Search Results (28)

This study examines the dynamic relationship between exchange rates and stock returns in Taiwan, focusing on asymmetry and time-varying dependence. Using monthly and daily data from 1994 to 2024, we employ ARDL, NARDL, and error correction models (ECM), together with a time-varying copula framework. We contribute to the literature in three ways. First, we provide a unified framework that jointly captures long-run equilibrium, short-run dynamics, and nonlinear dependence. Second, we document robust asymmetric effects, showing that currency depreciation stimulates stock returns, whereas appreciation exerts adverse effects, reflecting Taiwan’s export-oriented economic structure. Third, we show that the dependence between exchange rates and stock returns is time-varying and highly persistent. Overall, the findings highlight the importance of nonlinear and time-varying approaches in understanding exchange rate–stock market interactions and offer important implications for investors and policymakers. Full article

Discourse on the issue of fuel subsidy removal has become a pressing issue amongst concerned stakeholders and scholars with divergent views on the subject. This present study therefore explores the contributing role of the fuel subsidy removal on sustainable growth in Nigeria spanning 2010–2022. This was achieved by investigating the impact of the fuel subsidy removal on sustainable growth. Different econometric strategies, including the autoregressive distributed lag (ARDL), along with fully modified ordinary least squares (FMOLS) and dynamic ordinary least squares (DOLS) techniques, were employed and further validated the robustness of the outcomes. The results revealed that the removal of the subsidy would have a long-term positive impact on the Nigerian economy. This was substantiated by the estimated coefficients of fuel subsidy as a proxy of subsidy removal, energy consumption and fuel export, which consolidate these discoveries. These findings were further consolidated by the coefficients of fuel imports, fuel price, exchange rates and inflation, which are negatively and significantly related to economic growth but positively significant for poverty, except for exchange rate, which was insignificant. The empirical outcomes indicate that taking away fuel subsidies in Nigeria reduces the excessive fiscal spending and borrowing needed to support oil importation in the economy, which results in increased foreign reserves and enhances national infrastructural development, foreign direct investment and currency appreciation, thus leading to more sustainable growth. This study offers new insights for policymakers, investors and other stakeholders on the importance of formulating efficient fuel subsidy policies and sustainable development goals (SDGs) for Nigeria. Full article

This paper examines whether monetary policy shocks affect CO₂ emissions over time in Brazil. We show that CO₂ emissions decline persistently following contractionary monetary policy shocks. The relationship between monetary policy and CO₂ emissions in Brazil is assessed through two channels: trade openness and exchange rates. The theoretical model illustrates how monetary policy affects the domestic economy through the real exchange rate. An application of a Global VAR (GVAR) to the Brazilian economy from 1996 to 2018 investigates the effects of monetary policy in Brazil (or in the U.S.) on real GDP and, subsequently, on CO₂ emissions. A contractionary monetary policy shock in Brazil causes a short-run appreciation of the currency, lower output in the long run, and lower CO₂ emissions (−0.02% after 24 months). A contractionary U.S. monetary policy shock also causes a decline in the stock market and a short-run depreciation of the currency. This shock leads to lower output in the long run, reducing CO₂ emissions by −0.01% after 20 months. Full article

This research examines a multinational supply chain inventory problem involving one manufacturer and multiple retailers across a range of carbon emission combinations and an incomplete production system. It aims to identify the optimal strategies for material use, production, delivery, replenishment, and pricing to maximize the integrated total profits under various situations. Three particle swarm optimization techniques are used to solve all the models. Numerical examples and sensitivity analyses on parameter changes are provided. The findings indicate that in a multinational supply chain, currency appreciation in individual retailers’ countries decreases their optimal order quantities and the manufacturer’s optimal material purchase quantity, but increases the optimal quantity for other retailers. In summary, this study offers valuable guidance to enterprises and supply chain decision-makers, especially those operating in a multinational framework, aiming to effectively balance carbon reduction and profitability within the context of global trends in carbon emission reduction. Full article

Exchange rate volatility has emerged to be one of the most critical determinants of price stability for countries operating in multicurrency systems with their own currency in the basket of currencies. This study empirically examined the impact of exchange rates (official and parallel market rates) on inflation in Zimbabwe during the multicurrency system for the period 2014 to 2024, together with comparing the impacts of the official and parallel market exchange rates on inflation. Time series and monthly data were used to examine the short and long run impact of exchange rates on inflation in an ARDL estimation framework. Findings revealed a short run and long run positive relationship between both the official and parallel market exchange rates and inflation, with the parallel market exchange rate being the most significant variable. Other control variables used, such as domestic productivity, have a highly significant negative impact on inflation through the official and parallel exchange rate models in both the short and the long run. Money supply, real interest rate, trade balance, foreign prices, foreign output, stock market prices and foreign currency reserves have varied impacts through either the official or parallel market exchange rate models. Policy recommendations include a contractionary Monetary and expansionary Fiscal policy mix that will result in exchange rate appreciation and stability, productivity growth, trade surplus, growth in reserves, and ultimately low prices. The exchange rate policy recommended in this study is to shelve discard the local currency in the multicurrency system until industrial capacity utilization exceeds 50% to add the local currency to the basket of currencies and 75% for mono-local currency (de-dollarization). Full article

This study compared standard VAR, SVAR with short-run restrictions, and SVAR with long-run restrictions to investigate the effects of oil price shocks and the foreign exchange rate (ZAR/USD) on consumer prices in South Africa after the 2008 financial crisis. The standard VAR model revealed that consumer prices responded positively to oil price shocks in the short term, whereas the foreign exchange rate (ZAR/USD) revealed a fluctuating currency over time. That is, the South African rand (ZAR) initially appreciated against the US dollar (USD) in response to oil price shocks (periods 1:7), followed by a depreciation in periods 8:12. Imposing short-run restrictions on the SVAR model revealed that the foreign exchange rate (ZAR/USD) reacted to oil price shocks in a manner similar to the VAR model, with ZAR appreciating during the initial periods (1:7) and subsequently depreciating in the later periods (8:12). Consumer prices responded positively to oil price shocks, causing consumer prices to increase in the short run, which is consistent with the VAR findings. However, imposing long-run restrictions on our SVAR model yielded results that contrasted with those obtained under short-run restrictions and the standard VAR model. That is, oil price shocks had long-lasting effects on the foreign exchange rate, resulting in the depreciation of ZAR relative to USD over time. Additionally, oil price shocks reduced consumer prices, resulting in a deflationary effect in the long run. This study concluded that South Africa’s position as a net oil importer with a floating exchange rate renders the country vulnerable to short-term external shocks. Nonetheless, in the long term, the results indicated that the economy tends to adapt to oil price shocks over time. Full article

Research proposes that economic policy uncertainty (EPU) leads to exchange rate fluctuations. Given that African countries experience higher levels of uncertainty in developed/emerging markets, we examine the extent to which domestic and foreign EPU affect exchange rates for a panel of 12 ECOWAS countries covering the period 1996–2018. In order to account for non-stationarity, cross-sectional dependence, and heterogeneity, the paper employs the dynamic heterogeneous panel approach. The ECOWAS has a dual currency arrangement ranging from a common currency union (CFA) to floating exchange rates (Non-CFA). To account for this, this study splits the sample data into CFA and Non-CFA areas. In addition, this study considers the role of the global financial crisis in the exchange rate-EPU nexus. Our results show that domestic EPU has a positive effect on exchange rates in the long run for Non-CFA areas. Different from the existing literature, our results suggest that domestic EPU does not explain exchange rate fluctuations in the short run. For all countries, foreign EPU leads to appreciation in the long run and depreciation in the short run. Interestingly, foreign EPU has a more dominant effect on exchange rate fluctuations in the selected countries than domestic EPU. This may reflect the weak institutional framework in these countries, which allows external fluctuations to have a greater impact. Moreover, this could be attributed to the increase in foreign capital flows during the sample period. Thus, these countries must develop effective policies to effectively absorb these external shocks. Results are robust to different proxies of EPU. Full article

This paper contributes to the literature dedicated to the interlinkages between cryptocurrencies and currencies by investigating whether Bitcoin price movements affect the exchange rates of a sample of nine European countries with non-euro currencies. By resorting to the novel unconditional quantile regression, we show that there is a statistically significant link between Bitcoin price movements and changes in nominal exchange rates. In normal market conditions, an increase in the price of Bitcoin can be associated with an appreciation of the currencies from our sample, while during the COVID-19 pandemic, the relationship inversed. In addition, we find heterogeneities in this relationship, depending on the level of change in the nominal exchange rate. The results emphasize the relevance of Bitcoin price movements to the conduct of monetary policy through the exchange rate channel and that investors in cryptocurrencies and various financial assets denominated in the currencies from our sample can benefit from diversification by including both types of assets in their portfolios. Full article

This paper shows that some commodity currencies (from Chile, Iceland, Norway, South Africa, Australia, Canada, and New Zealand) predict the synchronization of metals and energy commodities. This relationship links the present-value theory for exchange rates and its connection with commodity export economies’ fundamentals, where prospective commodity price fluctuations affect exchange rates. Predicting commodity market return synchronization is critical for dealing with systemic risk, market efficiency, and financial stability since synchronization reduces the benefits of diversification and increases the probability of contagion in financial markets during economic and financial crises. Using network methods coupled with in-sample and out-of-sample econometrics models, we find evidence that a fall in the return of commodity-currencies (dollar appreciation) predicts an increase in commodity market synchronization and, consequently, in commodity market systemic risk. This discovery is consistent with a transitive capacity phenomenon, suggesting that commodity currencies have a predictive ability over commodities that extend beyond the commodity bundle that a country produces. The latter behavior would be exacerbated by the high financialization of commodities and strong co-movement of commodity markets. Our paper is part of a vigorously growing literature that has recently measured and predicted systemic risk caused by synchronization, combining a complex systems perspective and financial network analysis. Full article

Foreign investment in renewable energy generation projects is a critical part of the Belt and Road Initiative. Under the background of the market economy, the electric energy will participate in power market competition among the countries along the line, and the sales revenue will be settled in the local currency. The exchange rate of the countries along the Belt and Road fluctuates frequently and widely, thereby posing significant risks to the investment income of the projects. To address this problem, this paper proposes the concept of Ek as the effective exchange rate expressed by the on-grid price, investment cost per kilowatt electricity generation equipment, and annual operating cost rate of unit power generation capacity. Moreover, this paper presents a model of power generation cost, income, and earning expressed by the real exchange rate. The flexibility formula of the fluctuation of power generation cost, income, profit, and internal rate of return relative(IRR) to Ek is derived, and the effect of exchange rate level and fluctuation on projects is analyzed. With the wind power projects invested by China in Pakistan taken as an example, the trend during the entire life cycle is calculated. The changes in net profit rate, IRR, and levelized cost of energy (LCOE) are calculated under Chinese currency appreciation of 10%, 20%, and 35% and 5% and 10% reduction of investment cost per unit. As the Chinese currency appreciates and the project IRR declines significantly, LCOE decreases slightly, but this decrease is not sufficient to compensate for the losses caused by the decline in IRR. The following effective measures are proposed to deal with the exchange rate fluctuation of foreign renewable energy generation projects: building energy Internet, reducing project cost, and using Chinese currency as the settlement currency. In this paper, a solution is provided for investments in renewable energy projects in regions where exchange rates fluctuate greatly. Full article

When analyzing a financial asset, it is essential to study the trend of its time series. It is also necessary to examine its evolution and activity over time to statistically analyze its possible future behavior. Both retail and institutional investors base their trading strategies on these analyses. One of the most used techniques to study financial time series is to analyze its dynamic structure using auto-regressive models, simple moving average models (SMA), and mixed auto-regressive moving average models (ARMA). These techniques, unfortunately, do not always provide appreciable results both at a statistical level and as the Risk-Reward Ratio (RRR); above all, each system has its pros and cons. In this paper, we present CryptoNet; this system is based on the time series extraction exploiting the vast potential of artificial intelligence (AI) and machine learning (ML). Specifically, we focused on time series trends extraction by developing an artificial neural network, trained and tested on two famous crypto-currencies: Bitcoinand Ether. CryptoNet learning algorithm improved the classic linear regression model up to 31% of MAE (mean absolute error). Results from this work should encourage machine learning techniques in sectors classically reluctant to adopt non-standard approaches. Full article

The Theory demonstrates that oil price and oil volatility (OVX) are significant determinants of economic activity; however, studies seldom consider both variables in the oil–exchange rate nexus and ignore the distributional heterogeneity of the exchange rate. We investigate their joint effect and employ both the quantile regression and Markov switching models to address this. We differentiate between positive/negative shocks and control for the effect of the global financial crisis in 2008 and the COVID-19 pandemic in 2020. We observe that OVX shocks significantly impact the exchange rate for all countries whereas, oil price shocks only affect the exchange rate of oil importing countries. Rising (falling) OVX causes the local currency to depreciate (appreciate). The impact of rising or falling OVX is the same for oil importing and oil exporting countries whereas the impact of rising and falling oil price varies. The impact of oil price and OVX on exchange rate is affected by market conditions. The exchange rate responds to oil price and OVX mostly at lower quantiles (bearish markets) for all countries, which reveals investors sensitivity. In contrast, a weak to no significant response is observed at the higher quantiles (bullish market). Our results are robust in model selection (Markov switching models). Full article

This paper models the foreign exchange intervention policy following the Rayleigh process derived from the standard flexible-price monetary framework. The exchange rate dynamics associated with the interventions are more sensitive to the change in the economic fundamental when a currency’s money supply is ample and its appreciation expectation cannot be offset by lower interest rates that have fallen to the zero lower bound, suggesting that more intensive interventions are required to counteract currency appreciation pressure and resulting in foreign reserve accumulation. The empirical results using market data during January 2015–February 2020 demonstrate that the model can describe the dynamics of the Swiss franc exchange rate. The accumulation of foreign reserves through interventions is negatively co-integrated with the exchange rate volatility and the value of the mean level of the Swiss franc exchange rate in the dynamics, to some extent indicating a reasonably high degree of effectiveness of the Swiss National Bank’s interventions. The transition between the target-zone and floating-rate regimes in 2015 caused changes in the level of exchange rate volatility but not its dynamical structure, suggesting that transitions between the floating-rate and target-zone regimes do not seem to have material consequence in this regard. Full article

In the Southern African Development Community, the relationships between exchange rate instability, inflation and economic growth remain at the forefront of economic debate because of the historical antecedent and economic clustering of member countries. Nonetheless, much is not known regarding the complexity, complementarity or substitutability of exchange rate instability and inflation on economic growth for SADC countries. This article examined the influence of exchange rate instability on the inflation–growth nexus of the region for the period of 2000 to 2018. Three major techniques of analyses, Pooled Mean Group (PMG), Generalised Moments (GM) and Dynamic Fixed Effect (DFE), were employed in achieving the goal of the study, but the Pooled Mean Group estimator of the Panel Autoregressive Distributed Lag was favoured by the Hausman test as the main instrument. The GARCH (1, 1) was also employed to generate exchange rate instability. The findings of the study showed that exchange rate instability and inflation have a negative relationship with economic growth of the region. Results further show evidence that economic growth of the region is adversely influenced by the consequential effect of exchange rate instability on inflation: the higher the level of instability in exchange rate, the worse the inflationary-growth relationship of the region. This confirms the menu cost theory of price setting: the higher the rate of inflation, the quicker the exchange rate pass-through effect. It is therefore recommended that policies to ensure appreciation of local currencies should be the priority of member nations. Full article

Many commodity-exporting countries saw their revenues plummet and experienced fiscal deficits during the pandemic. The economic rebound will restore resource exports/revenues and a new round of debate will be initiated on revenues utilization. Countries will decide either to internalize revenues or capitalize them with investments abroad. Our autoregressive distributed lag (ARDL) models provide evidence of the benefits Norway enjoys since it has not internalized revenues. The currency rate, long-term bond yields, and GDP growth are insulated from prices volatility. Furthermore, the country can absorb currency appreciations/devaluations and long-term credit rate hikes through government expenditure. However, monetary steering is favored in the long term (absorbs yield increases), while in the short run it can allow for speculative activities by credit investors. Countries should not internalize resource revenues to avoid experiencing decreased competitiveness and economic growth and increased credit rates. However, the temptation will be high enough since deficits and support packages cost a lot. This study also includes years of low prices. Thus, our research reveals the extent and limitations of diligent revenue management from a country considered as a role model. Full article