Trade openness, ordinary least square, growth rate, exchange rate volatility. To check of the existence of autocorrelation in validating the estimability of economic indicators parameters. What drives exchange rate volatility, and what are the effects of fluctuations in the exchange rate on economic growth in ghana. Demand for certain steel products from canada and mexico, thesis submitted to faculty of the polytechnic institute and state university impartial fulfillment of the requirements for the degree of master of arts in economics serven, l. This study examines the effects of exchange rate movements, global economic activity, and the volatility of the baltic dry index bdi on south koreas loaded port cargo throughput, based on monthly data for. Exchange rate policy encompasses the design and deployment of strategies to ensure the achievement of a stable and realistic exchange rate for the countrys domestic currency, consistent with overall macroeconomic policy objectives. Therefore, as a further robustness check, we estimate the twohour cumulative volatility response to macroeconomic news. The empirical analysis starts by analyzing the time series properties. Exchange rate volatility refers to the tendency for foreign currencies to appreciate or depreciate in value, thus affecting the profitability of foreign exchange trades. The literature is relatively scanty on exchange rate volatility, stock market performance and fdi nexus. While anecdotally the volatility of exchange rate has been linked to. There is therefore paucity of empirical evidence on the impact of exchange rate volatility and stock. Using secondary time series data for the period 1980 to 2012, the study employed ols estimation method to identify the effect of exchange rate volatility on gdp growth rate.
On the other hand, recent theoretical developments suggest that there are situations in which the volatility of exchange rates could be expected to have either negative or positive effects on trade volume. The effects of exchange rate volatility on economic growth of west. Empirical investigation on exchange rate volatility and trade flows in nigeria 24 1960 to 2011. The determinants of exchange rate volatility in south africa. Real exchange rate volatility and employment growth in south. It is also concluded that exchange rate volatility positively affects gdp, growth rate and trade openness and negatively affects the fdi. Few studies investigate the determinants of zar volatility. 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. Macroeconomics relations between exchange rate instability, exchange rate volatility, trade and economic growth variables. These questions are the subject matter of this study.
The effect of exchange rate volatility on international. An empirical investigation based on a sample of 45 developing. This study addresses the relative paucity of research on the effect of exchange rate volatility on export performance in southeast asia by examining this relationship for the asean5 group, which includes thailand, malaysia, singapore, indonesia and the philippines. The volatility is the measurement of the amount that these rates change and the frequency of those changes. Exchange rate theory and practice volume authoreditor. This paper seeks to assess the impact of oil price shock and real exchange rate volatility on real economic growth in nigeria on the basis of quarterly data from 1986q1 to 2007q4. Exchange rate volatility and bilateral trade floes, ana analysis of u. The presumption that trade is adversely affected by exchange rate volatility depends on a number of specific assumptions and does not. Pdf modeling exchange rate volatility and economic.
The effect of exchange rate fluctuations on economic growth varies in different countries. There are many circumstances when exchange rate volatility comes. There is therefore paucity of empirical evidence on the impact of exchange rate volatility and stock market performance on international capital flows both in developed and emerging economies. Postglobal financial crisis, the exchange rate volatility has grown significantly. The empirical analysis starts by analyzing the time series properties of the data which is followed by examining the nature of causality among the variables. Pdf on the causes and effects of exchange rate volatility. Effect of exchange rate fluctuations on manufacturing sector. Pdf impact of oil price shock and exchange rate volatility. Exchange rate volatility and trade flows some new evidence. Undervaluation and economic growth in selected developing countries, 19502004 china 0 4 2 6 8 0. The relationship between exchange rate volatility and. The relationship between exchange rate volatility and economic growth. Specific content for the schematic asset price model of the exchange rate is provided in sec.
Shehu 2009, assessed the impact of oil price shock and real exchange rate volatility on real economic growth in nigeria on the basis of quarterly data from 1986q1 to 2007q4. Exchange rate volatility and economic growth in ghana. Agbola and abul shamsuddin newcastle business school, university of newcastle, callaghan, nsw, australia. Another standing point of exchange rate theory is the purchasing power parity ppp which is also. The study is among few studies in developing countries and africa that have examined the impact of exchange rate volatility on economic growth. The results showed that while shocks to the exchange rate are mean. The aim of this article is to assess the role of real exchange rate rer volatility on longrun economic growth for a set of 82 advanced and emerging economies, using a panel data set ranging from 1970 to 2009. On the causes and effects of exchange rate volatility on economic. For each quartile, we regress growth residuals on the adjusted measures of real exchange rate volatility and the. It can be said that one of the factors determining the way exchange rate fluctuations affect economic growth is the development level of each countrys financial markets.
In doing so, our study develops an export function model with domestic output, world output, terms of trade and. Previous studies have found that exchange rate volatility remains elevated up to 2 h after the announcement of scheduled macroeconomic news andersen et al. Effect of exchange rate volatility on nigeria economy. Exchange rate volatilityeconomic growth nexus in uganda lorna katusiime, frank w. Nonlinear relationship between exchange rate volatility. We discuss the implications of the long and short run determinants of exchange rate volatility and the volatility growth nexus. Mba, federal urdu university of arts, science technology, ah campus, karachi. It is well established in the literature that exchange rate volatility. An empirical investigation based on a sample of 45 developing and emerging countries over the period of. That is, more open economies should have less exchange rate volatility. Therefore, analysing the impact of exchange rate volatility on employment growth could be important and relevant in assisting the south african governments policy of job creation.
To explore exchange rate volatility and to look at the in 1970s, major policy shift also occurred in pakistan, factors influencing exchange rate. However in these studies, the impact of exchange rate volatility on trade flows was missing. Pdf this study analyzes the effect of the nominal exchange rate, inflation, capital stock and foreign direct investment on economic growth in. On the other hand, recent theoretical developments suggest that there are situations in which the volatility. An empirical investigation based on a sample of 45 developing and emerging countries over the period of 19852015 is. The date employed in this study comprised of exchange rate, gross domestic product, government.
The impact of exchange rate volatility on international. It is argued that fixed exchange rates provide a more sta ble framework for the adjustment of asset and labour markets of countries in the economic catch up. A literature survey advantage of the forward markets. Allowing for the endogeneity of inflation, output gap, and. Empirical investigation on exchange rate volatility and trade flows in nigeria 26 by the ratio of total trade to nigerias gross domestic product gdp, nigeria is considered to be moderately. Establish the longrun relationship between exchange rate volatility and economic growth. Pdf this paper examines the impact of exchange rate volatility on economic growth. Models based on price and wage rigidities become unpersuasive if countries have both more flexible wages and prices and.
Agbola and abul shamsuddin newcastle business school, university of newcastle, callaghan, nsw, australia abstract the global financial crisis has disrupted trade and capital flows in most developing economies, resulting in an increased volatility of exchange rates. International trade and exchange rate international trade volume data indicates developing countries play a bigger role in holding back trade growth, while developed countries show quite robust import growth. Pdf real exchange rate volatility, economic growth and. The impact of real exchange rate volatility on economic. Under fixed effects, the exchange rate is found to be an important determinant in the reaction function of emerging market economies.
Effects of exchange rate fluctuations on economic growth. Exchange rate volatility economic growth nexus in uganda. This study examines the effects of exchange rate movements, global economic activity, and the volatility of the baltic dry index bdi on south koreas loaded port cargo throughput, based on monthly data for the period from january 2000 to october 2014. Using secondary time series data for the period 1980 to 2012, the study employed ols estimation method to identify the effect of. The paper used the augmented growth model estimates using purchasing power parity ppp and generalised method of moment gmm approaches. Empirical investigation on exchange rate volatility and trade. Impact of exchange rate movements, global economic. The study investigated exchange rate volatility in nigeria and its effect on economic growth. Exchange rate volatility and economic growth journal of. Apr 09, 2020 exchange rate volatility refers to the tendency for foreign currencies to appreciate or depreciate in value, thus affecting the profitability of foreign exchange trades. Yildiz, hilal and ide, gamze and malik, sahban, the relationship between exchange rate volatility and economic growth. Impact of exchange rate movements, global economic activity. The variables of concern were five in all which included exchange rate volatility and trade openness, gdp per capita and physical capital stock and human. This paper scrutinizes theoretically and empirically the impact of exchange rate stability on economic growth for this region.
For this theory there is a positive relationship between exchange rate and economic growth. It is also concluded that exchange rate volatility positively affects gdp, growth rate and trade openness. The role of middlemen in marketing and credit outcomes in ghana. Other classications, such as levyyeyati and sturzenegger 2003, capture better the constraints on monetary policy by including changes in reserves in dening their classication.
Empirical investigation on exchange rate volatility and. From a longerterm perspective, however, global trade volume has not deviated much from its longterm trend. One argument in defense of ols regressions of economic growth on the real exchange rate is that the direction of the possible reverse causality, i. The effects of exchange rate volatility on economic growth in iran. By using data collected from 1970 to 2016 applied to a smooth transition regression str model, we are able to prove that the exchange. On the causes and effects of exchange rate volatility on. An empirical investigation based on a sample of 45. The aim of this article is to assess the role of real exchange rate rer volatility on longrun economic growth for a set of 82 advanced and emerging economies, using a panel data set. On the other hand a flexible exchange rate could increase output growth and trade by price adjustment process. This study also tests the hypothesis that economic openness. In the literature on the determinants of exchange rate volatility, there are various empirical studies using time series or panel data analysis methodologies on different countries or groups of countries. Exchange rate volatility response to macroeconomic news.
The presumption that trade is adversely affected by exchange rate volatility depends on a number of specific assumptions and does not necessarily hold in all cases, especially in a general equilibrium setting where other variables change along with exchange rates. Korkmaz 20 analysed the effect of exchange rate on economic growth gdp for 9 randomly selected european countries france, germany, greece, hungary, italy, spain, turkey, poland and united. Effect of exchange rate volatility on nigeria economy 19912010. Evidence from nigeria, authorokwuchukwu odili, year2015. The relationship between the real effective exchange rate and economic growth is fast becoming an important area of study in both the developing and developed countries akpan, 2008.
This paper examines the impact of exchange rate volatility on economic growth. Exchange rate volatility, stock market performance and. Effects of exchange rate fluctuations on economic growth of. This study analyzes the effect of the nominal exchange rate, inflation, capital stock and foreign direct investment on economic growth in kuwait by using time series data for the period of 19752015. Macroeconomics relations between exchange rate instability. People who were interested in this publication were also interested in. Exchange rate volatility can affect economic growth in different ways such as. Impact of interest rate, inflation and money supply on. Nonlinear relationship between exchange rate volatility and. Section 3 outlines the empirical strategy and model specifications while section 4 presents the empirical results. Table 1 presents some empirical studies investigating the determinants of exchange rate volatility.
Exchange rate volatility and its effect on macroeconomic. Anwer irshad burney 2, salman sarwat 3, muhammad mubin 4 1. Establish the longrun relationship between exchange rate volatility and economic. There is no significant impact of exchange rate volatility on nigerian economy growth.
By using data collected from 1970 to 2016 applied to a smooth transition regression str model, we are able to prove that the exchange rate economic growth correlation is indeed nonlinear within the sampled time period. To examine the impact of exchange rate volatility on nigeria economy growth. Does lower exchange rate volatility influence economic growth. To explore exchange rate volatility and to look at the in 1970s, major policy shift also occurred in pakistan, factors influencing exchange rate movements in when economic managers nationalized all the private pakistan. In the literature on the determinants of exchange rate volatility, there are various empirical studies using time series or panel data analysis methodologies on different countries or. The effect of exchange rate volatility on growth has become a major source.
Inflation targeting and exchange rate volatility in. This study also tests the hypothesis that economic openness decreases zar volatility. This pdf is a selection from an outofprint volume from the national bureau of economic research volume title. Impact of oil price shock and exchange rate volatility on. The aim of this article is to assess the role of real effective exchange rate volatility on longrun economic growth for a set of 82 advanced and emerging economies using a panel data set ranging.
Exchange rate volatility and its effect on macroeconomic management in swaziland central bank of swaziland, 2014 3 swaziland cbs annual report, 2008. Countries with appreciating currencies show rising import intensity and significant. Effect of exchange rate fluctuations on manufacturing. Exchange rate volatility and growth in small open economies at the. Real exchange rate volatility, economic growth and international trade in an emerging market economy. Pdf exchange rate volatility and economic growth researchgate.
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