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Effect of exchange rate volatility on trade in Sub-Saharan Africa
Abstract
The volatile nature of exchange rates with the advent of floating regimes has received much attention in economic research. The volatility is generally perceived as negatively affecting international trade. While theoretical predictions and empirical outcomes appear mixed, the balance seems to tilt in favour of this perception. Applying the pooled mean-group estimator of dynamic heterogeneous panels technique to data for eleven Sub-Saharan African economies over the period 1993 to 2014, this paper uncovers no significant effects of exchange rate volatility on imports. In the case of exports, however, the study finds a negative effect of volatility in the short-run, consistent with the above view, but a positive impact in the long-run.
... For example, Clark et al. (2004) suggested that allowing for time-varying country effects diminishes the negative association between volatility and trade. Senadza and Diaba (2017) reported that volatility has a negative effect only in the short run. Meanwhile, Satawatananon (2014) observed a short-run negative impact limited to the textile sector, with no long-term effect. ...
... Interestingly, a smaller number of studies reported a positive relationship between exchange rate volatility and trade flows (Senadza & Diaba, 2017). Exchange ...
... December 2024 Evidence from the Regional Comprehensive Economic Partnership A potential factor contributing to these mixed results is the increasing availability of financial hedging instruments, which may reduce firms' vulnerability to unpredictable currency movements (Senadza & Diaba, 2017). While these instruments offer a way to manage exchange rate risks, they come with additional costs that firms must bear. ...
This study explores the effects of exchange rates and the inflation-targeting regime on goods and services exports among member countries of the Regional Comprehensive Economic Partnership (RCEP). The findings reveal that domestic currency depreciation enhances exports, with a larger impact on goods than services. A country with a floating exchange rate regime exporting to a country with the same regime tend to have lower services exports. Notably, exchange rate volatility does not significantly affect overall export levels. Exporters under an inflation-targeting regime see increased goods and, even more so, services exports. Furthermore, actual inflation rates are crucial. Lower inflation in the exporting country and higher inflation in the partner country enhance goods exports. These findings highlight the important roles of the exchange rate and monetary policies, as well as controlling inflation in shaping trade dynamics within the RCEP region.
JEL classification : F31, E58, F10
... Trade increases as exporters and importers increase the number of units purchased or sold in order to make up for the possible effects of exchange rate volatility, such as a decrease in the per-unit value of a good. Senadza and Diaba [2018] also posited that exchange rate volatility can increase trade as it encourages producers to increase production in an attempt to evade severe decreases in income. ...
... Other empirical studies, however, observed mixed results such as Senadza and Diaba [2018]. A sample of 11 Sub-Saharan African countries for the years 1993 to 2014 (22 years) was evaluated using an autoregressive distributed lag-pooled mean group model method. ...
... However, exchange rate volatility significantly increases exports in the long run. Senadza and Diaba [2018] pointed out that the changing effect of exchange rate volatility on exports in the short run and long run reflect the vagueness of theoretical outcomes under the general equilibrium models. ...
The often disparate and conflicting effects of exchange rate on bilateral exports reported by previous literature necessitate a further study of the relationship between monetary and trade variables. This study contributes to the stream of literature by analyzing monetary variables such as exchange rate volatility, exchange rate misalignment, exchange rate regimes, and real effective exchange rates with bilateral aggregate exports through a sample of 15 nations comprising the Regional Comprehensive Economic Partnership (RCEP) region for the years 1996 to 2017 using Ordinary Least Squares and Poisson Pseudo-Maximum Likelihood panel fixed effects regression. Results indicate that a country’s real effective exchange rate ratio and the exchange rate volatility for countries under a floating exchange rate regime reduce aggregate exports.
... In the finance and trade literature, there are extensive theoretical and empirical studies investigating the effects of exchange rate volatility on international trade (Hall et al., 2010;Hooy et al., 2016;Senadza and Diaba, 2017). The failure of the Bretton Woods exchange rate system and the inception of the EPR in Ghana that led to the adoption of the floating exchange rate regime, among other macro-economic impacts and the exchange rate volatility, is arguably a significant factor impacting Ghana's trade domestically as well as internationally. ...
... Also, the outcome of the sub-group of non-continental free trade area countries of which Ghana is a part of showed that exchange rate volatility impacts imports positively. Senadza and Diaba (2017) applied the dynamic heterogeneous panel data's pooled group-mean estimator as the method of estimation for 11 selected economies in Sub-Saharan African which includes Ghana and covers the period from 1993 to 2014 and by applying the GARCH and EGARCH to proxy exchange rate volatility, and their study concludes insignificant exchange rate volatility impact on imports and , however, finds a negative impact on export under the short-run dynamics. However, the effect was positive in the long-run. ...
... In recent studies, empirical studies continue to use the gravity specification (Osei-Assibey, 2010, 2017) for investigating the exchange rate volatility-trade nexus. Applying the ARCH-GARCH (EGARCH) and using dynamic heterogeneous panel data pooled group-mean estimator as the method of estimation for 11 selected economies in Sub-Saharan African, Senadza and Diaba (2017) find mixed results. ...
ABSTRACT
Purpose
The aim of this study is to investigate the volatility of exchange rate has generally been sighted as a primary cause for the various shocks and instability in international trade of Ghana as witnessed over the years and most especially in recent times. Owing to the increasing trade levels between Ghana and its global trading partners, does the trade-exchange rate volatility nexus in Ghana support the positive, negative, or ambiguous hypotheses?
Design/methodology/ approach
This paper empirically analyzes the effects of the volatility of the Ghanaian exchange rate on
Ghana’s international trade. This study used monthly data over the period 1993 to 2017 of
Ghanaian imports and exports as proxies of international trade volumes and subsequently examine
if these variables are affected by fluctuations in the Ghanaian exchange rate with the use of
GARCH AND EGARCH econometrics model
Findings
Empirical findings indicate the existence of a relatively positive effect of exchange rate volatility on imports which is significant only at 10% level in the long run. From the perspective of the export, the effect of the volatility of the exchange rate is negative. This result presents differences in the direction of the effect of exchange rate volatility on imports and exportsat least in the Ghanaian context.
Research limitations/implications
The fragility of the Ghanaian economy and its macroeconomic indicators is suggestive for more
policy construction
Originality/value
This study contributes to literature by scope and method. More specifically, empirical studies have failed or provided little evidence uniquely on the Ghanaian economy’s reaction to exchange rate volatility on its imports and exports. Additionally, most of the existing empirical studies measure exchange rate volatility using the standard deviation of the moving averages of the logarithmic transformation of exchange rates. This method is criticized because it is unsuccessful in capturing the effects of potential booms and bursts of the exchange rate. Our study circumvents for these
highlighted pitfalls.
Keywords: Ghana, Exchange rate volatility, International trade, GARCH and EGARCH models.
... However, trade between different countries is influenced by a number of factors. When we talk about the level of risk aversion, the main obstruction to a smooth running of trade here is volatility of exchange rate (Satawatananon 2014;Senadza and Diaba 2017). ...
... Political instability, on the other hand, moderates the currency exchange volatility-economic performance relationship in the near run. Senadza and Diaba (2017) investigated the effects of currency rate volatility on imports and exports for eleven countries in Sub-Saharan Africa between 1993 and 2014. They used the pooled mean estimator of dynamic heterogeneous panel methodologies. ...
This research investigates an impact of exchange rate volatility on Uganda’s trade balance. It used macroeconomic variables such as consumer price index (Inflation), real gross domestic product in addition to volatility of exchange rate, foreign direct investment (FDI) and gross capital formation (GCF) to meet the objective of the research. We used a yearly time series data from 1980 to 2020 in the analysis. Augmented Dickey Fuller (ADF) and Phillips Perron (PP) test was used to test for data stationarity whereby the results indicated that some variables were stationary at level while others were stationary after first difference. We used an ARDL bound test to examine the existence of cointegration among the variables and found out that there exist long-run relationships among these variables. An ARDL model was employed and the findings indicated a negative link between volatility of real effective exchange rate and trade balance in the short-run and positive link in the long run proving the existence of J-curve effect. Real GDP, Inflation and Gross capital formation all had a positive impact on trade balance in the long-run while the reverse was true for FDI in the long-run. This research thus suggests that the government of Uganda have to introduce a good structure of hedging facility such as forward markets or organizations in order to protect international trade from facing exchange rate risks during the short-run as well as emphasizing on a stable Uganda shilling’s exchange rates because its movement can affect prices either negatively or positively, hence affecting trade balance.
... Some studies find a negative relationship, e.g. Héricourt and Poncet (2013), Berthou and Fontagné (2013), and Li and Miao (2017); while some find that exchange rate fluctuations have a positive or insignificant effect e.g., Bahmani-Oskooee and Hegerty (2007), Cushman (1983), Daly (1998), Gagnon (1993), Greenaway et al. (2010), Huchet andKorinek (2011), Qiu et al. (2019), Solakoglu et al. (2008), Sercu and Vanhulle (1992), Tenreyro (2007), Wang and Barrett (2002), and Zhang et al. (2006); and the rest find a non-linear effect of exchange rate fluctuation, i.e., Baum et al. (2004), Berman andBerthou (2009), andChen andJuvenal (2016), or heterogeneous results with different samples, i.e., Baum et al. (2004), Sauer and Bohara (2001) and Senadza and Diaba (2017). Sauer and Bohara (2001) find a negative effect for developing countries (expect Asian countries), but an insignificant effect for industrialized countries. ...
... Sauer and Bohara (2001) find a negative effect for developing countries (expect Asian countries), but an insignificant effect for industrialized countries. Using African trade data, Senadza and Diaba (2017) find a negative effect in the short run, but a positive effect in the long run. To explore the transmission mechanism, Héricourt and Poncet (2013) study the interaction of financial constraint and find that the effect of exchange rate volatility on exports is more pronounced on firms with higher financial vulnerability. ...
An extensive amount of literature suggests that exchange rate volatility has a negative impact on international trade. However, very few research consider the distinct effect of exchange rate volatility on intermediate input trade. This paper studies the effects of exchange rate volatility on the import of intermediate inputs and evaluates how the effects are shaped by a series of firm characteristics. Using a comprehensive dataset of Chinese importing firms from 2000 to 2006, our empirical analysis indicates that exchange rate volatility negatively impacts the import of intermediate inputs both on the extensive and intensive margin. Further, we find that this negative effect is more pronounced for firms with higher financial vulnerability. We use a simple schematic diagram to explain the transmission mechanism and emphasize the role of financial vulnerability in amplifying the effects of exchange rate volatility.
... Research conducted by Satriana and Priyarsono, (2019) shows that assessing exchange rate volatility generally uses conditional standard deviations from annual, quarterly, or monthly exchange rates. This approach is supported by various researchers, such as Aftab, Syed, and Katper (2017), Asteriou, Masatci, & Pilbeam (2016), Chit et al. (2011);Kafle (2011), and Senadza and Diaba (2018). The measure of volatility is crucial because it influences the private sector's expectations of inflation, a critical variable in exchange rate dynamics, as noted by the IMF in 2023 (Eklou, 2023). ...
Japan has experienced low inflation and continuous deflation since the economic bubble of the 1980s. Following the COVID-19 pandemic, the world was preoccupied with deflation in various countries, worsening Japan's financial condition. As a result, the Japanese currency's exchange rate could not compete with other currencies. This situation significantly affects the value of Indonesia's exports and imports, as Japan is one of the leading export destinations and a primary supplier of implications for Indonesia. The purpose of this study is to forecast the volatility of the exchange rate between the yen and the IDR for the future. The data used in this research is the buying rate variable from the yen to IDR exchange rate data from January 3, 2020, to November 27, 2023. The method used for the high-volatility data is the GARCH model. The best modeling obtained is GARCH(0,1). The forecast results provide an insight into the buying exchange rate of the yen against the IDR until the beginning of 2024.
... Past literature on the effect on of ER on TB leads to conflicting views on the nature and extent of their effects (Bahmani-Oskooee and Hegerty 2007; Bhat, Alhashim, and Wonka 2021;Iossifov and Fei 2019). The embryonic literature assumed and demonstrated the linearity assumption which indicates that the ER movements have symmetric effect on TB (Olayungbo, Yinusa, and Akinlo 2011;Senadza and Diaba 2017;Serenis and Tsounis 2014). It is also evident that ER has symmetric pass through effect on TB (Mishkin 2008). ...
The impact of exchange rate (ER) movements on the trade balance has been extensively debated in the literature, with conflicting views on the nature and magnitude of this effect. This paper investigates the relationship between ER movements and trade balance in developing economies, with a specific focus on bilateral analysis involving Pakistan. Employing the Nonlinear Autoregressive Distributed Lag (NARDL) model, our results reveal a symmetric relationship between positive and negative ER changes and the trade balance, showing significant long-term and short-term effects across the panel of developing economies. However, country-specific asymmetries are observed, especially in the cases of India and China, and are more pronounced in each bilateral analysis, whether in the short run or long run. The study findings highlight the critical importance of maintaining a stable exchange rate policy, which can provide policy-makers with precise insights into the money market and the broader economy while preventing high volatility and continuous depreciation of domestic currencies. Such measures can mitigate the long-term adverse effects of ER movements on trade agreements. The study offers valuable insights for policymakers and investors in developing economies, aiding them in making informed decisions about exchange rate policies.
... Their study showed that an increase (decrease) in REER volatility reduces (increases) export volumes. Senadza and Diaba (2017) also presented results leaning toward the same perception. Applying the heterogeneous dynamic panel model to data from eleven sub-Saharan African economies, the authors found no significant effect of exchange rate volatility on imports. ...
The real effective exchange rate holds significant importance as a crucial gauge of a nation's global competitiveness in the economy, thereby exerting a potent influence on the development of its foreign trade activities. In an imperfect economic system where instability is the rule and stability is the exception, exchange rate volatility can harm countries' trade balances, especially in emerging countries with less-developed financial markets. Against this backdrop, our article attempts to provide some answers to the problem of choosing the optimal exchange rate regime to mitigate the effect of exchange rate volatility on the trade balance of emerging countries. Our research used a dataset encompassing 13 emerging nations from 1990 to 2020. We point out that real effective exchange rate volatility was assessed using the GARCH (1.1) model. In contrast, the CS-ARDL model was employed to measure the degree of impact of exchange rate volatility on emerging countries' trade balances under each type of exchange rate regime adopted to ultimately deduce the optimal exchange rate regime for these countries. Our empirical findings substantiate the presence of a penalising effect of exchange rate volatility on the trade balance of our sample countries, which tends to disappear as we move from fixed to flexible and floating exchange rate regimes. We can therefore conclude that flexible exchange rate regimes, due to their stabilizing function, are the most advantageous in mitigating the effects of exchange rate volatility on emerging countries's trade balances.
... Additionally, Schneider's analysis of the impact of the COVID-19 pandemic on the shadow economy in 2020 and 2021 shows a marked expansion in the magnitude of the shadow economy across all five BRICS nations. However, the author suggests that the anticipated economic recovery post-2021 may lead to a potential reduction in the size of the informal economy in these nations (Senadza and Diaba 2017). Scholarly attention has increasingly focused on understanding the intricate relationship between exchange rate volatility and the shadow economy, as evidenced by the growing body of literature examining the asymmetric effects of these economic phenomena. ...
This study investigates the influence of exchange rate fluctuations on the informal economy within the BRICS countries from 2010 to 2019. Employing linear and nonlinear analytical methods, this research utilizes linear autoregressive distributed lag (ARDL) models to analyze the relationship between exchange rate variations and the shadow economy in each BRICS nation. The study consistently reveals significant evidence of the impact of exchange rate fluctuations on the informal economy across both short-term and long-term timeframes. Moreover, employing a nonlinear ARDL model uncovers distinct and uneven effects of exchange rate volatility among the BRICS nations, emphasizing the varied characteristics of currency fluctuations in the clandestine economy. The findings underscore the need for BRICS member states to develop and implement tailored fiscal strategies to mitigate the risks associated with exchange rate volatility. Recognizing these dynamics is crucial for policymakers and stakeholders to effectively address the unequal ramifications of the informal sector within each country. Considering these findings, policymakers must devise economic policies that account for the diverse attributes of each nation’s informal economy. Implementing measures to reduce and manage the impacts of exchange rate fluctuations can foster stability and resilience within the informal sector, ultimately contributing to broader economic development objectives. This study contributes to the existing literature by employing linear and nonlinear methodologies to explore the relationship between currency exchange rates and the informal economy within the BRICS context. The identification of varied impacts across nations underscores the importance of tailored policy responses to address the unique challenges of exchange rate volatility on informal economic activities.
... L'article de Hsu et Chiang (2011) révèle que l'impact de la volatilité du taux de change sur les exportations dépend du niveau de revenu des partenaires. Senadza et Diaba (2017) explorent l'effet de la volatilité des taux de change sur le commerce international au sein des économies d'Afrique subsaharienne. Il est démontré qu'il y a une influence négative de la volatilité du taux de change sur les exportations à court terme alors que l'effet devient positif à long terme. ...
Cet article utilise la spécification du Vecteur Autorégressif en Panel (P-VAR) développée par Love et Zicchino (2006) pour mesurer la participation aux CVM dans 42 pays africains et analyser empiriquement l’influence de la dynamique des prix sur leur participation aux CVM. Les données ont été collectées à partir de différents rapports de la Banque Mondiale. Au cours de la période d’échantillonnage, que nous avons choisie de 1990 à 2018, les résultats de notre étude montrent que premièrement les CVM dans la plupart des pays africains suit une tendance à la hausse, deuxièmement la distribution spatiale des CVM est relativement instable mais il existe une hétérogénéité spatiale significative entre les pays du MENA et l’ASS et troisièmement la dynamique des prix exerce des effets négatifs et significatifs sur la participation aux CVM en Afrique selon que les pays sont membres ou non de l’union monétaire. Des politiques économiques de stabilité de prix, d’accommodation monétaires et industrielles sont encouragées pour booster la participation des pays africains aux chaines des valeurs mondiales.
... Several empirical evidence exist that a number of exchange rate regimes exist in the global economy. There was the fixed exchange rate regime in which economies were subject to the Gold Standard, which lasted from 1879 to 1934 (Senadza, Diaba, 2017). Following that, the Bretton Woods system was established, wherein the US dollar was linked to a specific amount of gold while other economies' currencies were linked to the United States Dollar. ...
The purpose of this study is to analyse the influence of exchange rate shocks on foreign trade (exports and imports) of fifteen economies within the ECOWAS sub-region. To accomplish the goal of this paper, Autoregressive Distributed Lag (ARDL) procedure was employed to investigate the impact volatility in the exchange rate market has on foreign trade in both long- and short-term with data between 1980 and 2020. To compute volatility, it relied on the GARCH (1, 1) model which predicted the conditional variances as proxy for volatility. Our empirical results are distinguished into export model and import model, and reveal that volatility in exchange rate influence foreign trade performance (exports and imports) negatively in the short-run, though statistically insignificant. The impact however becomes positive in the long run, and statistically significant for the two models. These results signpost that while the volatilities in foreign exchange market appear to deteriorate the international trade of these economies in the short-term, it substantially and significantly causes its improvement in the long-term. Hence, our results validate the J curve effect in the case of these ECOWAS economies. Policy implication from the findings suggests that to develop a robust international trade and ultimate economic growth, it is recommended that policymakers of these economies maintain a short-term stability in their foreign currency markets by way of adopting some intervention measures.
... A 1 % increase in the appreciation of the real effective exchange rate reduces export earnings by 1.4 %, and a one quarter lag increases them by 1.2 %. This result aligns with the findings of [52] for exports of the USA to BRICS countries [9], for Ethiopia [16], for Chile exports, and [93] in SSA. The volatility of the real effective exchange rate reduces total export earnings, and it is statistically significant to reduce earnings from coffee. ...
The exchange rate is one of the key monetary policy instruments used to dictate the economy. However, the effect of exchange rate volatility on macroeconomic outcomes has been a subject of debate in previous research. Thus, this study examined the effects of real effective exchange rate (REER) volatility on Ethiopia's export earnings using quarterly data covering 2007 to 2021. The GARCH model is employed to estimate the volatility of the real effective exchange rate, and its effect is examined at the aggregate and disaggregate levels. Disaggregation is made at commodity and partner country levels. Besides these, the study also examined the symmetric and asymmetric effects of exchange rate volatility on the three categories of export earnings. To estimate the effects, both the linear autoregressive distributed lag (ARDL) and nonlinear ARDL (NARDL) models are employed. The short-run ARDL result shows that the real effective exchange rate and its volatility affect export earnings only in a few cases. Real effective exchange rate appreciation is significant and reduces total export earnings and export earnings from vegetables, meat, and oilseed-related products. Similarly, exchange rate volatility reduces total export earnings and earnings from coffee, vegetables, and meat-related products. At the aggregate level, the NARDL result shows that exchange rate volatility has an asymmetric effect on total export earnings. Positive volatility reduces total export earnings, while negative volatility is not significant. At the commodity level, volatility also has an asymmetric effect on earnings from coffee and meat exports in the short run. However, in the long run, there is no asymmetric effect of exchange rate volatility on total and commodity-level export earnings. In terms of the country of destination, there is no strong evidence of the effect of real effective exchange rate appreciation and its volatility on export earnings. Thus, policies that stabilize the volatility of the exchange rate are needed in Ethiopia in order to enhance export earnings.
... On the other hand, there are studies in the literature that show that exchange rate uncertainty has an increasing impact on trade. De Grauwe (1988), Asseery and Peel (1991), McKenzie and Brooks (1997), Kasman and Kasman (2005), Serenis and Tsounis (2014), Senadza and Diaba (2017) and Ajinaja (2017) concluded that the exchange rate uncertainty has a positive effect on trade. The other group consists of studies that asserted that there is no statistically significant relationship between exchange rate uncertainty and trade flows. ...
This paper investigates the impact of exchange rate and exchange rate volatility on export performance by considering technological classification in addition to total exports. The study utilizes a panel SVAR methodology introduced by Pedroni P (2013) Structural panel vars. Econometrics 1(2):180–206. and analyzes panel data covering 58 countries and 48 quarters from the period of 2010Q1 to 2021Q4. Although the results suggest no precise evidence that exchange rate and exchange rate volatility shocks affect total export volumes, they exhibit heterogeneity across countries and vary in terms of technological density. Countries that have more flexible exchange rate policies and use large volumes of imported materials to produce export products demonstrate, on average, higher sensitivity to exchange rate volatility. Additionally, as the share of exports crossing more than one country border in total exports increases, the exposure of export to exchange rate volatility also rises. Countries described as commodity exporters and large energy consumers tend to be less responsive to exchange rate levels in their exports.
... According to their findings, openness to trade positively contributes to foreign direct investment (FDI) in developing economies over the long term. Further, Senadza and Diaba (2017) found that exchange rate volatility has no substantial impact on imports but has a negative short-run and positive long-run impact on exports in sub-Saharan Africa. Calderon and Kubota's (2018) study on the composition of international trade reveals that manufacturing trade can reduce volatility, whereas non-manufacturing trade has the opposite effect. ...
Purpose
The purpose of this research is to systematically scrutinize the influence of macroeconomic determinants on trade openness, through the lens of various trade theories, with a particular focus on the economies of the GIPSI countries – Greece, Ireland, Portugal, Spain and Italy.
Design/methodology/approach
This study investigates the macroeconomic factors influencing trade openness in the GIPSI economies from 1995 to 2020. Methods include stepwise regression (SR) for model selection, Pedroni panel cointegration test and panel regression results. The analysis uses advanced panel regressions, including FMOLS, Panel OLS and FEM. The long-term dynamics were tested using Pedroni cointegration, while Granger causality testing was used to examine the causal direction between the trade openness ratio and trade determinant.
Findings
The results show both long-term and short-term relationships between trade openness and (1) foreign direct investment, (2) labor force participation rate, (3) trade reserves and (4) trade balance. The researchers also detected unidirectional and bidirectional causality relationships between trade openness and these four factors. The study also revealed that trade reserves (TR) emerge as the most influential determinant of trade openness, and per capita income does not exhibit economic significance concerning the trade openness of GIPSI economies.
Research limitations/implications
This research is conducted within the context of the GIPSI nations (Greece, Ireland, Portugal, Spain and Italy). As such, the outcomes may not be universally applicable to other economic systems due to the distinct institutional settings and governance structures across different economic groups. Future investigations may explore the relationship between trade openness and its determinants by incorporating different variables.
Originality/value
To the best of the authors' knowledge, this is the first study investigating the theory that suggested trade drivers drive the trade openness of GIPSI countries context. By focusing on GIPSI countries, the study offers a unique perspective on the dynamics of trade openness in economies that have experienced financial crises and stringent austerity measures.
... The adverse and positive effects of exchange rate volatility have been examined in the developed and developing economies like Nigeria owing to its impact on employment generation (Bakhshi and Ebrahimi, 2016;Fang, 2020;Usman and Elsalih, 2018), inflation (Alagidede & Ibrahim, 2017;Bagheri & Gheisarinejad, 2016), trade (Asteriou et al., 2016;Jadoon and Guang, 2019;Rashid and Waqar, 2017;Senadza & Diaba, 2017), exports (Abdoh et al., 2016;Caselli et al., 2017;Fauceglia, 2020;Vieira & MacDonald, 2016;Vo & Zhang, 2019), investment (Avdjiev et al., 2019;Mostafapour et al., 2020;Zakari, 2017), and economic growth and development (Adewuyi & Akpokodje, 2013;Akinlo & Onatunji, 2020;Iheanachor & Ozegbe, 2021). While the exchange rate volatility has been connected to macroeconomic instability, few attempts have been made to unravel the channels through which exchange rate volatility creates such macroeconomic distortions. ...
... There are also others studies conducted on the African continent to analyse the relationship that exists between export volume, investment and exchange rate. Those studies include Bahmani-Oskooee and Gelan (2018), Habanabakize (2018), Senadza and Diaba, (2017) and, Aye and Harris (2019). Findings from these studies indicated a dichotomous relationship between the analysed variables. ...
The automotive industry is one of the South African industries that contribute to the manufacturing output and exports and plays important to the country’s economic performance. However, the export volume from this industry depends on various economic factors that include foreign direct investment, domestic investment and exchange rate volatility. The current study aims to determine empirically these three variables on the export volume in the South African automotive industry. To achieve this objective, the authors applied the autoregressive distributed lag (ARDL) model, ECM and causality test on quarterly time series data from 2008 to 2021. The study findings reveal that in the long run, domestic investment has a dominant positive effect on exports from the automotive industry. However, while both domestic investment and exchange rate are inversely related to the export in the short run, foreign direct investment is positively significant to increase export levels. The study recommends, based on these findings, the implementation of strategies that enhance growth in domestic investment and cautious management of foreign direct investment as the latter is more effective in the short run. Additionally, the monetary policymakers should, in each policy introduced and implemented, aim for the stability of the domestic currency and its effect on exports, especially in the automotive industry.
... The results reveal that exchange rate volatility wields a negative impacts on exports. Senadza and Diaba (2017) use dynamic heterogeneous panel technique to examine 11 African economies. The study finds that volatility has no significant effect on African imports, but find volatility hurts trade in the short-run, but boost trade over the long-run. ...
The volatility of the exchange rate is commonplace for every open economies. If excessive, it would have severe implications for the country’s international trades. Using the ARDL and cointegration bound tests on quarterly data [2000:Q2–2022:Q3], the study empirically explore how exchange rate volatility and other macroeconomic variables impacts real exports and imports demands for Nigeria. The evidence identify cointegration and the trade’ parsimonious models disclose a negative as well as significant short run effects of the exchange rate volatility. The estimated convergence ECM regressions indicate that exchange rates volatility cause significant decline in real exports and imports in the long run. Under this circumstance, the study supposes measures that will curb fluctuations beyond economic fundamentals. In particular, monetary authority should expand periodic exchange rate intervention to curtail excessive swings. This should be maintained intuitively and regularly appraise to avoid creating any counter-productive response.
... Tunc and Solakoglu (2017) stated that ERE has a depressing impact on TS and different types of goods have different degrees of impact. ERE fluctuations adversely affect TS in the short run, but there is an opposite impact in the long term (Senadza and Diaba, 2017). Chou et al. (2017) revealed that the influences of ERE on their trade income vary enormously for different currencies. ...
This research examines dynamic causality between trade surplus (TS) and exchange rate exposure (ERE), utilizing the bootstrap sub-sample rolling window test. The empirical findings indicate that there is the time-varying bidirectional causality in TS and ERE within certain sub-periods. Specifically, ERE manifests both positive and negative influences on TS. In turn, TS has a positive effect on ERE which proves the export-oriented model proposed by Bodnar et al. (2002). Furthermore, due to the complex changes in Sino-US trade policies during the trade war, ERE is still stimulated under the overall downward trend of TS. This means that the widening TS can inevitably increase ERE, which may cause more trade frictions with the US. By studying the time-varying relation between these two variables, investors can reasonably allocate assets according to the changes of TS and avoid losses caused by market panic. Policy-makers could restrict the abnormal flow of international capital and promote multilateral trade cooperation, especially in times of structural economic change, to reduce trade friction and maintain a relatively stable ERE level.
... Also, examining the linkage between exchange rate changes and trade flows in the case of 12 African countries, Bahmani-Oskooee and Gelan (2018) found support for a significant inverse relationship in the short run. In a similar study covering 11 African states, Senadza and Diaba (2017) validated an inverse relationship between exchange rate dynamics and imports in the short term. ...
This study examines the impact of extremely small and extreme large variations in the exchange rate on export trade of selected oil-exporting countries in Africa over the period 1981Q1-2020Q4. The standard non-linear ARDL provides inconsistency among the estimates, shows the unreliable diagnostic test, and cannot account for the effects of extreme variations in the exchange rate. Multiple asymmetric threshold non-linear ARDL is more superior and revealed a robust long-run asymmetric between exchange rate variation and export with the exclusion of Nigeria (symmetric) and short-run asymmetric for all the countries. On the parameter estimates, the findings indicate that the effects of extremely large changes in the exchange rate major and minor appreciation/depreciation significantly differ from the effects of extremely small changes in the exchange rate on export trade which is linked to exchange rate practices in various countries. However, the effects on the short-run show a great deal of inconsistency across the quantile. In contrast, Algeria is unaffected by exchange rate major/minor variations in all quantiles of positive and negative shocks. Consequently, policy implications for the selected countries are discussed within the manuscript.
... O. Olayungbo, 2019); (Sarlab & Seyed Ameri, 2021); (Serenis & Tsounis, 2014); (D. Olayungbo et al., 2011); (Senadza et al., 2018). This spectra literature has been much criticized as they ignore the factors that play a significant role in the dynamic of exchange rate-trade balance relation causing asymmetricity. ...
The time-invariable models would suffer to give a clearer description to the relationship between exchange rate and trade flows. Therefore, the growing strand of literature has failed to reach a consensus. This study aims to contribute to this discussion by employing not only nonlinear model to capture the asymmetric effect, but also to detect the time frequencies and explore the lead-lag relations between real exchange rate and trade balance between Libya and its major trade partner 'Turkey' by applying both NARDL and wavelet coherence approaches, using monthly data spanning January 2013 to December 2020, selected based on data availability. The findings disclose that trade balance responds to the real exchange rate asymmetrically. The asymmetric effect is skewed more in the negative direction, as the impact of negative change is significant and greater than the positive change in long run. While the oil price shocks positively impact trade balance, economic policy uncertainty negatively affects trade balance. The wavelet coherence analysis indicates that real exchange rate and economic policy uncertainty are lagging in trade balance, while oil price leads trade balance. Among various other policy suggestions, we recommend that stable exchange rate through the intervention in the foreign exchange market will promote the trade balance at the end.
... However, the degree of responsiveness seems to be extremely low. Exchange rate volatility is also proven to have a significant impact on trade in SSA (Baum and Caglayan, 2006;Senadza and Diaba, 2017). Igue and Ogunleye (2014) engaged the vector error correction methodology to examine the long-run relationship that exists between trade balance and real exchange rate, Gross Domestic Product (GDP) and world income in Nigeria. ...
Numerous studies have examined the impact of changes in oil price on economic activities in both developing and developed countries. Yet, studies on the impact of oil price on various sectors of the economy are limited, particularly in Ghana. To contribute to the literature and inform policy actions, we examine the impact of oil price changes on aggregated and disaggregated inflation where the disaggregated inflation comprises energy CPI,
food CPI, Core CPI, and transport CPI. We applied Nonlinear Autoregressive Distributed Lag (NARDL) Model to quarterly data spanning from 2000Q1 to 2021Q1. The NARDL model was suitable for analysis because it accounted for asymmetries inherent in oil prices. Our results from the NARDL model suggest evidence of the asymmetric impact of oil price change on both aggregated and disaggregated inflation. However, the asymmetric effect of oil price changes on Transport CPI was statistically higher in magnitude than the other sub-indexes of inflation, suggesting that oil price changes affect the transport sector more than the other sectors of an economy. From a policy point of view, these findings imply that to stabilize inflation, policies should be designed to strengthen the transport sector to contain oil price shocks
... Positive effects were also reported by Arize and Malindretos (1998) for Australian exports. Other studies that have reported mixed effects are: Kenen and Rodrik (1986), Asseery and Peel (1991), Chowdhury (1993), Arize and Shwiff (1998), De Vita and Abbott (2004), Medhora (1990), Bahmani-Oskooee and Ltaifa (1992), Bahmani-Oskooee (1996), Doroodian (1999), Arize et al. (2000), Sauer and Bohara (2001), Hall et al. (2010), Olayungbo et al. (2011), Serenis and Tsounis (2014), Asteriou et al. (2016), and Senadza and Diaba (2017). ...
Current trend in applied research points at application of Shin et al.’s (2014) nonlinear ARDL approach to asymmetric error-correction modeling and asymmetric cointegration. Two studies in the literature have applied these approaches to assess the short-run and long-run asymmetric effects of exchange rate volatility on aggregate exports and imports of Asian and African countries, respectively. We add to this new literature by considering the experiences of G7 countries. We find that trade flows of almost all countries are affected by volatility asymmetrically in the short run. In the long run, while French and Italian exports are boosted by increased volatility, German exports are hurt. On the other hand, decreased volatility reduces French and Italian exports. As for G7 imports, increased exchange rate volatility hurts imports of Canada, Germany, France, Italy, and the U.K. in the long run and decreased volatility boosts their imports.
... The earliest empirical studies (Hooper and Kohlhagen, 1978;IMF, 1984) consider a few numbers of high-income countries and show no consistent trade effect of exchange rate fluctuation. The most recent studies apply popular gravity model approach Effect of exchange rate uncertainty considering a sort of bilateral trade data to measure the impact of real exchange rate shock (Clark et al., 2004;Hayakawa and Kimura, 2009;Asteriou et al., 2016;Kang, 2016;Senadza and Diaba, 2017;Nguyen and Vo, 2017;Lin et al., 2018). Studies in this cluster find adverse and statistically significant effects; some show this negative effect is relatively small, and others argue that this negative effect is not robust using different econometric methods. ...
Purpose
Exchange rate uncertainty leads to an indecisive environment for imports and exports that would condense international trade, foreign direct investment, trade earnings, trade volumes, economic growth and welfare. This study aims to examine, empirically, the effect of exchange rate uncertainty on bilateral trade performance, focusing on eight SAARC member economies using the popular modified gravity model of trade.
Design/methodology/approach
The paper includes eight SAARC members – Afghanistan, Bangladesh, Bhutan, Maldives, Nepal, Pakistan and Sri Lanka panel data set over the period 2005–2018. The authors consider both standardized value (standard deviation) and conditional variance model to determine volatility of exchange rate. Primarily, ordinary least squares, random effects and fixed effects estimation techniques are employed to investigate the impact of exchange rate volatility. Endogeneity and robustness of the findings have been tested using the simultaneity-adjusted model and dynamic panel data two-step system GMM estimation techniques.
Findings
Empirical findings endorse the view that exchange rate volatility lowers trade flows in the SAARC regions. However, this adverse effect of exchange rate uncertainty on trade is pretty small. The negative correlation between exchange rate volatility and bilateral trade remains consistent and significant after controlling of simultaneous causality, autocorrelation, year effects, country-pair heterogeneity and endogeneity irrespective of panel data estimation techniques and different measures of volatility.
Originality/value
The present paper is original work.
... As one of its key objectives is to ensure exchange rate stability and hence promote trade. Senadza and Diaba (2017), also noted that exchange rate liberalization in sub-Saharan Africa SSA in the 1980s and 1990s led to a surge in exchange rate volatility. Also, stated that the foreign exchange rate in Sub-Sahara African countries has been highly volatile based on the introduction of structural adjustment reforms since the early 1980s. ...
This study examined the relationships that exist between exchange rate, trade facilitation and international flows on economic growth in West African monetary zone (1992-2021).The study used annual data covering the periods 1992 to 2021 and the autoregressive distributed lag model (ARDLM) was employed. Preliminary tests like the unit root test, co-integration test and vector error correction model (VECM) were carried out during the study. Some of the explanatory variables and the explained variable were proxied, logged and differenced as the case may be so as to achieve the desired objectives without compromise. The study observed that the exchange rate has a negative influence on economic growth in the West African monetary zone, and trade facilitation and international flows have a positive influence on economic growth. The study, therefore, recommends that 1) diversification of the economy from import to the export-based economy is fundamental for economic growth and hence development. This can be achieved through efficient and effective regulation of foreign exchange and political stability, which are very volatile macroeconomic variables.(ii) A common currency basket in the West African monetary zone be established, as this will reduce the adverse effect of exchange rate volatility on trading partners across West Africa.
... The volatility is generally perceived as negatively affecting international trade. While theoretical predictions and empirical outcomes appear mix [7]. A series of studies claimed that exchange rate volatility leads to a contraction in international trade. ...
Aim: The study evaluated the impact of devaluation and goods price variation on trade flows in a sample of 47 countries consisting of developing and developed nations from 1990 to 2023. Design/Research methods: The estimation techniques adopted in this work are the Panel Structural VAR (PSVAR), GARCH, and panel non-linear ARDL (PNARDL) methods. Unlike other traditional estimation techniques, the Panel SVAR, GARCH, and NARDL produce enhanced results. The Panel SVAR model with variance decomposition and the relevant impulse response functions were estimated to check for the interaction between variables, and also, it captures the contemporaneous effect of the changes in variables. As a result, the NARDL method was used to determine the short and long-run asymmetries. The volatility that is present in the data set was also successfully captured by Panel-GARCH/GJR-GARCH model estimation for both developing and developed countries with trade flow as the dependent variable. Conclusion/findings: The results established that both the positive and negative devaluation shocks positively but insignificantly impacted trade flows in developing countries. Goods price variability had significant positive effects on trade flows. A 1% rise in the positive shock to price variation resulted in a 0.29% rise in trade flows while a similar percentage decrease in goods price variability resulted in 0.01% rise in trade flows respectively. With the panel-GARCH results, the magnitude of the impact of devaluation on trade is near zero even though it was a positive effect. There was a convergence in the results concerning goods price variation since both the GARCH (1,1) and the GJR GARCH reported a positive impact of devaluation on trade flow. Nevertheless, we obtained a divergence in the results concerning goods price variation because, while in the GARCH (1.1), goods price variation had a positive impact on trade flow, using the GJR-GARCH, it had a negative impact. The condition of this indeterminate outcome may be attributed to the onset of globalization which has eroded some of the trade restrictions that the developing countries have used over the years to protect their infant industries. Also, while the GARCH (1,1) reported symmetric shock to trade flows, the GJR-GARCH reported asymmetric shocks. The good news is that these shocks are not permanent in developing economies. For the developed countries, the findings indicated a positive impact of devaluation on trade flow. This could be because the developed countries are mainly export-oriented as such, and a slight reduction in the exchange rate generated a significant positive impact on their trade flow. Whereas, only 34% disequilibrium error in trade flows of developing countries was corrected in the long-term period, 54% disequilibrium in trade of developed economies was restored in the long run when the destabilizing effect on trade flow occurred as a result of devaluation and price variations in developed economies. Originality/value of the article: The research contributed to the empirical literature on currency devaluation, goods price variation and trade flows between trading partners. In particular, the research established that the impact of goods price variation on trade flow was insignificant in developed economies compared to the significant effect of price variation on trade in developing nations and this was attributed to high inflation rate in these countries. There is a negative outcome for the impact of devaluation on trade flow in developing countries. There is a substantial positive nexus between exchange rate devaluation and trade flow. Perhaps, the developed countries should have planned devaluation to achieve a further improvement in their trade flow position given their strong production and industrial base. Policy implications of the research: based on the researching findings and the contributions of the study to current knowledge on the subject of currency devaluation and variation in the prices of goods and their established effects on the volume of trade in different countries, the well-managed inflation rate and exchange rate policies of the developed economies have made it almost impossible for them to experience variations in their prices of imports and exports. Policymakers in these countries are therefore advised to hold on to their current policies of non-volatility in their exchange rate as well as their inflation rates. In contrast, the monetary policy managers of the developing countries should complement policies of exchange rate devaluation with other economic enabling indices such as substantial improvement in the competitiveness of their industrial projects, a dynamic and vibrant economic environment where the inflation rate is at a very low level, as well as improvement of the level of productivity. In addition, policymakers in developing countries should ensure they implement policies that are anti-price racketeering by producers by making sure to keep their interest rates low and stable. JEL: F31, F13, F14
We investigate the impact of exchange rate volatility on exports and imports between South Africa and its main trading partners, namely the United States and China, across 22 import and export industries. The study employs the quantile autoregressive distributive lag (QARDL) model using quarterly data from the period spanning from 1994Q1 to 2022Q4. Our initial ARDL estimates establish that currency volatility does not significantly harm most trade sectors with both countries. In fact, many industries exhibit an insignificant or positive correlation with currency volatility. Nevertheless, upon re-estimating the regressions using the QARDL model, we uncover ‘hidden cointegration’ relationships existing at quantiles beyond the mean and median estimates, which are undetectableby traditional ARDL models. By considering these location-based asymmetries, we conclude that trade activities with China benefit more from exchange rate volatility compared to those with the United States. Overall, our findings imply that monetary authorities may not need to intervene in currency markets to stimulate trade with the top trading partners, as firms appear to be willing to bear the currency risks associated with the volatile Rand exchange rate.
Foreign trade has become one of the important elements of the financial structure of countries. Money transfer mechanisms have the power to determine the direction of trade in the world. In the study; Türkiye's exports acording to the country groups were used. In the period 2013:1-2023:11; Panel cointegration, Autoregressive Distributed Lag (ARDL) and Granger causality analyses were used to determine the relationship levels between the Central Bank of the Republic of Türkiye (CBRT), Federal Reserve System (FED) interest rates, Wholesale Price Index (WPI), Consumer Price Index (CPI) and Türkiye's foreign trade. has been used. As a result of the study; Findings have been obtained that Turkish exports are not affected by the CBRT interest rate decisions and WPI in the short or long term. While the increase in FED interest rates causes a decrease in all of Türkiye's exports in the long term, it reduces exports to the Turkic Republics, OECD, EFTA, BSEC, CIS, OIC and D8G in the short term. It has been concluded that while there is a unidirectional causality relationship between the CBRT and FED interest rates, WPI and CPI and Türkiye's exports, there is a bidirectional causality relationship between the exchange rate and Türkiye's exports.
The main aim of this research was to explore the influence of financial development (FD), institutional quality (IQ), and the size of the earning population (EP) on sustainable development (SD) in 64 countries participating in the One Belt and One Road initiative (BRI) from 2005 to 2020. Employing a two-step generalized method of moments (GMM) analysis, the study revealed a consistent and favorable trajectory in the sustainable development of these nations, in line with established economic theories. The study revealed that financial development and institutional quality (measured by IQ-WDI and ICRG) had significant positive effects on sustainable development. However, earning population (EP) exhibited a negative yet significant influence on sustainable development. Additionally, control variables such as inflation, exchange rate, and unemployment rate negatively impacted SD, whereas current account balance (CAB) had a positive effect. The study also discussed policy implications and future directions, emphasizing the integration of One Belt and One Road countries as a pathway to successful sustainable development. These findings hold crucial implications for policymakers aiming for balanced and sustainable growth strategies.
This study examines the existing relationships among exchange rate volatility, trade openness and Nigerian economy from 1981 to 2021, using Autoregressive Distributed Lag (ARDL) bound and Pairwise Granger causality technique to achieve the stated objectives. The findings revealed a long-run relationship among the research variables. It was discovered that external reserve had positive significant short-run and long-run effects on Nigerian economy, while exchange rate volatility had negative short-run significant effect on economic growth. Unidirectional causal relationship was established between exchange rate volatility and economic growth as well as between trade openness and economic growth. A bidirectional causality was established between total tax on goods and economic growth in Nigeria. It is therefore recommended that government should come with policies to regulate exchange rate for naira to regain more strength against foreign currencies and as a result, promoting trade openness. Also, government should encourage more export through infant industrial promotion and economic diversification to support trade openness in the process of attaining economic growth in the country.
This study estimates the long-term impact of Chinese RMB exchange rate movements on the trade balance between China and the Eastern African Belt and Road Initiative countries. The Pedroni cointegration analysis and the fully modified and dynamic OLS techniques are applied to the dataset from UNComtrade and China Statistical Yearbook 2019. Some specification novelties are the use of imports and exports as independent variables. By so doing, the paper proposes an alternative measure of the trade balance. We find that the RMB exchange rate movements are stable during the sample period and slightly affect the trade balance between China and the Eastern African BRI countries. Additionally, the study does not find evidence supporting the J-curve effect in China-East Africa trade balance. The empirical results suggest that the Eastern African BRI countries would gain much more trading collectively with China than individually. Therefore, the study strongly recommends that the East African Community accelerate its integration process and establish Export Quotas for trade outside the bloc. Plain Language Summary Purpose: estimate the long-term impact of Chinese RMB exchange rate movements on the trade balance between China and the Eastern African Belt and Road Initiative (BRI) countries. Methods: We use the Pedroni cointegration analysis along with the fully modified and dynamic OLS techniques. Conclusions: The RMB exchange rate movements are stable during the sample period and slightly affect the trade balance between China and the Eastern African BRI countries. Limitations: The study uses an experimental approach of assessing the trade balance instead of the traditional approach. The study only investigate the long-term impact of RMB exchange rate movements and does not investigate the short-run impact. The study only applies the model to RMB, slightly applies the model to USD but does not apply the model to significant foreign currencies such as the European Euro and the British Pound.
This study estimates the long-term impact of Chinese RMB exchange rate movements on the trade balance between China and the Eastern African Belt and Road Initiative countries. The Pedroni cointegration analysis and the fully modified and dynamic OLS techniques are applied to the dataset from UNComtrade and China Statistical Yearbook 2019. Some specification novelties are the use of imports and exports as independent variables. By so doing, the paper proposes an alternative measure of the trade balance. We find that the RMB exchange rate movements are stable during the sample period and slightly affect the trade balance between China and the Eastern African BRI countries. Additionally, the study does not find evidence supporting the J-curve effect in China-East Africa trade balance. The empirical results suggest that the Eastern African BRI countries would gain much more trading collectively with China than individually. Therefore, the study strongly recommends that the East African Community accelerate its integration process and establish Export Quotas for trade outside the bloc.
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.
La afectación en los costos y rentabilidad del negocio porcino a partir del dólar es una realidad que afecta a la economía. En este trabajo se evalúan los efectos de la Tasa Representativa del Mercado (TRM) sobre variables financieras del sector porcícola en Colombia, como los costos y el margen de utilidad del sector. Se emplea una metodología de investigación cuantitativa con enfoque correlacional, mediante pruebas de correlación de Pearson, así como modelos estadísticos, estimando los efectos de la TRM sobre el margen de utilidad y modelos de pronóstico de la TRM. Se encuentra una alta volatilidad en la TRM, además, la correlación y alta asociación con la mayoría de los costos no se puede negar, lo cual es muestra de una afectación negativa frente al margen en especial, cuando aumenta la TRM. El modelo de pronóstico de la TRM considera términos correlacionados con su propio pasado, estimando un Arima para los residuales.
Bu çalışmanın temel amacı; Türkiye’de reel döviz kuru, enflasyon ve faiz oranlarının dış ticaret üzerindeki etkilerini 1970-2021 dönemi yıllık verilerini kullanarak teorik ve uygulamalı olarak simetrik ve asimetrik zaman serileri analiz yöntemleriyle incelemektir. Araştırmada zaman serileri analiz yöntemi kullanılmış olup, serilerin durağanlıkları; yapısal kırılmaya izin veren Zivot ve Andrews (1992) ve Lee ve Strazicich (2003, 2004) testleriyle incelenmiştir. Seriler arasındaki eşbütünleşme ilişkileri; Hatemi-J (2008) simetrik, Granger ve Yoon (2002) ve Hatemi-J ve Irandoust (2012) asimetrik eşbütünleşme yöntemleriyle sınanmıştır. Seriler arasındaki nedensellik ilişkileri; Hacker ve Hatemi-J (2006) simetrik nedensellik, Hatemi-J (2012) asimetrik nedensellik testleriyle araştırılmıştır. Eşbütünleşme analizlerinde; Hatemi-J (2008) yapısal kırılmalı eşbütünleşme testinde sadece ticaret dengesi modelinde yer alan serilerin eşbütünleşme ilişkisine sahip oldukları sonucuna ulaşılmıştır. Granger ve Yoon (2002) asimetrik eşbütünleşme testi, hiçbir modelde saklı eşbütünleşme bulamazken, Hatemi-J ve Irandoust (2012) asimetrik eşbütünleşme testi; ihracat modelinde yer alan serilerin negatif bileşenleri arasında eşbütünleşme bulamamış ama ihracat modelindeki serilerin pozitif bileşenleri arasında, ithalat modeli ve ticaret dengesi modelindeki serilerin her iki bileşeni arasında da saklı eşbütünleşme ilişkilerinin var olduğunu göstermiştir. Yapılan analizler sonucunda; Hacker ve Hatemi-J (2006) simetrik nedensellik testinde, ihracattan enflasyon ve dünyadaki kişi başına düşen ortalama reel milli gelire ve faizden ithalata tek yönlü nedensellik ilişkileri bulunmuştur. Hatemi-J (2012) asimetrik nedensellik testindeyse; ihracattan faize, ithalattan enflasyon ve dünyadaki kişi başına düşen ortalama reel milli gelire doğru asimetrik nedensellik ilişkileri olduğu ortaya çıkarılmıştır. Yapılan simetrik ve asimetrik analizler; Türkiye’nin dış ticaret açığı sorununun, sadece nominal kurun yükseltilmesiyle çözülemeyecek kadar kompleks ilişkiler barındırdığını ortaya koymuştur.
This paper investigates the total and net directional connectedness of the energy market and currency market amid volatilities (local and international) of BRICS for the period May 7, 2012 to March 31, 2022. The Time-varying parameter Vector Autoregression (TVP-VAR) connectedness approach is specifically employed. We reveal that the average value of the total connectedness index (TCI) is 46.91%, for the specific network of energy commodities, currency rates, and volatilities. Also, from the averaged dynamic connectedness, the global energy commodity index demonstrated the most transmitter of shocks. Conversely, BRICS currency markets (except for Brazilian Rubble) and most implied energy volatilities and realised exchange rate volatilities were net receivers of shocks. Moreover, the total connectivity indices were seen to vary significantly during the study sample period with strong susceptibility to crisis periods, especially, the COVID-19 pandemic. We advocate that most volatilities were consistent net transmitters across time as indicated by the net directional connectedness. The findings imply that in a network of energy commodities, exchange rate, and volatilities, risk minimisation is elated to boost investors’ confidence across time.
This paper assessed the influence of real effective exchange rate on export of goods and services in Nigeria over the period, 1986-2020. The Error correction model estimation was applied in estimating the multiple regression model. The findings showed that the real effective exchange rate is positive and statistically significant effect on the exports of goods and services in Nigeria. Expectedly, the convergence coefficient or error correction term (ECT) is negatively signed and significant, which suggests that last-period's deviation from a long-run equilibrium influences its short-run dynamics as is being corrected at a speed revealed by the parameter estimate. Thus, the speed of adjustment (or error correction term) shows that deviation from equilibrium relationship is corrected at the speed of 59% on annual basis. We recommend that Nigeria need to focus on the variable to use in improving their economy via trade. if the region wishes to improve its economy by focusing on exports, the currencies should be revalued/appreciated, as export has a positive link with the actual exchange rate, and depreciation will result in revenue loss.
The paper employs partial and biwavelet coherence techniques to examine the time-frequency dependence structure of international remittance inflow on economic growth by moderating the effect of exchange rates. We investigate the comovements of remittance and economic growth from 1980 to 2020. We observed heterogeneous patterns in the comovements structure of international remittance inflow and economic growth at various timescales. By examining the biwavelet coherence, the comovements are noticeable at elevated occurrences, implying that exchange rates, when acting as moderator in the nexus between remittance and economic growth, can hamper economic growth. Findings from the partial wavelet coherence reveal that exchange rates influence remittance and economic growth connectedness in emerging and frontier economies in Africa. Consequently, in situations where radical changes occur in exchange rates, the implemented policies of emerging African countries seem to have largely influenced the comovements between remittance inflow and economic growth. The risk posed by exchange rates on remittance inflow requires sustainable policies to prevent widespread spillovers, mostly during severe economic downturns. We posit that implementation of exchange rate mechanisms are central to parity which is essential to mitigating potential risk.
The developing world witnessed the exchange rate fluctuations enormously to
instability and a lack of economic confidence over the years. The relationship
between exchange volatility and industrial exports in Sri Lanka is a continuing
matter in economic growth and development. Many developing countries are
engaging in a wide range of cross-border transactions with developed and emerging
economic countries. This situation has led countries to witness exchange rate
fluctuations, and the unpredictability of exchange rates affects the export earnings.
The relationship between exchange rate volatility and industrial exports in Sri
Lanka is a continuing matter in economic growth and development. The aim of this
study is to analyze the exchange rate volatility on industrial exports in Sri Lanka
from 2001 to 2018. The motivation of this study is to investigate the relationship
between exchange rate volatility in industrial export earnings in Sri Lanka after
implementing floating exchange rate policy. The ARDL model is employed to
examine this phenomenon and the study found a positive relationship between
exchange rate volatility and industrial exports in Sri Lanka in the short run and long
run
This paper presents evidence on the importance of bank‐intermediated trade finance for the intensive margin of African trade, using unique data from 43 African countries. It shows that African trade is underserved by banks. Banks intermediate about 40% of the region's trade – a far lower share than the global average of 80%. It finds that bank‐intermediated finance has a positive and significant effect on the intensive margin of African trade, even after accounting for the impact of domestic credit to the private sector. Estimates from standardized coefficients show that the impact of access to trade finance on trade volume for Africa is large and exceeds that of exchange rate volatility and trade logistics. These results suggest that policies aimed at promoting the region's trade should make access to bank‐intermediated finance a priority.
This study models exchange rate volatility using a dataset of ten Asia-Pacific currencies from the first month in 2005 (M01) to the last month in 2021 (M12). Also, the impact of exchange rate volatility, and income levels on Kuwait’s crude oil exports to its trading partners, namely: Japan, Taiwan, and South Korea was examined by employing the ARDL framework. The exchange rate volatility was estimated using the GARCH model. The GARCH result shows that seven out of ten currencies satisfied the basic conditions of the model, namely: Kuwait Dinar, Saudi Riyal, UAE Dirham, Korea Won, Japanese Yen, Chinese Yuan, and Bahrain Dinar.
In the short term and long term, findings revealed that exchange rate volatility has no significant effect on crude oil export from Kuwait to all the trading partners with the exception of Japan, which only revealed a long-run significant impact. However, the results further reveal a long-run relationship between the exchange rate volatility and crude oil exports from Kuwait using the Error Correction Model.
The authors analyze how changes in the value of the naira affect the country's overall trade surplus or deficit. The 2020 edition of the Central Bank of Nigeria Statistical Bulletin was consulted for data on the country's balance of payments, exchange rate, trade openness, and inflation rates. Exchange rate, exchange rate fluctuation, trade openness, and inflation rate are the independent variables, and the balance of payments (BOPs) is the dependent variable. The model's variables' stationary was determined using the ADF unit root test method. The results of the tests show that after the first difference, the balance of payment and the inflation rate stabilized, while the actual exchange rate, exchange rate fluctuation, and the degree of trade openness all remained stable at their respective levels. The study's dependent and independent variables" long-term relationship was estimated using an autoregressive distributed lag bounds test. There is a long run link between the study's dependent and independent variables, as evidenced by the estimates' F-statistics value of 4.85, which is larger than the lower and upper critical bounds of 3.23 and 4.35. Estimates also reveal that in the long run, the balance of payment in Nigeria is positively impacted by exchange rate fluctuations and the real exchange rate, while it is negatively impacted by inflation and trade openness. As a result, the study suggests that government should subsidize farmers who produce export goods in order to reduce the volatility of naira to dollar exchange rate. The national government should put aside more funds to increase the nation's foreign reserve in order to reduce the volatility of the currency exchange rate. Rigid taxes on imported goods are one way to prevent heavy reliance on them.
We find that climate-related risks forecast the intraday data-based realized volatility of exchange rate returns of eight major fossil fuel exporters (Australia, Brazil, Canada, Malaysia, Mexico, Norway, Russia, and South Africa). We study several metrics capturing risks associated with climate change, derived from data directly on variables such as, for example, abnormal patterns of temperature. We control for various other moments (realized skewness, realized kurtosis, realized upside and downside variance, realized upside and downside tail risk, and realized jumps) and estimate our forecasting models using random forests, a machine learning technique tailored to analyze models with many predictors.
Turkey has experienced a rapid increase in exports during the last two decades. In addition, there has been a significant increase in the exchange rate and its volatility in recent years. Hence, the empirical examination of the volatility-export nexus in a comprehensive framework seems to be important to provide insights for policymakers. In this study, we investigate how the exchange rate volatility affects Turkey's exports to its major partners namely, Belgium, France, Germany, Italy, Netherlands, Russia, Spain, the UK, and the USA for the period of 2002:01–2019:12. Considering the existence of an asymmetric effect of volatility on trade, we separate positive changes of volatility from negative changes via the partial sum concept and introduce nonlinearity into the estimation and testing procedure. Our results indicate that (i) exchange rate volatility plays quite important role for Turkey's export, (ii) asymmetry matters for better understanding the volatility-export nexus, (iii) the impact of volatility is country and commodity-specific, (iv) exchange rate volatility shows higher impacts on capital and consumption goods export. Lastly, exchange rate volatility affects exports in opposite directions in the short and long-run. Both low and high volatility generally increase (decrease) Turkey's exports in the short-run (long-run). These results provide important implications for policymakers.
https://authors.elsevier.com/sd/article/S1303070122000117
This paper assessed the influence of real effective exchange rate on import of goods and services in Nigeria over the period, 1986-2020. The Error correction model estimation was applied in estimating the multiple regression model. The findings showed that the real effective exchange rate is negative and statistically significant effect on the exports of goods and services in Nigeria. Expectedly, the convergence coefficient or error correction term (ECT) is negatively signed and significant, which suggests that last-period’s deviation from a long-run equilibrium influences its short-run dynamics as is being corrected at a speed revealed by the parameter estimate. Thus, the speed of adjustment (or error correction term) shows that deviation from equilibrium relationship is corrected at the speed of 56% on annual basis. We recommend that we recommend that if the Nigeria wants to focus on import, the currencies should be devalued/depreciated because they are relatively elastic to changes in real exchange rate. Keywords: Exchange Rate, Error Correction Model, Imports, Goods, Nigeria.
Exchange rates have a major impact on a country's trade in not only ascertaining the prices but also deciding upon the hedging requirements in order to mitigate the risks associated with its fluctuations. These rates have key implications on the way a country's economy grows and performs. The present study examines the impact of important macroeconomic indicators (Gold prices and Foreign Portfolio Investments (FPI)) on the exchange rates in the long run and short run. The monthly data was collected from 2003 to 2019. The study employed Auto Regressive Distributed Lag Model (ARDL), a Bounds test to find the long-run and short-run association among the macroeconomic variables and the exchange rate. The results show that there exists a short-run and long-run relationship between the USD/INR exchange rate and the macroeconomic indicators, Gold and FPI.
This study investigates the impact of domestic and foreign currency-valued exchange rate volatility on the export and import demand functions with reference to Pakistan's trading partners. We use GARCH-based exchange rate volatilities and the least-squares dummy variable technique with fixed-effects estimation to measure the volatility impact on both demand functions. The study evaluates a series of exchange rates from 1970:01 to 2009:12 to compare the long-run impact of volatility with that of the short run. The results show that, when Pakistan employed the US dollar as the vehicle currency with its trading partners, volatility discouraged both imports and exports. In contrast, both the import and export demand functions remained unaffected by volatility distortions when Pakistan traded with its developing partners using bilateral exchange rates valued in domestic currency terms. In policy terms, this implies that Pakistan should opt for direct domestic currency when trading with middle-and low-income countries.
The fluctuations of the exchange rate of the domestic currency have been a major concern. Since the 1970’s there has been a debate on the relationship between exchange rate volatility and export flows. In the wake of the recent global financial crisis and rising food prices, this debate has become even more strident and the concerns even more palpable. South Africa has not escaped the debate. The exchange rate of the South African Rand has been undergoing a series of devaluations for several decades. In such a situation, exporters must contend with some exchange rate volatility which might have implications for export flows. However, in the absence of systematic study, neither the magnitude of the fluctuations nor their impacts is known with certainty and this presents immense policy difficulties. This paper seeks to provide answers to the most commonly asked question as to the magnitude and extent of such fluctuations and their precise impacts on export levels and the market shares of South African citrus exports in the destination markets around the world. The principal objective it to estimate the impact of exchange rate volatility on the competitiveness of South Africa’s agricultural exports. The paper reviews the theoretical literature in respect to foreign exchange market, Balance of Payments, exchange rate models and the evidence from monetarists and the Purchasing Power Parity. Laspeyres-indexed export prices, exchange rates and export volumes for maize, oranges, sugar, apples, grapes, pears, avocados, pineapples, apricots and peaches for the period 1980-2008 and exports to the European Union are modeled by means of ARIMA (AR) and Autoregressive Conditional Heteroscedasticity (ARCH) and export demand equation estimated. The Constant Market Share (CMS) model was applied to assess the extent to which the SA citrus industry has maintained its competitive advantage in several markets. The overall results obtained strongly confirm that exchange rate volatility have a positive impact on the competitiveness of South Africa’s agricultural exports and that, despite the on-going financial crisis that has engulfed the world, South Africa’s citrus exports have maintained a healthy market share. This result is surprising but understandable in the light of the special arrangements put in place by South Africa’s monetary authorities to protect the Rand from over-exposure to global financial developments over the period under review. The important practical implications of these findings for the success of the agricultural restructuring programmes going on in South Africa are evaluated and discussed against the backdrop of the fresh debates on national economic policy management in the wake of financial meltdown that has once again threatened the financial stability of virtually every region in the world in recent years.
Exchange rates have been highly volatile in South Africa especially after the end of the Bretton Woods system and this has raised a lot of debate amongst interested parties in South Africa such as the South African government and the Congress of South African Trade Union. Therefore, this paper investigates the impact of exchange rate volatility on aggregate South African exports flows to the rest of the world for the period 2000 to 2009. The results obtained suggest that, there exist no statistically significant relationship that is there is an ambiguous relationship between South African exports flows and exchange rate volatility. Although the results were not robust, at the same the study found some sensitivity of South African exports to movements of the exchange rate. We find that, depending on the measure of volatility used, exchange rate volatility either does not have a significant impact on South Africa’s exports flows, or it has a positive impact on aggregate goods and services.
DOI: 10.5901/mjss.2013.v4n3p507
Many African countries run a current account deficit, with a number of economies maintaining,high deficits above ,5% for ,many ,years. This raises concerns ,about ,the sustainability of these deficits and the subsequent debts accumulated,to finance,them. In this paper, we investigate the sustainability of current account deficits in a sample of African countries using the 5% threshold along with other operational indicators of current ,account sustainability used in the literature. Looking at this range of indicators indicates that a number ofAfrican,countries run current account ,deficits alongside low levels ,of investment ,and economic growth, suggesting that these economies are maintaining deficits which are not beneficial for the economy,over a longer horizon. This paper also analyses the determinants of both short and medium-term current account deficits in Africa, and finds that countries are more likely to have a deficit exceeding 5% if the economy is small, less open and diverse, and isexperiencing,macroeconomic,instability. Less democratic,governments,also have a higher probability of running a deficit. Overall, the main message is that though most African economies are characterized by current account deficits, only a few have real concerns regarding the sustainability of this imbalance ,As long ,as these ,countries can finance their deficits via aid and debt accumulation, they face no immediate crisis. However, this allows these economies,to continue with the status quo rather than addressing the structural causes of
Many sub-Saharan African (SSA) countries liberalized their economies in the 1980s and early 1990s. This paper reviews the foreign exchange regime reforms in selected SSA, and their associated macroeconomic policies and economic performance during and after these reforms were undertaken. Before liberalization, most of the reviewed countries were characterized by extensive foreign exchange rationing, sizeable black market premiums, and declining per capita real income. Today, the countries that successfully reformed look markedly different. Rationing and parallel market spreads are a distant memory, and per capita income has increased sharply.
This paper revisits the link between exchange rate regimes and trade in the context of Africa's exchange rate arrangements. Using an augmented gravity model that includes measures of currency unions as well as direct and indirect fixed exchange rates, the paper benchmarks Africa's experience with that of the rest of world. Our results suggest that fixed exchange rate regimes in the form of currency unions or direct pegs promote trade in Africa: the effect of currency unions and direct fixed exchange rates on Africa's bilateral trade is almost double than that for an average country in the world sample. In addition, we find that the effect of currency unions depends more on the geographical proximity of the trading partners in Africa than in the world, with member countries closer to each other reaping more trade gains. Finally, currency unions make trade more stable in Africa and affect the volume of trade through channels other than reduced exchange rate volatility.
We analyse the long-run and short-run relationship between merchandise export volume and its determinants, foreign income, relative prices and exchange rate volatility, using the techniques of cointegration and error correction. The model was estimated for Irish exports and sectoral exports SITC 0-4 and SITC 5-8 to the EU using quarterly data for the period 1978-1998. The sectoral classification corresponds to the exports of mainly indigenous Irish firms and multinationals, respectively. We find that the exchange rate volatility has no effect on the volume of trade in the short-run but a significant positive effect in the long run. This is true in the aggregate and for our sectoral classifications. We can tentatively conclude that the decline in intra-EU exchange rate volatility associated with the single currency will lead to a long-run fall in Irish exports to the EU.
We use a gravity model to analyse the impact of exchange-rate volatility on the volume of bilateral international trade. Semiparametric regression methods are applied to the pooled data for over 200 countries. Our results indicate that volatility affects trade negatively although at very high level of volatility the effect diminishes and eventually becomes statistically indistinguishable from zero. Countries apparently find avenues to mitigate the detrimental impact of exchange rate uncertainty when volatility attains very high levels. These results help reconcile the contradictory findings often found in the literature on the impact of exchange-rate uncertainty on trade volume.
In the area of international trade, few studies have examined whether increases in exchange-rate volatility depress trade flows of LDCs. The aim of this paper is to investigate empirically the impact of exchange-rate volatility on the export flows of 10 developing countries over the quarterly period 1973–98. The econometric analysis exploits the theory of cointegration, given the obvious nonstationarity of the data. Estimates of the cointegrating relations are obtained using Johansen's multivariate procedure. Evidence of stability of the cointegrating space is examined using Hansen's [1992a] tests. Short-run dynamic modelling is accomplished using the error-correction technique, and the stability test results are obtained using Hansen [1992b] tests. In conformity with theoretical considerations, the results indicate that increases in the exchange-rate volatility exert a significant negative effect upon export demand in both the short-run and the long-run in most of the countries studied. These effects may result in significant reallocation of resources by market participants.
This paper examines the impact of bilateral real exchange rate volatility on real exports of five emerging East Asian countries among themselves as well as to thirteen industrialised countries. We explicitly recognize the specificity of the exports between the emerging East Asian and industrialised countries and employ a generalized gravity model that combines a traditional long-run export demand model with gravity type variables. In the empirical analysis we use a panel comprising 25 years of quarterly data and perform unit-root and cointegration tests to verify the long-run relationship among the regression variables. The results provide strong evidence that exchange rate volatility has a negative impact on the exports of emerging East Asian countries. These results are robust across different estimation techniques and do not depend on the variable chosen to proxy exchange rate uncertainty.
We introduce a new Stata command, xtpmg, for estimating nonstationary heterogeneous panels in which the number of groups and number of time-series observations are both large. Based on recent advances in the nonstationary panel literature, xtpmg provides three alternative estimators: a traditional fixed-effects estimator, the mean-group estimator of Pesaran and Smith (Estimating long-run relationships from dynamic heterogeneous panels, Journal of Econometrics 68: 79-113), and the pooled mean-group estimator of Pesaran, Shin, and Smith (Estimating long-run relationships in dynamic heterogeneous panels, DAE Working Papers Amalgamated Series 9721; Pooled mean group estimation of dynamic heterogeneous panels, Journal of the American Statistical Association 94: 621-634). Copyright 2007 by StataCorp LP.
This study examines how exchange-rate volatility affected Ireland's exports to its most important trading partner, the United Kingdom, from 1979 to 1992. To ensure reliable inferences regarding income and price elasticities and the impact of exchange rate volatility on exports, the time series properties of the series used are investigated. The analysis here is conducted at both aggregate and 2-digit SITC Division levels since exchange rate volatility can reasonably be presumed to affect sectors differently. Since expectations matter for exchange rate determination real volatility was generated according to a first-order GARCH process. Both real and nominal volatility were important determinants for over 35% of Irish-UK trade, with positive effects predominating. This may be due to the nature of Irish firms operating in a small open economy where they have little option in dealing with increased exchange rate risk except to "weather the storm" for fear of losing market share or facing costs of either exit, re-entry, or both. Copyright 2001 by Taylor and Francis Group
This paper analyzes the effects of exchange rate volatility on bilateral trade flows. Through use of a gravity model and panel data from western Europe, exchange rate uncertainty is found to have a negative effect on international trade. The results seem to be robust with respect to the particular measures representing exchange rate uncertainty. Particular attention is reserved for problems of simultaneous causality, stemming from the endogenous behavior of monetary authorities. The negative correlation between trade and bilateral volatility remains significant after controlling for the simultaneity bias. Copyright 1999, International Monetary Fund
This paper analyzes the relationship between banks’ divergent strategies toward specialization and diversification of financial activities and their ability to withstand a banking sector crash. We first generate market-based measures of banks’ systemic risk exposures using extreme value analysis. Systemic banking risk is measured as the tail beta, which equals the probability of a sharp decline in a bank’s stock price conditional on a crash in a banking index. Subsequently, the impact of (the correlation between) interest income and the components of non-interest income on this risk measure is assessed. The heterogeneity in extreme bank risk is attributed to differences in the scope of non-traditional banking activities: non-interest generating activities increase banks’ tail beta. In addition, smaller banks and better-capitalized banks are better able to withstand extremely adverse conditions. These relationships are stronger during turbulent times compared to normal economic conditions. Overall, diversifying financial activities under one umbrella institution does not improve banking system stability, which may explain why financial conglomerates trade at a discount.
This paper calculates indices of central bank autonomy (CBA) for 163 central banks as of end-2003, and comparable indices for a subgroup of 68 central banks as of the end of the 1980s. The results confirm strong improvements in both economic and political CBA over the past couple of decades, although more progress is needed to boost political autonomy of the central banks in emerging market and developing countries. Our analysis confirms that greater CBA has on average helped to maintain low inflation levels. The paper identifies four broad principles of CBA that have been shared by the majority of countries. Significant differences exist in the area of banking supervision where many central banks have retained a key role. Finally, we discuss the sequencing of reforms to separate the conduct of monetary and fiscal policies. IMF Staff Papers (2009) 56, 263–296. doi:10.1057/imfsp.2008.25; published online 23 September 2008
It is now quite common to have panels in which both T, the number of time series observations, and N, the number of groups, are quite large and of the same order of magnitude. The usual practice is either to estimate N separate regressions and calculate the coefficient means, which we call the Mean Group (MG) estimator, or to pool the data and assume that the slope coefficients and error variances are identical. In this paper, we propose an intermediate procedure, referred to as the Pooled Mean Group (PMG) estimator, which constrains the long run coefficients to be identical, but allows the short run coefficients and error variances to differ across groups. We consider both the case where the regressors are stationary and the case where they follow unit root processes, and for both cases derive the asymptotic distribution of the PMG estimators as T tends to infinity. We also provide two empirical applications: aggregate consumption functions for 24 OECD economies over the period 1962-93, and energy demand functions for 10 Asian developing economies over the period 1974-90.
This article seeks to quantitatively assess the impact of exchange rate volatility on nonoil export flows in Nigeria. Theoretically, volatility-trade link is ambiguous, although a strand of studies reported inverse link between export flow and volatility. This article employed fundamental analysis where the flow of nonoil exports from the Nigerian economy is assumed to be predicated on fundamental variables: the naira exchange rate volatility, the US dollar volatility, Nigeria's Terms of Trade (TOT) and Index of Openness (OPN). Empirical results showed the presence of unit root at level; however, the null hypothesis of nonstationarity was rejected at first difference. Cointegration results revealed that a stable long-run equilibrium relationship exists between nonoil exports and the fundamental variables. Using quarterly observations for 20 years, vector cointegration estimate revealed that the naira exchange rate volatility decreased nonoil exports by 3.65%, while the same estimate for the US dollar volatility increased export of nonoil in Nigeria by 5.2% in the year 2003. This article recommends the measures that would promote greater openness of the economy and exchange rate stability in the economy.
Rather than impeding trade, increased exchange rate uncertainty may on average create trade as it implies a higher probability that ex post deviations from Commodity Price Parity will exceed tariffs and transportation costs. We demonstrate such an effect in a small-country, short-term model, under the alternative assumptions of perfect competition and of a monopolist trader-producer. The proofs rely on the fact that such firms' exposures can be replicated (and hedged) by standard options. Under partial monopoly scenarios, the effect of volatility is ex ante unclear, though. (JEL F31)
The volatile nature of exchange rates especially since the demise of the Bretton Woods system of exchange rates and the consequent adoption of a flexible one was a major source of concern to developing countries. The anxiety principally was that exchange rates are more volatile in a floating regime, thereby constituting a source of risk to trade and can therefore, negatively affect imports which are critical to the growth of developing countries. The study investigates the effect of exchange rate volatility on the imports of ECOWAS countries over the 1986-2006 period during, which the countries operated a flexible exchange rate system. An import model was estimated with exchange rate volatility as one of the independent variables. But as a prelude to this, the exchange rate volatility series were generated utilizing the GARCH model. Exchange rate volatility was found to negatively affect the imports of the panel of all ECOWAS countries. However, the effect on the sub-groups was mixed. While exchange rate volatility negatively affects the imports of the group of non-CFA countries, its effect on the group of the CFA countries is positive.
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.
One of the issues that have received considerable attention in the comparison of the properties of alternative exchange rate regimes is the effect of exchange rate risk on the volume of trade. It has been argued that the higher volatility of exchange rates witnessed since the adoption of the floating regime in 1973 has led to a decrease in international trade transactions. This is because most trade contracts are not for immediate delivery of goods; and since they are denominated in terms of the currency of either the importer or the exporter, unanticipated fluctuations in the exchange rate affect realized profits and hence the volume of trade. It is implicitly assumed that forward exchange markets that can help traders eliminate this type of variations in profits either are not available (as it is true for the majority of currencies because most are not fully convertible, thereby impairing forward markets) or for some reason they are not utilized to fully hedge exchange risk present in trade transactions.' The empirical evidence, regarding the effect of exchange rate risk on trade, has at best been inconclusive. The large majority of the empirical studies are unable to establish a systematically significant link between exchange rate variability and the volume of international trade whether on an aggregate or on a bilateral basis. Abrams [1], Akhtar and Hilton [2], Cushman [4; 5; 6] and Kenan and Rodrik [12] find some significant negative effects of exchange volatility on exports. However, Bailey, Tavlas, and Uhlan [3], Hooper and Kohlhagen [10] and an International Monetary Fund Study [11] do not find any supporting evidence for the depressing effect of exchange rate volatility on international trade. It is also interesting to note that, in many of these studies, a significant positive effect of exchange rate volatility on the volume of trade is found for some cases. However, the positive effect, believed to be at odds with the theory was either ignored or dismissed as a perverse result, since "as far as volumes are concerned, theoretical considerations
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.
Since the move to a managed floating exchange rate system in 1973, world financial markets have been characterized by large movements in nominal exchange rates. These movements have been accompanied by large swings in real exchange rates, reflecting the fact that nominal exchange rate variations have not closely followed changes in relative prices of traded goods. The short-run variability of exchange rates — whether measured in real or nominal terms, in bilateral or effective terms — has been substantially higher in the post-1973 period than it was under the Bretton Woods system (Frenkel and Goldstein 1986). Moreover, exchange rate variations have been much greater than the early advocates of floating had expected. For example, in an influential article, Harry Johnson (1969, pp. 19–20) argued that the allegation that a flexible-rate system would result in unstable rates ignored “the crucial point that a rate that is free to move under influences of changes in demand and supply is not forced to move erratically, but instead will move only in response to such changes in demand and supply... and normally will move only slowly and predictably.”1
This paper analyzes how trade balance responds to changes in exchange rates for Malawi. A trade balance model involving the demand for Malawi exports and imports is estimated using time-series data from 1968 to 1998. The estimated results show that devaluation will worsen the trade balance in the short run and improve it only slightly in the long run. This suggests that perhaps aggregate-demand management should complement exchange-rate policy for the trade balance to improve markedly. RÉSUMÉ Cet article porte sur une analyse du comportement de la balance commerciale face aux fluctuations des taux de change au Malawi. En s'appuyant sur une série de données temporelles couvrant la période de 1968 à 1998, on procède à l'estimation d'un modèle de balance commerciale comprenant la demande des importations et des exportations pour le Malawi. Les résultats prévoient que la dévaluation nuira davantage à la balance commerciale à court terme et ne l'améliorera que légèrement à long terme. Cela suggère que pour parvenir à un ajustement substantiel de la balance commerciale, il faudrait peut-être combiner la gestion de la demande globale à la politique des taux de change.
The purpose of this note is to show that a positive effect of exchange rate volatility on export production has a theoretical basis. The key to this claim is that, as the exchange rate volatility increases, so does the value of the real option to export to the world market. Higher volatility increases the potential gains from trade. This may explain part of the mixed empirical findings regarding the effects of exchange rate risk on international trade.
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 effect of exchange rate volatility on Germany-US bilateral trade flows for the period 1973:4–1992:9. ARCH models are used to generate a measure of exchange rate volatility and are then tested against Germany's exports to, and imports from, the US. This paper differs from many papers previously published as the effects of volatility are found to be positive and statistically significant for the period under review. The debate over the use of real or nominal exchange rate data in the derivation of volatility estimation is also addressed.
We survey the literature on monetary integration to discover the economic rationale for the Maastricht convergence criteria. We conclude that the nominal convergence criteria (inflation, interest rates, no devaluation) have very little theoretical foundation. A stronger theoretical case can be made for the requirement of prior reduction of the government debt. We also argue that the Maastricht convergence requirements will almost certainly lead to a ‘Great Divide’ in the European Union. We therefore conclude that less emphasis should be put on prior convergence conditions and more on strengthening the functioning of the future monetary institutions of the Union.
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.
In the post Bretton Woods era, the volatile nature of exchange rates has been the focus of many researchers. Although some previous studies suggest that variations in an exchange rate has the potential to affect a country’s economic performance, LDC’s (Less Developed Countries’) have received less attention compared to industrialized or developed economies. In this thesis we analyse the nature of exchange rate behaviour in three LDCs: Ghana, Mozambique and Tanzania. These countries have gone through comparable policy engagements with the IMF, have followed similar floating exchange rate regimes since early 1990s and currently all adhere to the IMF convention of free current account convertibility and transfer (Ghana and Tanzania accepted Article VIII of IMF “Articles of Agreement” in 1994. Mozambique began floating in 1992 under the SAP reforms of IMF; Article IV consultation was completed in 2009 and acceptance of Article VIII seems imminent).The main content of the thesis can be summarised as follows.I. We examine whether exchange rate behaviour in these three countries are influenced by similar factors. In order to justify the applicability of a number of volatility modelling techniques, we also examine the data to find if they exhibit the empirical regularities found in other exchange rate/financial markets such as volatility clustering, non-linearity, non-normality and asymmetry. Our results suggest that exchange rate behaviour in these countries is generally influenced by similar factors. In particular, we find that the series exhibit the empirical regularities found in other exchange rate/financial markets, justifying the application of the ARCH methodology which we use to estimate the volatility of exchange rate in these countries. We however observed that the ARCH family of models does not always produce the best fit. For instance, volatility forecasts generated by an Exponentially Weighted Moving Average (EWMA) model based on the RiskMetricsTM estimation technique produces the best fit for the daily Ghanaian exchange rate series under consideration compared to volatility forecasts from our estimated ARCH family of models.II. We explore the causal relationship between exchange rate depreciation and uncertainty/volatility using the VAR toolkit. Our main motivation for this study is to analyse whether the changes in the levels of exchange rate as a result of appreciation or depreciation in an underlying currency changes the level of exchange rate uncertainty (volatility). Further, we also analyse the reverse causal relationship; whether increasing uncertainty feeds back into the exchange rate market. We find a bi-directional Granger causal relationship between the level of exchange rate and uncertainty in the foreign exchange markets. Despite adopting similar macro-policies since the mid 1980s and early 1990s, uncertainty in the Tanzanian exchange rate as a response to changes in the level of exchange rate takes a shorter length of time to dissipate. We attribute this to the macroeconomic policies undertaken by Tanzanian policymakers which have ensured price and currency stability.The reverse causality reflects the effectiveness of the Tanzanian macro-policies and the confidence in them; we observed that intervention reduces uncertainty in the Tanzanian exchange rate, whereas for Ghana and Mozambique, macro-policies intending to mitigate undesired exchange rate changes rather create further uncertainty in their exchange rate markets. For all three LDCs under consideration, we observed that effects of shocks to exchange rate from innovations in uncertainty for each country is fleeting III. We investigate the relationship between exchange rate volatility and economic performance (via trade) for each of these countries and some of their biggest trade partners. Exchange rate volatility resulting from a depreciating underlying currency of trade can potentially affect the economic performance of a country. Using a gravity model augmented with variables that are deemed to influence earnings from trade, we observe that earnings from trade are not significantly affected by exchange rate volatility. We conjecture that in periods of uncertainty, traders increase the volume of trade to compensate for the ill effects of currency volatility.
Purpose
– Since the last review article by McKenzie, the literature has experienced a surge in the number of empirical articles. These new contributions, coupled with those that were overlooked by McKenzie, set the stage for this review. Many of the recent studies have been empirical in nature and these deserve specific attention. Thus, this paper aims to survey and review all of the studies by paying attention to the attributes outlined in the text.
Design/methodology/approach
– This paper examines the vast empirical literature, up to 2005, to assess the main trends in modeling and estimating these trade flows at the aggregate, bilateral, and sectoral levels.
Findings
– The increase in exchange‐rate volatility since 1973 has had indeterminate effects on international export and import flows. Although it can be assumed that an increase in risk may lead to a reduction in economic activity, the theoretical literature provides justifications for positive or insignificant effects as well. Similar results have been found in empirical tests. While modeling techniques have evolved over time to incorporate new developments in econometric analysis, no single measure of exchange‐rate volatility has dominated the literature.
Originality/value
– An argument put forward by the opponents of the floating exchange rates is that such rates introduce uncertainty into the foreign exchange market, which could deter trade flows. However, a theoretical argument is put forward by some to show that uncertainty could also boost trade flows if traders increase their trade volume to offset any decrease in future revenue due to exchange rate volatility. The empirical literature reviewed in this paper supports both views.
This paper examines the impact of exchange rate volatility on the trade flows of the G-7 countries in the context of a multivariate error-correction model. The error-correction models do not show any sign of parameter instability. The results indicate that the exchange rate volatility has a significant negative impact on the volume of exports in each of the G-7 countries. Assuming market participants are risk averse, these results imply that exchange rate uncertainty causes them to reduce their activities, change prices, or shift sources of demand and supply in order to minimize their exposure to the effects of exchange rate volatility. This, in turn, can change the distribution of output across many sectors in these countries. It is quite possible that the surprisingly weak relationship between trade flows and exchange rate volatility reported in several previous studies are due to insufficient attention to the stochastic properties of the relevant time series. Copyright 1993 by MIT Press.
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.
The paper examines the impact of exchange rate volatility on the exports of five Asian countries. The countries are Turkey, South Korea, Malaysia, Indonesia and Pakistan. The impact of a volatility term on exports is examined by using an Engle-Granger residual-based cointegrating technique. The results indicate that the exchange rate volatility reduced real exports for these countries. This might mean that producers in these countries are risk-averse. The producers will prefer to sell in domestic markets rather than foreign markets if the exchange rate volatility increases. Copyright 2002 by Taylor and Francis Group
Zusammenfassung Unerwartete Wechselkursschwankungen und das Wachstum des internationalen Handels. - Der Verfasser untersucht die oft zitierte
These, die Wechselkursvariabilität habe den internationalen Handel beeinträchtigt. Im Gegensatz zu früheren Arbeiten formuliert
und schätzt er ein Modell mit zwei Gleichungen. Davon schätzt die erste die Bestimmungsgründe der Variabilität der realen
Wechselkurse mit dem Ziel, zwischen den erwarteten und den unerwarteten Komponenten dieser Variabilität unterscheiden zu können.
Die zweite ist eine Gleichung in reduzierter Form für die Bestimmungsgründe des Wachstums realer Exporte. Diese wird zum Testen
der Hypothese benutzt, daß nur die unerwarteten Schwankungen der realen Wechselkurse das Wachstum der realen Exporte signifikant
beeinflussen. Die Ergebnisse bestätigen diese Hypothese.
This paper makes an attempt to determine the factors influencing exchange rate and exchange rate uncertainty, as well as, output and output variability. In the context of a small open economy under flexible exchange rates regime it is found that the level both of exchange rate and output is affected by monetary and inflationary shocks, as well as shocks in government spending, output and trade balance. Further, the uncertainty of exchange rate and output is associated positively with the uncertainty of all shocks while the contemporaneous occurrence of selected shocks imposes either a positive or negative impact on exchange rate and output volatility. Finally, it is shown that the effect of the determinants either of exchange rate volatility or output volatility is very sensitive to the parameter values.
We Consider a Two-Period Model of the Trading Firm Which Encompasses Two Characteristics of Modern Trade: Trade Credits and Invoicing Habits. a Distinction Is Made Between Economies with Well-Developed Foreign Exchange Markets and Developing Economies with No Forward Exchange Markets. in Both Cases, the Primary Aim of This Paper Is to Give the Conditions Under Which International Trade Is Negatively Affected by Higher Exchange Rate Variability. in Developed Economies, the Theoretical Results Indicate That There Is a Priori No Well-Defined Proposition Governing the Relation Between Trade and Exchange Rate Flexibility. in Contrast, for Developing Economies with No Forward Exchange Markets, an Increase in Exchange Rate Volatility Is Shown to Hamper Trade in Most Cases Under Review.
In this paper, we consider a risk-neutral competitive firm which is uncertain about the true state of demand. We build upon
Arrow by demonstrating that the irreversibility of investment in physical capital together with the anticipation of receiving
information and of learning the state of demand lead to (1) cautious investment behaviour and hence, to lower investment levels
than otherwise since the firm cannot disinvest if market conditions turn out to be less favourable than currently anticipated;
(2) a time-varying risk premium, or marginal “adjustment cost” which is shown to arise endogenously and to be positively related
to the investment level and to the anticipation of greater information in the sense of Blackwell (1951, 1953); (3) a gradual
adjustment of the capital stock to the desired level, defined as the optimal capital stock corresponding to the true state
of demand.
Increased exchange rate volatility positively affects the value of exporting firms via the price and volume impacts of exchange rates, and also makes an exporting strategy more attractive relative to the direct investment. Investment in export production capacity could therefore be a positive function of exchange rate volatility. Firms would also be more willing to sustain losses (i.e., to engage in dumping) before they abandon their export markets. The effect on the volume and value of trade is ambiguous.
This paper contributes empirically to our understanding of informed traders. It analyzes traders' characteristics in a foreign exchange electronic limit order market via anonymous trader identities. We use six indicators of informed trading in a cross-sectional multivariate approach to identify traders with high price impact. More information is conveyed by those traders' trades which--simultaneously--use medium-sized orders (practice stealth trading), have large trading volume, are located in a financial center, trade early in the trading session, at times of wide spreads and when the order book is thin.
This paper starts with reviewing the existing literature on exchange rate uncertainty and trade flows. It then argues that potential costs of medium term uncertainty in exchange rates and competitiveness are likely to be much larger than that of exchange risk which has been the focus of the existing literature. Two measures of medium term exchange rate uncertainty are constructed. One is a weighted function of the magnitude of past movements in nominal exchange rates and the current deviation of the exchange rate from ‘equilibrium’, while the second depends on both the duration and the amplitude of misalignment from ‘equilibrium’ exchange rates. The empirical evidence reported in the paper suggests that when exchange rate uncertainty is defined over a medium term period it does affect adversely trade flows of the industrial countries under review, with the notable exception of the United States.
Exchange rate volatility effect on trade variations
- M Agolli
Agolli, M., 2003. Exchange rate volatility effect on trade variations. Albanian Center for International Trade. Available at:.
http://pdc.ceu.hu/archive/00002085/01/may2004MAgolli.pdf, Accessed date: 27 January 2017.