nep-ifn New Economics Papers
on International Finance
Issue of 2009‒01‒24
seven papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Exchange rate pass-through in the global economy – the role of emerging market economies By Bussière, Matthieu; Peltonen, Tuomas
  2. Economic convergence and the fundamental equilibrium exchange rate in Poland By Rubaszek, Michał
  3. External constraint and financial crises with balance sheet effects. By Meixing DAI
  4. Exploring Long Memory and Nonlinearity in Irish Real Exchange Rates using Tests based on Semiparametric Estimation By Derek Bond; Michael J. Harrison; Edward J. O'Brien
  5. Stock Market Integration and Volatility Spillover:India and its Major Asian Counterparts By Mukherjee, Dr. Kedar nath; Mishra, Dr. R. K.
  6. The Benefit of Exchange Rate Flexibility, Trade Openness and Extensive Margin By Kanda Naknoi
  7. Determinants of West African Monetary Zone (WAMZ)countries global export trade: do foreign reserves and independent exchange rates matter? By Balogun, Emmanuel Dele

  1. By: Bussière, Matthieu (BOFIT); Peltonen, Tuomas (BOFIT)
    Abstract: This paper estimates export and import price equations for 41 countries –including 28 emerging market economies. Further, it relates the estimated elasticities to structural factors and tests for statistical breaks in the relation between trade prices and exchange rates. Results indicate that (i) the elasticity of trade prices in emerging markets is sizeable, but not significantly higher than in advanced economies; (ii) such elasticity is primarily influenced by macroeconomic factors such as the exchange rate regime and the inflationary environment, although microeconomic factors such as product differentiation also play a role; (iii) export and import price elasticities tend to be strongly correlated across countries; (iv) pass-through to import prices has declined in some advanced economies, noticeably the United States; this is consistent with a rise in pricing-to-market in several EMEs and especially with a change in the geographical composition of U.S. imports.
    Keywords: emerging market economies; exchange rate pass-through; pricing-to-market; local and producer currency pricing; exchange rate regime
    JEL: F10 F30 F41
    Date: 2009–01–13
  2. By: Rubaszek, Michał
    Abstract: The paper presents an extended version of the fundamental equilibrium exchange rate model (FFER). By introducing potential output into the specification of the foreign trade equations of the partial equilibrium FEER model we show that, under some plausible assumptions, the calculated level of the equilibrium exchange rate is consistent with the estimates of the behavioral equilibrium exchange (BEER). Moreover, we indicate that including the terms of trade as an explanatory variable in a reduced-form BEER equation for the real exchange rate might lead to the indeterminacy of the parameter estimates. The proposed model is applied to analyze fluctuations of the Polish zloty. We show that the real appreciation of the zloty is to a largely an equilibrium phenomenon.
    Keywords: Fundamental equilibrium exchange rate; current account; foreign trade
    JEL: C32 F12 F31
    Date: 2008–10
  3. By: Meixing DAI
    Abstract: This paper examines a model of financial and exchange crises with balance-sheet effects by explicitly taking account of wealth accumulation and external equilibrium condition. We have found that, in a general equilibrium analysis, there are two stationary equilibria. Since foreign debt is always zero at these equilibria, financial crises in emerging market economies cannot be interpreted as jumps between equilibria but between trajectories leading to one equilibrium or another one. The mechanisms of financial crises due to monsoon or spill-over effects are also analysed in this framework.
    Keywords: Financial crisis, exchange crisis, balance sheet effect, external solvency constraint.
    JEL: F31 F32 F41
    Date: 2009
  4. By: Derek Bond (University of Ulster); Michael J. Harrison (University College Dublin); Edward J. O'Brien (European Central Bank)
    Abstract: Deciding whether a time series that appears nonstationary is in fact fractionally integrated or subject to structural change is a difficult task. However, various tests have recently been introduced for distinguishing long memory from level shifts and nonlinearity. In this paper, three testing approaches based on the properties of semiparametric estimators of the fractional differencing parameter, d, are described and applied to the (log) Ireland-United Kingdom and Ireland-Germany real exchange rates. The two exchange rates behave quite differently over time and the new tests give different results for each; but overall the results provide fairly strong support for the possibility of nonlinearity rather than long memory.
    Keywords: Fractional integration, long memory, nonlinearity, real exchange rates, struc- tural change
    JEL: C22 C51 F31
    Date: 2009–01–19
  5. By: Mukherjee, Dr. Kedar nath; Mishra, Dr. R. K.
    Abstract: Return and volatility spillover among Indian stock market with that of 12 other developed and emerging Asian countries over a period from November 1997 to April 2008 is studied. Daily opening and closing prices of all major equity indices from the sample countries are examined by applying the GARCH model [Engle (1982) and Bollerslev (1986)] to explore the possibility of stock market integration and volatility spillover among India and its major Asian counterparties. Apart from different degrees of correlations, both in terms of return and squared return series, among Indian stock market with that of other Asian countries, the contemporaneous intraday return spillover among India and almost all the sample countries are found to be positively significant and bi-directional. More specifically, Hong Kong, Korea, Singapore and Thailand are found to be the four Asian markets from where there is a significant flow of information in India. Similarly, among others, stock markets in Pakistan and Sri Lanka are found to be strongly influenced by movements in Indian market. Though most of the information gets transmitted among the markets without much delay, some amount of information still remains and can successfully transmit as soon as the market opens in the next day.
    Keywords: Asian stock markets; Integration; Information spillover; GARCH model
    JEL: G14 G15 G10
    Date: 2008–12–26
  6. By: Kanda Naknoi
    Abstract: The literature on optimum currency areas argues that in the presence of countryspecific real shocks, the cost of fixing exchange rates is decreasing in the degree of trade openness. This study uses a stochastic dynamic general equilibrium model of endogenous specialization to assess the benefit of exchange rate flexibility. The benefit of exchange rate flexibility consists of the benefit along the extensive margin through adjustment in the composition of trade, and the benefit along the intensive margin through adjustment in the relative prices. Openness is found to influence these two benefits differently. Thus, the model predicts a non-monotonic relationship between openness and the benefit of exchange rate flexibility.
    Keywords: Exchange rate regimes, Trade costs, Openness
    JEL: F41 F42
    Date: 2008–11
  7. By: Balogun, Emmanuel Dele
    Abstract: This study examines the effect of independent exchange rate pursuits and reserve holdings, relative to other determinants, on global export performance of WAMZ countries. The regression results show that exports originating from the Zone to the rest of the world are influenced positively by domestic output, export prices and exchange rate devaluations, but negatively by import price and economic performance of the major global trading partner, proxied by the US GDP. This result is not universal as the Gambia, Ghana and Guinea total exports functions show that exchange rate policy penalized exports contrary to the Nigerian case in which the coefficient estimate is significant and positive. The study infers that these results are consistent with theoretical expectation given the ironical divergence in export basket. Although they are all primary commodity exporters, Nigeria’s exports is mainly crude oil, and a priori expectation is that rapid economic growth or booms in the US should lead to increased demand for energy (healthy competitions). In conclusion, the study infers that since independent flexible exchange rate policy pursuits and reserve holdings makes no difference to the Zonal export performance ex ante, but have great potential for global exports collectively, they could explore an OCA to enhance both intra- and global inter-regional export trade
    Keywords: Exchange rate policy; export trade; panel data regression model; WAMZ
    JEL: F10 C23 F14 F1
    Date: 2009–01–21

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