are not clear. So we should use bilateral trade data for future study. Keywords: J-Curve Phenomenon ; Pakistan
La présente thèse porte sur « Les Perspectives de Ciblage de l'Inflation dans les Pays de l'UEMOA » dontl'opportunité pourrait être bien saisie à la suite de la nouvelle réforme institutionnelle de l'UMOA et de laBCEAO. Cette réforme doit s'accompagner d'une stratégie opérationnelle explicite dans la mesure où sesinnovations majeures sont très proches d'une politique de ciblage de l'inflation. Pour cela, nous évaluons lapolitique monétaire de la BCEAO axée en partie sur un régime de change fixe depuis les indépendances.Ainsi, après avoir montré la nécessité pour les Banque Centrale d’ancrer les anticipations inflationnistesdans les pays de l'UEMOA et l'apport potentiel de l'annonce d'un objectif d'inflation dans la maîtrise du tauxd'inflation (Chapitre 1), nous montrons que la politique de change fixe n'a pas été à l'origine des tauxd'inflation relativement contenus dans la l'Union, mais pire, elle procure de mauvaises résultats en termesd'une croissance économique élevée et soutenue (Chapitre 2). En cela, nous recommandons pour l’Unionun cadre de type d’une combinaison d’un régime de change intermédiaire et d’une stratégie de ciblage del’inflation. C’est ainsi qu’une cible d’inflation a été déterminée et, elle apparaît différente aussi bien d’un paysà l’autre que de l’objectif de 2% annoncé par le Comité de Politique Monétaire de la BCEAO (Chapitre 3).Nous terminons en déterminant la règle de ciblage d'inflation, et montrons que la meilleure règle optimaleque les autorités monétaires devraient adopter dans un cadre de ciblage de l'inflation concilie l’ancragenominal et la régulation conjoncturelle (Chapitre 4).
Following their political and economic independence in 1989, a group of ten Central and Eastern European countries (CEEs) embarked on major institutional reforms to modernise their economies in order to become an integral part of the global economy. This chapter provides an overview of the main institutional reforms undertaken in the CEEs and their effects on export competitiveness. The chapter focuses on selected meso and macro institutional reforms, namely price liberalisation, competition policy, trade and foreign exchange, privatisation, and corporate governance. The results show that institutional reforms in the CEEs were rapid and generally successful. All CEEs became members of the European Union (EU) and the World Trade Organization (WTO). Institutional reforms contributed significantly to improved efficiency and growth in the export sector. The results also suggest that further reforms are needed to improve competition policy and corporate governance, both of which are still below the standards found in Western industrialised countries.
The focus of this paper is a global examination of how different export sectors react to real devaluations in the short term. The disaggregated nature of the data allows a closer analysis of the underlying cross-export differences in exchange rate movements. Current period real devaluation has contractionary effects on real exports in 80 per cent of specific export sectors and affects a variety of industries without distinction as to whether products incorporate more added value or less added value. Therefore, sector specific policy solutions are more advisable than implementing a uniform devaluation on a country's export portfolio. We gathered export data from 67 countries around the world across 65 export sectors at the two-digit SITC level, for the years 1976-2006.
Following their political and economic independence in 1989, a group of ten Central and Eastern European countries (CEEs) embarked on major institutional reforms to modernise their economies in order to become an integral part of the global economy. This chapter provides an overview of the main institutional reforms undertaken in the CEEs and their effects on export competitiveness. The chapter focuses on selected meso and macro institutional reforms, namely price liberalisation, competition policy, trade and foreign exchange, privatisation, and corporate governance. The results show that institutional reforms in the CEEs were rapid and generally successful. All CEEs became members of the European Union (EU) and the World Trade Organization (WTO). Institutional reforms contributed significantly to improved efficiency and growth in the export sector. The results also suggest that further reforms are needed to improve competition policy and corporate governance, both of which are still below the standards found in Western industrialised countries.
To assess the link between exchange rate uncertainty and exports performance in Egypt, this article relies on an optimal GARCH model chosen by information criteria among decomposed series on a scale-by-scale basis (wavelet decomposition). The observed outcomes reveal that this relationship depends intensely on the frequency-to-frequency variation and slightly on the leverage effect and switching regime. Indeed, it is well shown that at the low frequency, the coefficient associated to exchange rate volatility's effect on exports is greater than that at the high frequency and conversely when subtracting energy's share. We attribute the apparently conflicting results to the co-movement between energy prices and those of other commodities, the excessive speculation and the composition of trade partners.
In this study, the structure of Turkish exports to ten EU countries (Belgium, France, Germany, Greece, Hungary, Italy, Poland, Romania, Spain, and the United Kingdom) and the European Union total are examined and compared. For each country, the cross-sectional dimension is manufacturing industry sectors, and the time dimension is between 2003Q1 and 2012Q2. The estimation methodology is augmented mean group. In the regressions, the statistically significant variables affecting Turkey’s exports to various EU countries are Turkey’s industrial production index and sectoral export unit price index, partner country’s sectoral imports from the World, and partner country’s import prices. Seasonal dummies are added to account for seasonalities in the data, and a crises dummy is added to see the effects of recent crises. This study enables us to analyse Turkey’s exports to EU countries across time, sector, and country dimensions and make policy suggestions.
Sažetak U radu se ispituje uspješnost prenošenja mjera monetarne politike kanalom deviznog tečaja, direktnim kanalom novčane mase i kanalom kamatne stope na realnu ekonomsku aktivnost i cijene u Hrvatskoj. Pritom se koristi metodologija temeljena na vektorskom modelu korekcije pogreške (VECM) i Johansenovoj kointegraciji. Rezultati analize upućuju na dugoročnu vezu između mjera monetarne politike te realne ekonomske aktivnosti i razine cijena. Najjači kanal monetarnog prijenosa je devizni tečaj, dok nešto slabije djelovanje ima novčana masa. Za razliku od ranijih radova, rezultati ove empirijske analize ukazuju i na djelovanje kanala kamatne stope.
This paper offers an empirical explanation behind the dynamics of the overall volatility of exchange rates and its high-frequency, most economically destabilizing components. Spectral methodology is employed to isolate the portion of volatility attributable to high-frequency components, and panel regressions are used to relate the volatility measures to various macroeconomic and policy variables. Given the estimated panel regressions, the paper suggests policies that may help reduce exchange rate volatility in general and along high-frequency components in particular, thereby contributing to financial stability. The paper shows that while the macroeconomic and policy variables affecting the high-frequency components of volatility and overall volatility are generally similar, there are some important differences. The paper also highlights the divergent impacts of policy variables in developed vis-à-vis developing economies. The results are robust with respect to using alternative cut-off frequencies and estimation methods. The presented analysis may help to gain an understanding of the determinants of the most destabilizing components of exchange rate volatility and provide guidance into managing currency crises. Copyright © 2014 John Wiley & Sons, Ltd.
Several factors have been highlighted to explain the controversial effect of exchange rate uncertainty on international trade. However, the empirical evidence is rather mixed. The main focus of this paper is to reconcile the apparently conflicting results from 59 studies published between 1984 and 2014. We found that the interaction between the two variables is likely to be ambiguous when measured in real rather than in nominal terms, when using “naïve models” rather than GARCH extensions as volatility measurement and when less developed countries are considered. Intuitively, the lack of clearer evidence may be also attributed to the scarcity of studies addressing the robustness of this relationship along several econometric methods and to the fact that neither the exchange rate policy nor the trade policy can be designed without considering regulatory and instrumental factors, which are unfortunately excluded in the majority of researches. To find better paths, further researches should focus on the new methods based on additional variables such as institutional quality proxies and financial development indicators.
This paper attempts to assess two interesting issues for two small open economies (Morocco and Tunisia). First, it analyses the historical behaviour of nominal exchange rate, differential price and real exchange rate uncertainties. Second, it investigates the stability of the interaction between exchange volatility and exports in nominal and real terms. Our main results reveal that the effect of differential price volatility on exports exceeds that of nominal exchange rate by a large margin in terms of duration of persistence, ARCH and GARCH effects and intensity of shock. The relationship appears complex. In Morocco, it is negative and significant in 75.82% (as average) of cases in nominal terms and in 77.22% in real terms. This link is stronger in Tunisia with averages, respectively, equal to 85.88% and 89.99%. We associate the apparently mixed results to the differential price uncertainty itself sensitive to ups and down oil price movements, switching regime and leverage effects.
To assess the link between exchange rate uncertainty and exports performance in Egypt, this article relies on an optimal GARCH model chosen by information criteria among decomposed series on a scale-by-scale basis (wavelet decomposition). The observed outcomes reveal that this relationship depends intensely on the frequency-to-frequency variation and slightly on the leverage effect and switching regime. Indeed, it is well shown that at the low frequency, the coefficient associated to exchange rate volatility’s effect on exports is greater than that at the high frequency and conversely when subtracting energy’s share. We attribute the apparently conflicting results to the co-movement between energy prices and those of other commodities, the excessive speculation and the composition of trade partners.
In this work we assess the existence of a S-Curve pattern in ten Central and Eastern European Countries (CEEC-10) for the relation between the trade balance and the terms of trade. Empirical results support the existence of this curve for Slovenia, Czech Republic, Hungary, and also for an aggregate of the ten transition countries. In the case of Lithuania, Poland, Romania, and Slovakia the pattern is weaker than in the mentioned countries but it stills prevails. We then document this property of business cycles in the dynamic general equilibrium trade model of Backus, Kehoe, and Kydland (1994) calibrated specifically to match the CEEC-10 aggregate economy. Results support the existence of a S-Curve, except when technology shocks are absent and domestic and imported goods are perfect substitutes.
The paper investigates the impact of the real exchange rate on non-oil exports in Azerbaijan by applying Vector Error Correction Model. The estimation results suggest that real exchange rate has negative impact on non-oil export performance while non-oil GDP affects positively in the long-and short-run. Error correction term indicates that short-run fluctuation can be adjusted into long-run equilibrium relationship. Based on findings of the study can be concluded that appreciating real exchange rate is one of major factors that impede non-oil export growth. Since promotion of non-oil export is one of the urgent issues of the strategic economic policy of Azerbaijan Republic then findings of this study may be useful for policymakers.
This paper investigates the extent of integration of the transition economies into the world economy. We find that south-eastern Europe (SEE) and the Commonwealth of Independent States (CIS) trade significantly less with the world economy than the accession countries. We use a gravity model to explain why this is the case and conclude that the low quality of economic institutions in the CIS, and hence the high risks associated with trade, explain a considerable proportion of the “trade gap” compared to trade levels in industrialised countries. Moreover, the landlocked nature of many CIS countries (and hence high costs of transport and transit) is another reason for the lack of integration. In SEE these factors play a lesser role and the gravity model is unable to fully explain the lack of integration, which we suggest is a legacy of the region’s recent turbulent past. The paper suggests that a combination of improved market access to western markets and efforts to reduce trade and transit barriers within the region provide the best hope to increase economic integration with the world economy in the future.
In this paper, I extend to a multiple-equation context the linearity, model selection and model adequacy tests recently proposed for univariate smooth transition regression models. Using this result, I examine the nonlinear forecasting power of the Conference Board composite index of leading indicators to predict both output growth and the business-cycle phases of the US economy in real time. Copyright © 2004 John Wiley & Sons, Ltd.
Developing countries traditionally experience pass-through of exchange rate changes that is greater and more rapid than high-income countries experience. This is true equally of the determination of prices of imported goods, prices of local competitors’ products, and the general CPI. But developing countries in the 1990s experienced a rapid downward trend in the degree of pass-through and speed of adjustment, more so than did high-income countries. As a consequence, slow and incomplete pass-through is no longer exclusively a luxury of industrial countries. Using a new data set—prices of eight narrowly defined brand commodities, observed in 76 countries—we find empirical support for some of the factors that have been hypothesized in the literature, but not for others. Significant determinants of the pass-through coefficient include per capita incomes, bilateral distance, tariffs, country size, wages, long-term inflation, and long-term exchange rate variability. Some of these factors changed during the 1990s. Part (and only part) of the downward trend in pass-through to imported goods prices, and in turn to competitors’ prices and the CPI, can be explained by changes in the monetary environment—including a fall in long-term inflation. Real wages work to reduce pass-through to competitors’ prices and the CPI, confirming the hypothesized role of distribution and retail costs in pricing to market. Rising distribution costs, due perhaps to the Balassa-Samuelson-Baumol effect, could contribute to the decline in the pass-through coefficient in some developing countries.
The paper focuses on satisfaction with income and proposes a utility model built on two value systems, the `Ego' system - described as one own income assessment relatively to one own past and future income - and the `Alter' system - described as one own income assessment relatively to a reference group. We show how the union of these two value systems and the use of relative deprivation measures can lead to a model able to accommodate a wide range of theories on income and happiness. The model is then tested using the Consortium of Household Panels for European Socio-economic Research (CHER), a collection of 19 panel surveys including over 1.2 m. individual observations. We find absolute income to sit at the intersection between the `Ego' and the `Alter' systems and to play the most prominent role in explaining satisfaction with income. Relative deprivation is also found to be important for understanding the income-happiness nexus while we find income expectations to be less relevant once we control for absolute income. Overall, the `Alter' system (the cross-section comparison with others) seems to be more relevant in valuing income than the `Ego' system (the longitudinal self-comparison of income).
To quantify the implications of common currencies for trade and income, we use data for over 200 countries and dependencies. In our two-stage approach, estimates at the first stage suggest that belonging to a currency union/board triples trade with other currency union members. Moreover, there is no evidence of trade diversion. Our estimates at the second stage suggest that every 1 percent increase in a country's overall trade (relative to GDP) raises income per capita by at least one-third of a percent. We combine the two estimates to quantify the effect of common currencies on output. Our results support the hypothesis that important beneficial effects of currency unions come through the promotion of trade. © 2001 the President and Fellows of Harvard College and the Massachusetts Institute of Technology
International economists typically assume that temporary real exchange rate shocks can have only temporary real effects -and no effect at all on the underlying structure of the economy. This paper shows that even in a simple "off-the-shelf" industrial organization model, this assumption is unfounded; if market-entry costs are sunk, exchange rate shocks can alter domestic market structure and thereby have lasting real effects. In other words, a sufficiently large exchange rate shock can cause hysteresis in import prices and quantities. This simple idea has strong implications for exchange rate theory (Baldwin and Krugman 1986 shows this), for trade policy (Dixit 1987a discusses this), and for the estimation of trade equations as the present paper shows. To show that the theoretical point is not just empirically empty theorizing, we present evidence which suggests that the recent dollar overvaluation is an example of a hysteresis-inducing shock. To this end we demonstrate that the pass-through relationship shifted in a manner that 13 consistent with the nature and timing of the market structure changes predicted by the model. In particular, we find evidence that the structural break occurred during the rising dollar phase rather than In 1985 as is commonly asserted. A direct test of the model is not performed due to data limitations.
The monetary union issue, when assessed with the traditional inferences for optimal currency areas, misses an important dimension. Increased specialisation induced by reduced transaction costs, suggested by Krugman's “lessons of Massachusetts”, is only a part of the story. Even if agglomeration and inter-industry trade may occur as a result of reduced transaction costs, this tendency may be counteracted by the elimination of uncertainty associated with bilateral exchange rate variability within the monetary union.
Thus, in contradiction to what is generally assumed on the basis of the reduction in transaction costs only, the European Monetary Union (EMU) is likely to foster intra-industry trade in Europe, leading to more symmetric shocks between member states. The monetary union will endogenously create the conditions of its success. Empirical evidence is provided for EU countries' bilateral trade over the period 1980–1994, using disaggregated trade data.
Recent studies argue that the spread-adjusted Taylor rule (STR), which includes a response to the credit spread, replicates monetary policy in the United State. We show (1) STR is a theoretically optimal monetary policy under heterogeneous loan interest rate contracts in both discretionay and commitment monetary policies, (2) however, the optimal response to the credit spread is ambiguous given the financial market structure in theoretically derived STR, and (3) there, a commitment policy is effective in narrowing the credit spread when the central bank hits the zero lower bound constraint of the policy rate.
Using panel data for 29 industries, we test alternative specifications of Czech export and import functions. The balance of trade is primarily influenced by the real exchange rate, aggregate demand and tariff changes. Reduced growth of the Czech economy after 1996 was an important factor that has kept the balance of trade at a sustainable level in the medium-term, contributing even to the appreciation of the real exchange rate. The secondary fundamental factors, relevant for structural adjustments, a sustainable trade balance and an equilibrium exchange rate, rest, however, on supply-side characteristics such as changes in endowments of physical and human capital, inflows of FDI and growing competitiveness of domestic production. We can argue that appreciation of the real exchange rate is a handicap to Czech exports, especially to exports to non-EU countries. Nevertheless, in the EU case, the appreciation of koruna was countervailed by tariff concessions, improved quality, switchover to commodities with higher contents of value added, gains associated with FDI and growing foreign demand absorption. At the same time, appreciation of the real exchange rate has significantly opened the Czech market to imports but the unconstrained import penetration remained blocked by the growing competitiveness of Czech products in costs, prices and quality.
This paper analyses the impact of exchange rate volatility on Australian trade flows. ARCH models are used to generate a measure of exchange rate volatility which is then tested in a model of Australian imports and exports. This paper differs from many of the papers previously published as special attention is given to the export and import trade data sets used. Not only is aggregate trade data tested for the effects of volatility, but disaggregate sectoral trade data is also analysed. Testing sectoral trade data allows us to detect whether the direction or magnitude of the impact of volatility differs depending on the nature of the market in which the goods are traded. If the effect of exchange rate volatility does differ by market, then testing aggregate trade data convolutes the true nature of the relationship and may prevent a significant relationship from being derived. The results obtained in this paper suggest that the impact of exchange rate volatility does differ between traded good sectors although it remains difficult to firmly establish the nature of the relationship.
Numerical approximations to the asymptotic distributions of recently proposed tests for structural change are presented. This enables easy yet accurate calculation of asymptotic p values. A GAUSS program is available to perform the computations.
Despite the best efforts of economists, a basic paradox as to the impact of exchange rate volatility on trade flows remains unresolved at both the theoretical and empirical level. This paper surveys the vast literature in the area in an attempt to identify major issues which have contributed to the development of the debate and examine whether any general direction for consensus may be found.
This article studies the problem of multiple change points in the variance of a sequence of independent observations. We propose a procedure to detect variance changes based on an iterated cumulative sums of squares (ICSS) algorithm. We study the properties of the centered cumulative sum of squares function and give an intuitive basis for the ICSS algorithm. For series of moderate size (i.e., 200 observations and beyond), the ICSS algorithm offers results comparable to those obtained by a Bayesian approach or by likelihood ratio tests, without the heavy computational burden required by these approaches. Simulation results comparing the ICSS algorithm to other approaches are presented.
Asymptotic distributions and critical values are computed for several residual-based tests of the null of no cointegration in panels for the case of multiple regressors, including regressions with individual-specific fixed effects and time trends. The associated cointegrating vectors and the dynamics of the underlying error processes are permitted considerable heterogeneity across individual members of the panel.
The growth rate of international trade among industrial countries has declined by more than half since the inception of floating exchange rates. To explain the slowdown, the effects of exchange rate volatility are separated from those of other shocks since 1973--in particular, changes in oil prices and in trade regimes. The paper focuses on the effects of exchange rate variability with lags longer than a few months or quarters.
This paper investigated the impact of exchange-rate volatility and exchange-rate regime on the British exports to the United States using data for the period 1889–1999. The empirical findings suggest that neither exchange-rate volatility nor the different exchange-rate regimes that spanned the last century had an effect on export volume.
We analyze the effects of real exchange rate volatility on the proportions of bilateral exports of nine categories of goods from the United States to seven major industrial countries using a fixed effect framework. In six of the nine categories the volatility of the real exchange rate significantly affects the value of exports and in five of these categories the effect is positive. These results are consistent with a model in which risk-neutral firms increase supply of elastically-demanded exports in response to an increase in the volatility of the real exchange rate.
This paper analyses the impact of exchange rate volatility on Australian trade flows. ARCH models are used to generate a measure of exchange rate volatility which is then tested in a model of Australian imports and exports. This paper differs from many of the papers previously published as special attention is given to the export and import trade data sets used. Not only is aggregate trade data tested for the effects of volatility, but disaggregate sectoral trade data is also analysed. Testing sectoral trade data allows us to detect whether the direction or magnitude of the impact of volatility differs depending on the nature of the market in which the goods are traded. If the effect of exchange rate volatility does differ by market, then testing aggregate trade data convolutes the true nature of the relationship and may prevent a significant relationship from being derived. The results obtained in this paper suggest that the impact of exchange rate volatility does differ between traded good sectors although it remains difficult to firmly establish the nature of the relationship.
This paper investigates the impact of institutions on trade and estimates the potential for trade increase between the Commonwealth of Independent States (CIS) and the European Union (EU). The latter is computed from a gravity equation using the procedure introduced by Hausman and Taylor [1981. Panel Data and Unobservable Individual Effects. Econometrica 49 (6) 1377–1398]. We find that CIS trade is still characterized by a large trade diversion effect, which implies that trade with non-CIS countries could increase considerably in the long run. Another source of deepening the level of the European trade integration comes from the convergence of institutions towards the EU standards in light of Russia's application to join the WTO. Journal of Comparative Economics32 (4) (2004) 680–699.
We explore the major driving forces for currency invoicing in international trade with a simple model and a novel dataset covering 24 countries. We contrasts a “coalescing” effect, where exporters minimize the movements of their prices relative to their competitors', with incentives to hedge macroeconomic volatility and transaction costs. The key determinants of invoice currency choice are industry features and country size, with some role for foreign-exchange bid–ask spreads. The coalescing effect also goes a long way to explaining the well-known dominance of the dollar. Trade flows to the United States are predominantly invoiced in dollar, as foreign exporters face competition with U.S. firms. The use of the dollar in trade flows that do not involve the United States reflects trade in homogeneous products where firms need to keep their price in line with their competitors'.
This paper investigates empirically the impact of real exchange-rate volatility on the export flows of eight Latin American countries over the quarterly period 1973–2004. Estimates of the cointegrating relations are obtained using different cointegration techniques. Estimates of the short-run dynamics are obtained for each country utilizing the error-correction technique. The major results show that increases in the volatility of the real effective exchange rate, approximating exchange-rate uncertainty, exert a significant negative effect upon export demand in both the short-run and the long-run in each of the eight Latin American countries. These effects may result in significant reallocation of resources by market participants.
What is the effect of nominal exchange rate variability on trade? I argue that the methods conventionally used to answer this perennial question are plagued by a variety of sources of systematic bias. I propose a novel approach that simultaneously addresses all of these biases, and present new estimates from a broad sample of countries from 1970 to 1997. The estimates indicate that nominal exchange rate variability has no significant impact on trade flows.
A puzzle in empirical international finance is the difficulty in finding a large and negative effect of exchange rate volatility on international trade. A common explanation is the availability of hedging instruments. This paper examines the empirical validity of this explanation using data on over 1000 country pairs. Which countries have currency hedging instruments is not perfectly observable. This paper deals with the problem by specifying an endogenous regime-switching regression. There are two main findings. First, there is no evidence in the data to support the validity of the hedging hypothesis. Second, for country pairs with large trade potential, exchange rate volatility deters goods trade to an extent much larger than that typically has been documented in the literature (without using the switching regression specification).
Theoretical research has shown that under reasonable assumptions exchange rate variability ought to depress the level of trade. This paper builds a theoretical model designed to exaggerate the negative effect of exchange rate variability on trade in order to calibrate an upper bound to the potential size of this effect. Numerical analysis demonstrates that exchange rate variability of the magnitude currently observed among industrial countries has an insignificant effect on the level of trade. This result is robust with respect to a wide range of parameter values and with respect to reasonable extensions of the model.
We attempt to investigate whether the Exchange Rate Mechanism (ERM) period has coincided with an increase in intra-EU exports. We conclude that this has not been the case but it is likely that the elimination of nominal exchange rate variability arising from a single currency will boost intra-European Union trade.
This paper analyses the ever-growing literature on equilibrium exchange rates in the new EU member states of Central and Eastern Europe in a quantitative manner using meta-regression analysis. The results indicate that the real misalignments reported in the literature are systematically influenced, inter alia, by the underlying theoretical concepts (Balassa–Samuelson effect, behavioral equilibrium exchange rate, fundamental equilibrium exchange rate) and by the econometric estimation methods. The important implication of these findings is that a systematic analysis is needed in terms of both alternative economic and econometric specifications to assess equilibrium exchange rates.
Using data from 1996 to 2000, we investigate the effects of ownership, especially by a strategic foreign owner, on bank efficiency for eleven transition countries in an unbalanced panel consisting of 225 banks and 856 observations. Applying stochastic frontier estimation procedures, we compute profit and cost efficiency taking account of both time and country effects directly. In second-stage regressions, we use the efficiency measures along with return on assets to investigate the influence of ownership type. With respect to the impact of ownership, we conclude that privatization by itself is not sufficient to increase bank efficiency as government-owned banks are not appreciably less efficient than domestic private banks. We find that foreign-owned banks are more cost-efficient than other banks and that they also provide better service, in particular if they have a strategic foreign owner. The remaining government-owned banks are less efficient in providing services, which is consistent with the hypothesis that the better banks were privatized first in transition countries.
This paper discusses why previous literature has found little evidence of any effect of exchange rate variability on international trade. Methodological and statistical issues are discussed. In particular, comparisons are made of estimations based on different specifications or using different data sets and changes in the results depending on the method used are shown.
This paper develops a new approach to the problem of testing the existence of a level relationship between a dependent variable and a set of regressors, when it is not known with certainty whether the underlying regressors are trend- or first-difference stationary. The proposed tests are based on standard F- and t-statistics used to test the significance of the lagged levels of the variables in a univariate equilibrium correction mechanism. The asymptotic distributions of these statistics are non-standard under the null hypothesis that there exists no level relationship, irrespective of whether the regressors are I(0) or I(1). Two sets of asymptotic critical values are provided: one when all regressors are purely I(1) and the other if they are all purely I(0). These two sets of critical values provide a band covering all possible classifications of the regressors into purely I(0), purely I(1) or mutually cointegrated. Accordingly, various bounds testing procedures are proposed. It is shown that the proposed tests are consistent, and their asymptotic distribution under the null and suitably defined local alternatives are derived. The empirical relevance of the bounds procedures is demonstrated by a re-examination of the earnings equation included in the UK Treasury macroeconometric model. Copyright © 2001 John Wiley & Sons, Ltd.
This paper examines the impact of R&D expenditure and technology import on the level and the growth of productivity, as well as on the general economic performance in manufacturing firms with various ownership structures in Shanghai, China. The empirical analyses are based on the firm-level information of a sample of manufacturing firms for the period 1998–2003. We find clear-cut evidence indicating that firms with foreign participation have a productivity advantage over their domestic counterparts. The expenditures on technology import not only have a direct and positive effect on productivity, but also indirectly enhance the absorptive capacity of firms to facilitate in-house R&D activities. This is particularly true for firms with foreign participation, or for firms in sectors with relatively high technical standards. Furthermore, R&D expenditure and technology import may also have positive effects on profitability and export performance, depending on the ownership structure of the firm and the technical standard in the sector.
We examine the efforts of transition economies to deal with financial fragility and resolve banking cries We characterize the birthing process of banking in transition and the three essential features of banking crises in transition economies: (i) bad loans and the relationship to state owned industries, (ii) development of institutional infrastructure and (iii) credible commitments to resolution and privatization. We then discuss the experiences of seven important transition countries in order to identify the salient features of their efforts to resolve banking crises.
This paper presents results from an econometric analysis of Russian bank defaults during the period 1997–2003, focusing on the extent to which publicly available information from quarterly bank balance sheets is useful in predicting future defaults. Binary choice models are estimated to construct the probability of default model. We find that preliminary expert clustering or automatic clustering improves the predictive power of the models and incor-poration of macrovariables into the models is useful. Heuristic criteria are suggested to help compare model performance from the perspectives of investors or banks supervision authorities. Russian banking system trends after the crisis 1998 are analyzed with rolling regressions.
This paper uses a large panel data set of monthly frequency final good and service prices in thirty-eight Slovak districts over a five-year period to study price variability and the working of the law of one price. We concentrate on three issues. First, using simple statistical tools, we investigate the range of price differences across Slovak districts. Second, we measure relative price variability across cities and across products. The variability of relative prices in the same district appears to be higher than the variability of prices of the same good across different districts. We identify the factors likely to be responsible for this fact. Third, using benchmarks we investigate the speed of convergence to the absolute law of one price. While we find evidence for absolute convergence, the speed is lower than that found in US cities. The speed of convergence to the relative law of one price is considerably higher.
In this paper, we document a structural break in the volatility of U.S. GDP growth in the first quarter of 1984 and provide evidence that this break emanates from a reduction in the volatility of durable goods production. Further, the reduction in durables volatility corresponds to a decline in the share of durable goods accounted for by inventories. We find no evidence of increased stability in the nondurables, services or structures sectors of the economy. Our evidence is compatible with a scenario in which changes in inventory management techniques in the durable goods sector have reduced the variability of aggregate output.
We document a structural decline in the volatility of real U.S. GDP growth in the first quarter of 1984. As a means of understanding the dramatic volatility reduction, we decompose output growth by major product type and provide evidence that the break emanates from a reduction in the volatility of durable goods production. We further show that the break in durables is roughly coincident with a break in the proportion of durables accounted for by inventories. We note that the break in output volatility affects the implementation of a wide range of simulation and econometric techniques and offer one important illustration of this in the context of a regime-switching model of output growth.
We show how the use of panel data methods such as those proposed in single equations by Kao and Pedroni or in systems by Larsson and Lyhagen to investigate economic hypotheses such as purchading power pariety or the term structure of interest rates may be affected by the existence of cross-unit cointegrating relations.
The paper investigates future exchange rate policy of the Middle East and North African (MENA) countries vis-ý-vis the euro aimed at fostering their manufactured exports towards Euroland. The exchange rate policy is captured through three different indicators: the real effective exchange rate changes, volatility, and misalignment. The investigation is conducted for 11 sectors over the period 1970-1997. The sample includes four North African countries (Algeria, Morocco, Tunisia, Egypt) and Turkey. The results show that exchange rate management plays a crucial role in providing incentives for manufactured exports toward Euroland. The food sector is weakly responsive to real exchange rate changes while the textile sector is highly responsive. Four growing sectors (electronic, electrical, mechanical, and vehicles) were also found to be highly sensitive to exchange rate changes. The results suggest that policymakers should be more concerned with misalignment than with volatility. Copyright Blackwell Publishing Ltd 2003.
Although the theoretical literature has identified various sizeable benefits from foreign direct investment (FDI) inflows, the empirical literature has been unable to establish a positive and significant impact of FDI on the rates of economic growth of host countries. One reason for this difficulty is that theory equates FDI to technology transferred, while in most countries and regions of the world FDI encompasses an array of arrangements that goes well beyond pure technology transfer. This paper tests for the effects of FDI on growth in a set of countries in which FDI is pure technology transferred: the 25 Central and Eastern European and former Soviet Union transition countries between 1990 and 1998. Our main finding is that, in this more appropriate setting, FDI has a positive and significant impact on economic growth as theory predicts. Copyright 2002 by Blackwell Publishers Ltd and The Victoria University of Manchester
Despite the best efforts of economists, a basic paradox as to the impact of exchange rate volatility on trade flows remains unresolved at both the theoretical and empirical level. This paper surveys the vast literature in the area in an attempt to identify major issues which have contributed to the development of the debate and examine whether any general direction for consensus may be found. Copyright 1999 by Blackwell Publishers Ltd