Special Issue "Exchange Rate Dynamics"

A special issue of Economies (ISSN 2227-7099).

Deadline for manuscript submissions: 15 December 2019

Special Issue Editor

Guest Editor
Assist. Prof. Robert Czudaj

Department of Economics, Chemnitz University of Technology, Str. der Nationen 62, 09111 Chemnitz, Germany
Website | E-Mail
Interests: applied econometrics, time series analysis, Bayesian econometrics, financial markets, and exchange rates

Special Issue Information

Dear Colleagues,

Since the breakdown of Bretton Woods in 1973, the volatility of exchange rates increased substantially and many researchers started focusing on the determinates of exchange rate fluctuations and consequences of the latter. Early models tried to explain the exchange rate by domestic and foreign fundamentals such as consumer prices, interest rates, output and money supply. However, the seminal paper by Meese and Rogoff (1983) showed that such models hardly outperform naïve random walk forecasts. Therefore, regime-dependent and time-varying parameter models have been applied by many researchers over the recent decades and large expectations data sets have been compiled to better understand the models and assumptions used by professional forecasters. Nevertheless, exchange rate forecasting remains a notoriously difficult task and is still a prospering research area. The aim of this Special Issue is to disseminate important empirical and theoretical research questions in the area of exchange rate dynamics, which might include (but do not limit to):

- Exchange rate forecasting under model uncertainty

- Monetary policy effects on exchange rate expectations or dispersion of forecasters’ beliefs

- Heterogeneous agent models

- Exchange rates and uncertainty effects

- Dynamic factor models

- Exchange rate volatility spillovers

- High frequency trading

- Etc.

Prof. Dr. Robert Czudaj
Guest Editor

Manuscript Submission Information

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Published Papers (5 papers)

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Research

Open AccessArticle
Asymmetry in Exchange Rate Pass-Through to Consumer Prices: New Perspective from Sub-Saharan African Countries
Received: 18 October 2018 / Accepted: 3 January 2019 / Published: 11 January 2019
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Abstract
This paper examines the asymmetrical relationship between exchange rate and consumer prices in 40 sub-Saharan African (SSA) countries from 1990Q1 to 2017Q4. We estimate the exchange rate pass-through (ERPT) to consumer prices for each country by using the nonlinear autoregressive distributed lag (NARDL) [...] Read more.
This paper examines the asymmetrical relationship between exchange rate and consumer prices in 40 sub-Saharan African (SSA) countries from 1990Q1 to 2017Q4. We estimate the exchange rate pass-through (ERPT) to consumer prices for each country by using the nonlinear autoregressive distributed lag (NARDL) framework and dynamic panel techniques robust to cross-sectional dependence. First, our findings suggest an asymmetrical ERPT in the SSA region during the short term, whereas there are mixed results across subregions in the long term. Second, the results of the panel analysis suggest incomplete and significant ERPT to consumer prices in the entire SSA region, which is higher during depreciation of the local currency than after appreciation in the short-term, especially in the CFA Franc zone. Third, we find nonlinear ERPT with respect to the size of the exchange rate. Finally, we find that pass-through is higher in countries with fixed exchange rate regimes (CFA franc zone) in a low inflationary environment than in countries with floating exchange rate regimes and high inflation levels. Pass-through is greater during large exchange rate changes than after small changes. Therefore, the policy implication is to consider these asymmetries and nonlinearities to improve monetary policy’s credibility, enhance trade liberalization, and promote competitive market structures in the SSA region. Full article
(This article belongs to the Special Issue Exchange Rate Dynamics)
Open AccessArticle
Investigating Spillover Effects between Foreign Exchange Rate Volatility and Commodity Price Volatility in Uganda
Received: 24 September 2018 / Revised: 31 October 2018 / Accepted: 5 December 2018 / Published: 23 December 2018
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Abstract
This study investigates the impact of commodity price volatility spillovers on financial sector stability. Specifically, the study investigates the spillover effects between oil and food price volatility and the volatility of a key macroeconomic indicator of importance to financial stability: the nominal Uganda [...] Read more.
This study investigates the impact of commodity price volatility spillovers on financial sector stability. Specifically, the study investigates the spillover effects between oil and food price volatility and the volatility of a key macroeconomic indicator of importance to financial stability: the nominal Uganda shilling per United States dollar (UGX/USD) exchange rate. Volatility spillover is examined using the Generalized Vector Autoregressive (GVAR) approach and Multivariate Generalized Autoregressive Conditional Heteroskedasticity (MGARCH) techniques, namely the dynamic conditional correlation (DCC), constant conditional correlation (CCC), and varying conditional correlation (VCC) models. Overall, the results of both the GVAR and MGARCH techniques indicate low levels of volatility spillover and market interconnectedness except during crisis periods, at which point cross-market volatility spillovers and market interconnectedness sharply and markedly increased. Specifically, the results of the MGARCH analysis show that the DCC model produces the best results. The obtained results point to an amplification of dynamic conditional correlations during and after the global financial crisis (GFC), suggesting an increase in volatility spillovers and interdependence between these markets following the global financial crisis. This is also confirmed by the results of the total spillover index based on the GVAR analysis, which shows low but time-varying volatility spillover that intensified during periods of high uncertainty and market crises, particularly during the global financial crisis and sovereign debt crisis periods. Full article
(This article belongs to the Special Issue Exchange Rate Dynamics)
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Open AccessArticle
Causality in Vietnam’s Parallel Exchange Rate System during 2005–2011: Policy Implications for Macroeconomic Stability
Received: 5 October 2018 / Revised: 20 November 2018 / Accepted: 21 November 2018 / Published: 12 December 2018
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Abstract
As in many transition economies, Vietnam has experienced a multiple exchange rate system with three exchange rates having co-existed. This paper uses the Vector-Error-Correction model and the Granger tests to investigate the relationship between the official and black market exchange rates from January [...] Read more.
As in many transition economies, Vietnam has experienced a multiple exchange rate system with three exchange rates having co-existed. This paper uses the Vector-Error-Correction model and the Granger tests to investigate the relationship between the official and black market exchange rates from January 2005 to April 2011. The results confirm a long-run relationship between the official and parallel market rates of the Vietnam dong against the U.S. dollar. The short-run dynamics of two exchange rates suggest that the official exchange rate causes the black exchange rate, but not vice versa. This conclusion is valid for both a sub-period of stability and a sub-period of vibrant fluctuations, with February 2008 as the cut-off. The findings also reject the efficiency hypothesis of the black market for foreign exchange and support the policy choice of the State Bank of Vietnam not to follow black market signals in managing official exchange rates for macroeconomic stability. Full article
(This article belongs to the Special Issue Exchange Rate Dynamics)
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Open AccessArticle
Real Exchange Rate Misalignment and Economic Growth: The Case of Trinidad and Tobago
Received: 23 June 2018 / Revised: 17 September 2018 / Accepted: 17 September 2018 / Published: 21 September 2018
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Abstract
Empirical studies outline developing countries’ experience economic growth through an undervalued exchange rate and that exchange rate overvaluations have negative long term effects on economic growth. This paper examined the impact of exchange rate movements as well as exchange rate misalignments on economic [...] Read more.
Empirical studies outline developing countries’ experience economic growth through an undervalued exchange rate and that exchange rate overvaluations have negative long term effects on economic growth. This paper examined the impact of exchange rate movements as well as exchange rate misalignments on economic growth for the Trinidad and Tobago economy over the period 1960 to 2016. We find statistically significant evidence that both exchange rate appreciation and misalignments impact negatively on economic growth in the T&T economy. Drilling deeper, we find interestingly that there exist no non-linear effects of exchange rate misalignments on growth. Specifically, we find statistically significant evidence that both overvaluations and under valuations hamper economic growth in the Trinidad and Tobago economy. We attribute this to T&T’s small and underdeveloped manufacturing sector that tends to be overlooked on account of its energy resources, in addition to the fact that its manufacturing sector is highly import oriented. A major policy recommendation would be for the critical reassessment of the rules governing the Heritage and Stabilization Fund (HSF), as government expenditure was allowed to follow energy revenues due to its current limitations. Full article
(This article belongs to the Special Issue Exchange Rate Dynamics)
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Open AccessArticle
Testing the Effects of Real Exchange Rate Pass-Through to Unemployment in Brazil
Received: 28 June 2018 / Revised: 3 August 2018 / Accepted: 6 August 2018 / Published: 6 September 2018
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Abstract
This paper attempts to test the pass-through of the real exchange rate (RERT) to unemployment in Brazil over the period 1981M1–2015M11 using linear and nonlinear Autoregressive Distributed Lag (ARDL) models. The result of the linearity test suggests that the relationship between RERT and [...] Read more.
This paper attempts to test the pass-through of the real exchange rate (RERT) to unemployment in Brazil over the period 1981M1–2015M11 using linear and nonlinear Autoregressive Distributed Lag (ARDL) models. The result of the linearity test suggests that the relationship between RERT and unemployment is linear in the short-run and nonlinear in the long-run. Therefore, using the symmetric ARDL model for the short-run analysis, we find that an increase in the RERT decreases the unemployment rate. The result of the nonlinear ARDL for the long-run analysis shows that the unemployment rate reacts to the RERT appreciations and depreciations differently with depreciations having a strong effect. However, the pass-through of the RERT to unemployment is incomplete both in the short- and long-run. These findings have important policy implications for the designing of appropriate monetary policy in response to a rise in unemployment resulting from a change in the real exchange rate. Full article
(This article belongs to the Special Issue Exchange Rate Dynamics)
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