nep-opm New Economics Papers
on Open Economy Macroeconomics
Issue of 2016‒07‒02
three papers chosen by
Martin Berka
University of Auckland

  1. Currency Value By Menkhoff, Lukas; Sarno, Lucio; Schmeling, Maik; Schrimpf, Andreas
  2. Heads I Win, Tails You Lose: Asymmetry in Exchange Rate Pass-Through Into Import Prices By Raphael, Brun-Aguerre; Ana-Maria, Fuertes; Matthew, Greenwood-Nimmo
  3. Macroeconomic Impact of International Reserves: Empirical Evidence from South Asia By Prakash Kumar Shrestha, Ph.D.

  1. By: Menkhoff, Lukas; Sarno, Lucio; Schmeling, Maik; Schrimpf, Andreas
    Abstract: We assess the properties of currency value strategies based on real exchange rates. We find that real exchange rates have predictive power for the cross-section of currency excess returns. However, adjusting real exchange rates for key country-specific fundamentals (productivity, the quality of export goods, net foreign assets, and output gaps) better isolates information related to the currency risk premium. In turn, the resulting measure of currency value displays considerably stronger predictive power for currency excess returns. Finally, the predictive information content in our currency value measure is distinct from that embedded in popular currency strategies, such as carry and momentum.
    Keywords: Currency value; macro fundamentals; predictability; real exchange rate
    JEL: F31 G12 G15
    Date: 2016–06
  2. By: Raphael, Brun-Aguerre; Ana-Maria, Fuertes; Matthew, Greenwood-Nimmo
    Abstract: We analyse exchange rate pass-through into import prices for a large group of 33 emerging and developed economies from 1980Q1 to 2010Q4. Our error correction models permit asymmetric pass-through for currency appreciations and depreciations over three horizons of interest: on impact, in the short run and in the long run. We find that depreciations are typically passed-through more strongly than appreciations in the long-run, suggesting that exporters may exert a degree of long-run pricing power. This asymmetry is stronger in economies which are more import dependent but is moderated by freedom to trade and a positive output gap. Given that this pass-through asymmetry is welfare-reducing for consumers in the destination market, a key macroeconomic implication is that import-dependent economies, in particular, can benefit from trade liberalisation.
    Keywords: Exchange Rate Pass-Through; Asymmetry; Nonlinear ARDL Model; Random Coefficients Panel Data Model; Emerging Markets.
    JEL: F10 F14 F30 F31
    Date: 2016–05
  3. By: Prakash Kumar Shrestha, Ph.D. (Nepal Rastra Bank)
    Abstract: In recent years, many emerging countries have been accumulating substantial amount of international reserves by outpacing traditional benchmark in response to a series of financial crises in the world. In this context, this paper constructs a dynamic macro model with new monetary policy rule to examine the implications of international reserve accumulation for macroeconomic outcomes such as economic growth and inflation. Such a macro model is empirically examined in the data of South Asian countries, namely Bangladesh, India, Nepal, Pakistan and Sri Lanka by using Panel VAR method for the period of 1990-2013. The empirical results show that increase in international reserves tends to cause higher economic growth in these countries but without significant impact on inflation. This implies that these countries can move further utilizing the accumulated international reserves productively which will enhance economic growth and maintain internal and external balances.
    Keywords: International Reserves, Macroeconomic impact, South Asia
    JEL: C23 C61 F31 F41 F43
    Date: 2016–03

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