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on International Finance |
| By: | Égert , Balázs (Oesterreichische Nationalbank); Halpern , László (Oesterreichische Nationalbank) |
| Abstract: | This paper analyses the ever-growing literature on equilibrium exchange rates in the new EU member states of Central and Eastern Europe in a quantitative manner using meta-regression analysis. The results indicate that the real misalignments reported in the literature are systematically influenced, inter alia, by the underlying theoretical concepts (Balassa-Samuelson effect, Behavioural Equilibrium Exchange Rate, Fundamental Equilibrium Exchange Rate) and by the econometric estimation methods. The important implication of these findings is that a systematic analysis is needed in terms of both alternative economic and econometric specifications to assess equilibrium exchange rates. |
| Keywords: | equilibrium exchange rate; Balassa-Samuelson effect; meta-analysis |
| JEL: | C15 E31 F31 O11 P17 |
| Date: | 2005–06–29 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2005_004&r=ifn |
| By: | Korhonen, Iikka (BOFIT); Wachtel, Paul (Stern School of Business, New York University) |
| Abstract: | We assess the extent and speed of exchange rate pass-through in the countries of the Commonwealth of Independent States (CIS). We do this in the framework of vector autoregressive regressions, utilising impulse functions and variance decompositions with monthly data that starts in 1999 in order to avoid periods of very high inflation and the Russian crisis. We find that exchange rate movements have a clear impact on price developments in the CIS countries. The speed of the pass-through is also fairly high: in most cases the full effect is transmitted into domestic prices in less than 12 months. Unlike in many other emerging market economies, an additional effect from US prices on to domestic prices is not significant. The extent of the exchange rate pass-through is usually much higher than in our benchmark group of emerging market countries. Variance decomposition shows that the relative share of exchange rates in explaining changes in domestic prices is higher in the CIS countries than in the benchmark group. Our results indicate that policy-makers in the CIS countries need to pay more attention to exchange rate movements than in many other emerging market countries. |
| Keywords: | exchange rate pass-through; inflation; exchange rate regime; transition countries |
| JEL: | E31 E42 F31 F42 |
| Date: | 2005–06–10 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2005_002&r=ifn |
| By: | Arghyrou, Michael G (Cardiff Business School); Chortareas, Georgios |
| Abstract: | Global current account imbalances have been one of the focal points of interest for policymakers during the last few years. Less attention has been paid, however, to the diverging current account balances of the individual euro area countries. In this paper we consider the dynamics of current account adjustment and the role of real exchange rates in current account determination in the EMU. After controlling for the effects of income growth, we find the relationship between real exchange rates and the current account to be substantial in size and subject to non-linear effects. Overall, we argue that real exchange rates can offer further insights, beyond the effects of the income catch-up process, relevant to current account determination in the EMU. |
| Keywords: | current account; real exchange rate; EMU; nonlinearities |
| JEL: | C51 C52 F31 F32 F41 |
| Date: | 2006–09 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2006/23&r=ifn |
| By: | Pami Dua (Delhi School of Economics); Partha Sen (Delhi School of Economics) |
| Abstract: | This paper examines the relationship between the real exchange rate, level of capital flows, volatility of the flows, fiscal and monetary policy indicators and the current account surplus for the Indian economy for the period 1993Q2 to 2004Q1. The estimations indicate that the variables are cointegrated and each granger causes the real exchange rate. The generalized variance decompositions show that determinants of the real exchange rate, in descending order of importance include net capital inflows and their volatility (jointly), government expenditure, current account surplus and the money supply. A preliminary analysis suggests that a similar analysis can be performed for the foreign exchange reserves held by the RBI. |
| Keywords: | real exchange rate, capital flows, foreign exchange reserves, cointegration, |
| JEL: | C32 F31 F41 |
| Date: | 2006–08 |
| URL: | http://d.repec.org/n?u=RePEc:cde:cdewps:144&r=ifn |
| By: | Égert , Balázs (Oesterreichische Nationalbank); Morales-Zumaquero, Amalia (University of Málaga and Centro de Estudios Andaluces) |
| Abstract: | This paper attempts to analyze the direct impact of exchange rate volatility on the export performance of ten Central and Eastern European transition economies as well as its indirect impact via changes in exchange rate regimes. Not only aggregate but also bilateral and sectoral export flows are studied. To this end, we first analyze shifts in exchange rate volatility linked to changes in the exchange rate regimes and second, use these changes to construct dummy variables we include in our export function. The results suggest that the size and the direction of the impact of forex volatility and of regime changes on exports vary considerably across sectors and countries and that they may be related to specific periods. |
| Keywords: | exchange rate volatility; export; trade; transition; structural breaks |
| JEL: | F31 |
| Date: | 2005–07–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2005_008&r=ifn |
| By: | Sosunov, Kirill (Higher School of Economics, Moscow); Zamulin, Oleg (New Economic School) |
| Abstract: | The paper investigates the ability of monetary authorities to keep the real exchange rate undervalued over the long run by implementing a policy of accumulating foreign exchange reserves. We consider a model of a three-sector, small, open economy, where the central bank continuously purchases foreign currency reserves and compare them to Russian and Chinese economies in recent years. Both countries appear to pursue reserve accumulation policies. We find a clear trade-off between the steady state levels of the real exchange rate and inflation. After calibration, the model predicts an 8.5% real undervaluation of the Russian currency and a 13.7% undervaluation of the Chinese currency. Predicted inflation is found to match observed levels. |
| Keywords: | real exchange rate targeting; foreign exchange reserves; Dutch disease |
| JEL: | E52 F41 |
| Date: | 2006–08–24 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2006_011&r=ifn |
| By: | Égert, Balázs (Oesterreichische Nationalbank) |
| Abstract: | This paper investigates the equilibrium exchange rates of three Southeastern European countries (Bulgaria, Croatia and Romania), of two CIS economies (Russia and Ukraine) and of Turkey. A systematic approach in terms of different time horizons at which the equilibrium exchange rate is assessed is conducted, combined with a careful analysis of country-specific factors. For Russia, a first look is taken at the Dutch Disease phenomenon as a possible driving force behind equilibrium exchange rates. A unified framework including productivity and net foreign assets completed with a set control variables such as openness, public debt and public expenditures is used to compute total real misalignment bands. |
| Keywords: | Balassa-Samuelson; Dutch Disease; Bulgaria; Croatia; Romania; Russia; Ukraine; Turkey |
| JEL: | E31 O11 P17 |
| Date: | 2005–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2005_003&r=ifn |
| By: | Dorbec, Anna (University of Paris X Nanterre) |
| Abstract: | The analysis of external economic relations of Russia reveals a paradox: while Europe is the main trade and direct investment partner of Russia, this is far from being the case concerning its currency’s role in Russia's financial activities. The dollar is much preferred by economic agents for financial operations. This paper proposes a disaggregated approach to this issue by separating the ‘means of exchange’ and ‘store of value’ components of the use of substitution currencies. The influence of three main factors (inertial component, real trade relations and exchange rate fluctuations) on the relative demand for the euro by Russian economic agents is tested for the period 1999-2004. Finally we suggest a theoretical interpretation of the results based on the conventions theory approach. |
| Keywords: | dollarisation; euroisation; transition; Russia; currency substitution; asset substitution; network externalities; hysteresis; conventions |
| JEL: | E41 E52 F31 F41 G20 |
| Date: | 2005–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:bofitp:2005_015&r=ifn |