Capital Inflows, Inflation, and the Exchange Rate Volatility: An Investigation for Linear and Nonlinear Causal Linkages

Rashid, Abdul; Husain, Fazal

doi:10.30541/v52i3pp.183-206

Cited by 19 publications

(16 citation statements)

References 62 publications

(49 reference statements)

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“…Overvaluation of a currency is when the domestic currency assumes a higher value in relation to other currencies. (Killick, 1992) [1], that bring about distortion of the economy. It crowd out local production and encourages importation; as import become relatively cheaper, as local currency cost of importation will be kept artificially low and discourages export by reducing the profitability of producing for world markets as prices of exports become relatively dearer in the international market.…”

Section: Background To the Studymentioning

confidence: 99%

An Econometric Analysis of the Nexus of Exchange Rate, Inflation and Budget Deficit: Case of Nigeria 1981 – 2016

Sa'ad¹,

Abraham²,

Michael³

2018

JWER

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Depreciation of the naira has a role to play in Nigeria's recent inflationary process. Concomitant with this is the substantial budget deficit operated annually by the Federal Government in the last decade or so. Part of the budget deficit is finance through bank credit which directly affects the money base. This also exerts upward pressure on the general price level. All this suggests that there are many sources of the current inflation. While the channels through which exchange rate depreciation affects prices are known, the extent to which this phenomenon engenders price inflation in Nigeria is still not well researched. As part of the attempt to fill this gap, this study examines the quantitative effects of exchange rate depreciation on budget deficit and inflation in Nigeria. This is achieved in two stages. First, a structural model of the interaction between exchange rate, budget deficit, inflation, and government revenue and expenditure is constructed. In doing this, the study is influenced by SVAR cointegration and the error correction model. This result presents trends in the relationship between exchange rate, budget deficit and inflation and the impact exchange rate on inflation and budget deficit are positive but not statically significant and incomplete. The findings from this study have a number of policy implications for Nigeria government. A major policy implication of the results of the study is that concerted effort should be made by the Nigeria's government to strengthen the production capacity of domestic firms and industries in order to reduce the level of the imported consumer and capital goods. This will help improve the level of exchange rate impact on other macroeconomic variables in Nigeria.

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Section: Background To the Studymentioning

confidence: 99%

An Econometric Analysis of the Nexus of Exchange Rate, Inflation and Budget Deficit: Case of Nigeria 1981 – 2016

Sa'ad¹,

Abraham²,

Michael³

2018

JWER

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“…SBP research identifies this as a 'four-fold increase in Pakistan's real GDP volatility over the past three decades [which] coincided with the emergence of a deregulated financial sector since the 1980s' (Hussein et al, 2011: 2). Moreover, Rashid and Husain (2010) find intensifying inflationary pressure and exchange rate instability linked to growing capital inflows over the same period. In this environment, it is unsurprising that recent research at the SBP finds very little price rigidity and weak real wage rigidity (Ahmed et al, 2013;Choudhary et al, 2016).…”

Section: Value Instability and Globalizationmentioning

confidence: 99%

“…The article first discusses the link between global financial change and increasing monetary volatility. This section sketches out how unstable monetary indicators in the post‐Bretton Woods environment can interact with open markets to intensify volatility in key macroeconomic indicators and ratios found in a set of empirical articles on Pakistan (Choudhary and Pasha, ; Hussein et al., ; Lopez‐Calix et al., ; Rashid and Husain, ). This instability is constitutive of the unstable monetary context in which the study identifies new risk management practices, which include informal land transactions.…”

Section: Introductionmentioning

confidence: 99%

The Informal Economy as a Site of Liquidity: Pakistan's Land Market

Settle¹

2018

Development and Change

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Based on extensive fieldwork, this article examines new informality in Pakistan's land market by which vacant plots of land are transacted informally between market actors in rapidly reversed short‐term holdings. The analysis pivots around the changing economic environment in Pakistan with the shift from heavy regulation of money and controlled pricing, to the liberalization of money and markets. The author explores how liquidity is taken up as a microeconomic strategy to protect against new financial risk in this environment, and how this is played out as a preference for informal transactions. These practices inform a case study that contributes to the established literature on the links between globalization and the informal economy by articulating a driver of growing informal transactions that is novel to the literature.

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“…This research paper was to explain the relationship between the world inflation rate and world exchange rate. Rashid and Husain (2013), examined the capital flow, inflation, and exchange rate volatility. The main objective of this paper was used to investigate the relationship between the capital flows, exchange rate and the inflation in economy.…”

Section: Literature Reviewmentioning

confidence: 99%

Capital Flows and Money Supply: The Degree of Sterilization in Pakistan

Ali

Sajjad

2017

SIJMB

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The present study proposes to analyze the impact of the capital flows on the economic growth. The change in the capital flows affects the money supply in the economy which in return influences the economic growth. The augmented dickey fuller test (ADF), descriptive Analysis, correlation method, and the auto regressive distribution lag are employed in this work. The ADF test is delved to examine the Stationarity of the variables and the correlation between them. The descriptive analysis is used to check the normality of the variable whether the variables is normally distributed or not. The survey bases on time series data ranging from the year 1974 to 2014. The variables as the gross domestic product (GDP), exchange rate (ER), inflation (INF), consumer price index (CPI), money supply (M2), total reserves (TR) and the foreign direct investment (FDI), price indices (PI). The research findings are Foreign direct investment, Exchange rate, Inflation rate, Consumer Price Index has the positive impact on the GDP while the Private Investment, Total reserves, and Money supply have the negative impact on the GDP. The value of the R square is 0.99874 which is very good. It means that the 99 percent variations exist in dependent variable due to independent variables.

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Capital Inflows, Inflation, and the Exchange Rate Volatility: An Investigation for Linear and Nonlinear Causal Linkages

Cited by 19 publications

References 62 publications

An Econometric Analysis of the Nexus of Exchange Rate, Inflation and Budget Deficit: Case of Nigeria 1981 – 2016

An Econometric Analysis of the Nexus of Exchange Rate, Inflation and Budget Deficit: Case of Nigeria 1981 – 2016

The Informal Economy as a Site of Liquidity: Pakistan's Land Market

Capital Flows and Money Supply: The Degree of Sterilization in Pakistan

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