Fed must relent. Our expectations now is for a state dependent (global financial conditions to stabilise, cushion rising debt repayment burden and allowing domestic leverage to level off, coupled with still moderate economic growth/inflation, policy options to widen positively globally, especially in China) Fed relent with scope for a final 25-50bps, if any (pause otherwise), in late 2019/2020, should the cycle extents, with the FFR hitting cycle terminal at 2.75-3.00%.
Internal and External Balance with Expenditure changing and switching policie...iosrjce
This paper studies macroeconomic effects of internal and external balance with Expenditure
changing and switching policies about Bangladesh. Expenditure switching policies are measures that shift
expenditure between the domestic and external sectors, typically by increasing exports and decreasing imports
of goods and services. Exchange rate adjustment is often combined with monetary and fiscal tightening as part
of a comprehensive adjustment program featuring both expenditure-changing and expenditures witching
measures. This paper shows the relation on exchange rate between government expenditure and money supply.
If fiscal expansion--either government expenditure increase or tax cuts--raises output, but worsens current
account balances. Conversely, fiscal contraction improves current account balances, but lowers output. In this
paper we also see that when money supply increases that time there create dual effect country faces inflation on
the other hand currency devaluated as a result export increase
Fed must relent. Our expectations now is for a state dependent (global financial conditions to stabilise, cushion rising debt repayment burden and allowing domestic leverage to level off, coupled with still moderate economic growth/inflation, policy options to widen positively globally, especially in China) Fed relent with scope for a final 25-50bps, if any (pause otherwise), in late 2019/2020, should the cycle extents, with the FFR hitting cycle terminal at 2.75-3.00%.
Internal and External Balance with Expenditure changing and switching policie...iosrjce
This paper studies macroeconomic effects of internal and external balance with Expenditure
changing and switching policies about Bangladesh. Expenditure switching policies are measures that shift
expenditure between the domestic and external sectors, typically by increasing exports and decreasing imports
of goods and services. Exchange rate adjustment is often combined with monetary and fiscal tightening as part
of a comprehensive adjustment program featuring both expenditure-changing and expenditures witching
measures. This paper shows the relation on exchange rate between government expenditure and money supply.
If fiscal expansion--either government expenditure increase or tax cuts--raises output, but worsens current
account balances. Conversely, fiscal contraction improves current account balances, but lowers output. In this
paper we also see that when money supply increases that time there create dual effect country faces inflation on
the other hand currency devaluated as a result export increase
Relationship between growth, financial development and income inequality.
- Is there nonlinearity in the relationship?
- What are the factors that affect the degree of impact of financial development on income inequality?
Relationship between growth, financial development and income inequality.
- Is there nonlinearity in the relationship?
- What are the factors that affect the degree of impact of financial development on income inequality?
The objective of this study is to identify the determinants of inflation in West Africa, mainly in the WAEMU zone, in order to contribute to improving the conduct of monetary policy. The equation of the exchange of the Quantitative Theory of the Currency and the generalized method of moments (MMG) in dynamic panel is used. Annual data concerning six countries in West Africa and range from 1991 to 2015. The results of the estimation show that in addition to the economic growth rate and the money supply, the devaluation has a significant effect on inflation. As we can see, inflation is not systematically a monetary phenomenon in West Africa. The authorities must therefore seek to determine the optimal threshold for the rate of increase of the money supply.
Dynamic Impact of Money Supply on Inflation: Evidence from ECOWAS Member Statesiosrjce
According to the monetarists, inflation is essentially a monetary phenomenon in the sense that a
continuous rise in the general price level is due to the rate of expansion in money supply far in excess of the
money actually demanded by economic units. But the link between changes in money supply and inflation is not
instantaneous. This study, therefore, assessed this dynamic linkage between money supply and inflation in
ECOWAS member states; West African Monetary Zone (WAMZ) and West African Economic Monetary Union
(WAEMU) for the period 1980-2012. The stationary properties of the series are explored both at univariate and
panel sense using KPSS and ADF; IPS and LLC. The results revealed that money supply and inflation are
stationary at the level for individual countries and at panel sense. The random effect model for ECOWAS
member states shows that the impact of money supply on inflation is effective in the current and first period.
While the impact is effective in the first period for WAMZ, WAEMU experiences the impact in current period.
The finding also reveals that there are significant specific-country effects on the variables. This implies that the
objective of macroeconomic convergence is yet to be achieved. The paper, therefore recommends that inflation
should be used as an operational guide in evaluating the effectiveness of monetary policy and also a strong
monetary cooperation programme among ECOWAS member states should be evolved.
Long Run Impact of Exchange Rate on Nigeria’s Industrial Outputiosrjce
While many scholars have carried out a lot of research on the impact of exchange rate volatility and
price shocks on economic growth, this study departs from previous studies and seeks to provide suggestions for
Nigerian policy makers on the attainment of an ideal exchange rate necessary to boost industrialization and
industrial output. The economies of all the countries of the world are linked directly or indirectly through asset
and goods markets. This linkage is made possible through trade and foreign exchange. The price of foreign
currencies in terms of a local currency (i.e. foreign exchange) is therefore important to the understanding of the
growth trajectory of all countries of the world. The consequences of substantial misalignments of exchange rates
can lead to output contraction and extensive economic hardship. These therefore, bring up the issue of an ideal
exchange rate necessary for the achievement of a set of diverse objectives - economic growth, containment of
inflation and maintenance of external competiveness. This study employed the use of the ordinary least square
technique to examine the impact of exchange rate stability on industry output in Nigeria using annual time
series data from 1980 to 2013. The result of the study showed that domestic capital, foreign direct investment,
population growth rate, and real exchange rate were significant determinants of industrial output. The changes
in external balance and inflation were of little or no consequences to industrial output. Based on the findings,
the researcher recommended that conscious efforts should be made by government to fine-tune the various
macroeconomic variables in order to provide an enabling environment that stimulates industrial output and
eventual economic growth.
Developing economies are different than developed economies in many aspects, i.e., in terms of institutional framework and political situation etc. Thus, the monetary policy needed in developing countries is also different than developed countries. The goal of this study is to investigate exchange rate channel of monetary transmission mechanism in a developing country’s setup. The variables included in our analysis are interest rate, exchange rate, exports, consumer price index and gross domestic product. Johansen cointegration technique is applied to analyze the long run relationship among variables while multivariate VECM granger causality test is used to explore the direction of causality among the set of our variables. We use annual data ranging from 1980 to 2015 while taking account of the limitations of time series data. Our findings suggest that output has a negative long run relationship with exchange rate and interest rate, positive relationship with exports and no statistically significant relationship with inflation. Interest rate granger causes all four of our variables thus showing the power of this policy tool. Exchange rate causes exports, consumer price index and output which means exchange rate is the second most powerful variable in our analysis. Output is granger caused by interest rate, exports and exchange rate which confirms the sensitivity of output to these variables. Consumer price index is granger caused by all four of our variables and came out to be the most sensitive variable in our analysis.
Extant literature revealed that international trade plays a key role to address the economic phenomena and can help to earn foreign exchange. Despite the accruable benefits from international trade and the countrys huge oil export that account for about 90 of its foreign exchange earnings, Nigerias trade balance and exchange rate remain unfavourable. The persistent rise in Nigerias exchange rate and unfavourable trade balance in recent time warrants an empirical probe. This study therefore examines the effect of exchange rate, domestic income, foreign income, consumption expenditure, money supply and interest rate on trade balance using a secondary time series data covering a period of thirty years from 1991 2020. The study employed a regression technique of the Ordinary Least Square OLS . All data used were secondary data obtained from the statistical bulletin of Central Bank of Nigeria CBN and National Bureau of Statistics NBS annual publications. After determining stationarity of the study variables using the ADF Statistic, it was discovered that the variables were all integrated at level, first and second difference, and found out to be stationary at their first difference. The study also using Johansen Cointegration Test, found that there is a long run relationship between the variables. Hence, the implication of this result is that there is a long run relationship between trade balance and other variables used in the model. From the result of the OLS, it is observed that exchange rate, domestic income, foreign income and money supply have a positive and significant impact on trade balance in Nigeria. The study recommends that the government should fixed or peg on the exchange rate through the central bank. This will enable the government to buy and sell its own currency against the currency to which it is pegged. The government should strive to reduce inflation to make exports more competitive. The government should also enhance supply side policies to increase long term competitiveness. Edokobi, Tonna David | Okpala, Ngozi Eugenia | Okoye, Nonso John "Exchange Rate and Trade Balance Nexus" Published in International Journal of Trend in Scientific Research and Development (ijtsrd), ISSN: 2456-6470, Volume-5 | Issue-5 , August 2021, URL: https://www.ijtsrd.com/papers/ijtsrd45079.pdf Paper URL: https://www.ijtsrd.com/management/public-sector-management/45079/exchange-rate-and-trade-balance-nexus/edokobi-tonna-david
The study gauged the influence of exchange rate fluctuations on the Performance of the Nigerian Economy over the time from of 1986 to 2016, utilizing secondary data tracked from the statistical report of the Apex Nigerian bank, and utilizing techniques such as Unit root test, Generalized autoregressive conditional heteroscedasticity (GARCH), Impulse-Response Output and Variance-Decomposition Test to evaluate variables such as Interest rate, inflation rate, exchange rate against a sole indicator of Economic Performance I.e. Gross Domestic Product Growth rate (GDPGR), it was discovered that despite the short run influx of the spill over volatility of Interest rate and inflation rate, there exist no long run volatility influence of interest rate on Economic Performance in Nigeria. It was therefore recommended that the apex financial institution and relevant policy makers should ensure an interest rate system and status that could stimulate growth or production and the nation should endeavour to utilize her interest rate in controlling its output level as it motivates Economic Performance (GDPGR).
Foreign capital flows depends on the prevailing monetary forces as supported by capital flows
theory and the mechanism linking these two variables is that contraction of net domestic assets through an
open market sale of bonds will place upward pressure on domestic interest rates. Higher interest rates attract
foreign funds, generating a capital inflow which relieves the pressure on domestic interest rates. Has this
actually happened? It is against this backdrop that the present study investigated the impact of monetary policy
on international capital inflows in Nigeria for a period of 22 years (1994-2015) using time series data. The
autoregressive distributed lag technique revealed that the short-run and long-run significant determinants of
foreign capital inflows are largely from broad money supply, nominal exchange rate, inflation rate and interest
rates spread except inflation rate that is insignificant in the long-run. This outcome upholds theoretical
prediction. Long-run equilibrium relationship was found between the dependent variable and the regressors.
Further examination of the short run dynamics of the model showed that the speed of adjustment coefficients
ECM (-1) to restore equilibrium have a negative sign and statistically significant at 1% level, ensuring that
long-run equilibrium can be attained and about 89% of the short-run deviation from the equilibrium (long-run)
position is corrected annually to maintain the equilibrium. Since the empirical evidence revealed that monetary
aggregates such as broad money supply, nominal exchange rate, inflation rate and interest rates spread
influence foreign capital inflows, it is therefore recommended that government should continue to pursue
expansionary monetary policy and foreign exchange policies that would ensure competitiveness of the
economy in order to attract the much needed foreign capital inflows that would engender economic growth.
This study examined the effect interest rate on economic growth in Nigeria. Augmented Dickey – Fuller (ADF), Bound Test and Autoregressive Distributed Lag (ARDL) were employed to examine the effect of impact of interest rate on economic growth in Nigeria. The unit root test showed gross domestic product was 1(0) while interest rate, investment and gross capital formation were 1(1). The result of the Bound Test indicated long run relationship among the macroeconomic variables employed in the study. The result of the ARDL indicated that interest rate had negative effect on economic growth both in short run and long run. However, in the long run investment and gross capital formation were established to have positive effect on economic growth with gross capital formation being insignificant. It was concluded that interest rate has a macroeconomic tool is not effective in stimulating economic growth in Nigeria. It was recommended that the level of interest rate should be adequately controlled for the purpose of stimulating economic growth without inflationary pressure. Finally, robust macroeconomic policies aimed at ensuring economic stability should be formulated in order to increase capital formation and attract investment in order to promote economic growth.
Việc lạm phát giảm xuống mức thấp như hiện nay, bên cạnh những mặt tích cực, cũng đặt ra những thách thức không nhỏ cho nền Kinh Tế Việt Nam trong thời gian tới. Vì thế, công việc điều hành giá 2015 ra sao vẫn còn là một câu hỏi lớn
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ini hasil diskusi bersama untuk menyelesaikan studi kasus makroekonomi, khususnya kebijakan moneter
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2. Introduction
The main goal of research is to investigate what variables
determine the exchange rate performance.
Why Indonesia:
is the 18-th largest economy in the world and Southeast
Asia's largest economy;
is emerging and fast growing economy;
managed floating exchange rate regime;
an appropriatecandidate to be included in the BRIC
countries as the country is rapidly showing signs of similar
newly advanced economic development;
the recent upgrades in the country's credit ratings by
international financial services companies such as Standard
& Poor's, Fitch Ratings and Moody's.
3. Theoretical background
Monetary approach
exchange rates are determined in the process of
aligning or balancing the overall demand and
supply of the national currency.
Money Supply
Ms ↑, P ↑ and E$/€ ↑ → Depreciation of $against
to €
Interest Rate
R ↑, L(R$,Yus) ↓, P ↑ → Appreciation of $ against
€
Output Level
Output ↑, L(R$, Yus) ↑, P ↓ → Appreciation of $
against to €
4. Theoretical background
o Monetary approach (dominant model of exchange
rate determination (Diamandis and
Kouretas, 1996, p. 351) - focuses on domestic and
foreign Ms and Md and proposes that exchange
rates are affected by the money supply, income
level, and interest rates in the long run
(Frenkel, 1976; Dornbush, 1976; Frankel, 1979);
o Relative PPP approach - exchange rate changes
over time are assumed to be dependent on inflation
rate differentials between countries
(Ricardo, Cassel, 19th century).
Inflation Rate
If the Indonesian inflation rate exceeds the US inflation
rate, then the dollar will appreciate by that differential
over the same period.
5. General background
The main changes to the exchange rate regimes in
Indonesia
1 January 1996 The Bank Indonesia (BI) within a system
of managed float determined the exchange rate;
28 February 1998 A foreign exchange subsidy for food
was introduced, which led to the reclassification of the
exchange rate system from unitary to dual;
De Facto Indonesia has floating exchange rate with
inflation targeting framework.
11. Methodological framework & data description
Ordinary Least Squares and quantitative methods;
Quarterly data from OECD database for the period from the 1st
quarter of 1998 to the 4th quarter of 2012.
Hypothesis: exchange rate behavior between IDR and USD depends
on the analyzed variables.
ER - quarterly averaged spot exchange rate (IDR/USD)
DGDP - difference between Indonesian and USA nominal GDP (in billions of
USD);
DINTR- difference between Indonesian and USA short-term interest rate
DINFL - difference between Indonesian and USA inflation rate (CPI)
DTB - difference between Indonesian and USA net export (in billions of USD)
12. Methodological framework & data description
Proxies
Inflation in Indonesia is , depreciation of IDR
against USD (by the amount of inflation rates
differential);
Nominal GDP growth rate in Indonesia is
, appreciation of IDR against USD;
Short-term interest rate in Indonesia is , IDR
appreciates against USD;
Trade balance surplus in Indonesia (USA
deficit), IDR appreciates against USD.
13. Results
Augmented Dickey-Fuller test
Variable
Dickey-Fuller Test
results
Stat.
Critic.
Value (1%
level)
gdp (GDP)
-1.9862
-3.5482
intr (Interest
Rate)
-4.5902
infl (Inflation)
Results
Dickey-Fuller Test results
Stat.
-4.7985
-3.5482
-3.5482
Stationary
-
-
-5.0494
-3.5461
Stationary
-
-
tb (Trade
balance)
-2.1120
-3.5482
genrdtb=d(tb)
-4.6782
-3.5482
er (Exchange
rate)
-3.8311
-3.5460
Stationary
-
-
New
variable
Stationary
dgdp
Stationary
-
Stationary
-
Stationary
dtb
Stationary
-
Critic. Value
(1% level)
genrdgdp=d(g
dp)
Results
14. Results
Estimated results of the model
Value
Conclusion
0.7090
70.9% of the variation in the
response variable can be
explained by the explanatory
variables
R-squared
Adjusted
R-squared
0.6871
DGDP(-1)
0.0000
Variable is significant
INTR(-1)
0.0053
Variable is significant
INFL
0.0000
Variable is significant
DTB(-1)
0.0174
Variable is significant
Prob.
15. Results
The results of Jargue-Bera test, White test and Breusch-Godfrey test
Value
Normality (JargueBeratest)
Conclusion
0.6828
The critical value of Jargue-Bera test is lower
than 5.99 so residuals are normally distributed
Heteroskedasticity (White
test)
0.8971
Prob. is higher than 0.05 so we reject H1
hypothesis and accept H0 hypothesis about
homoscedasticity
Autocorrelation (BreuschGodfrey test)
0.1959
Prob. is higher than 0.05 so we reject H1
hypothesis and accept H0 hypothesis about the
absence of autocorrelation
16. Results
Variables with direct correlation: GDP and inflation (positive
signs).
If the difference between Indonesian GDP and the US GDP
increase by 1% it indicates that exchange rate will surge by 0.47%;
if the difference in inflation rates increases by 1% than the exchange
rate rises by 201.95%.
Variables with indirect correlation: rate and trade balance
(negative signs).
If difference between interest rates in two countries increase by
1%, the exchange rate decrease by 23.85%;
The exchange rate surges by 48.15% if trade balance rises by 1%.
17. Conclusion
The exchange rate is a dynamic variable, mobility of which is
determined by a wide range of economic, financial, political and
social factors.
Among them, the most important are the following: GDP, inflation
rate, money supply, interest rate and trade balance. The latter
variables are described in relative PPP and monetary theories. The
research showed that all of them, with the exception of money
supply, are significant.
Also,
the
model
was
successfully
checked
for
heteroskedasticity, normality and autocorrelation. The variables
passed the test for stationarity.
Generally, proxies explain the behavior of the analyzed exchange
rate except the GDP. However, the behavior of GDP is an
exception, as external factors, which are not included into the
model, are influencing it.
Thus, our analysis confirms the hypothesis that we stated in the
quantitive part of the research and all the variables in the equation
have impact on the behavior of the IDR/USD exchange rate.