Domestic investment responses to changes in the real exchange rate: <scp>A</scp>symmetries of appreciation versus depreciation

Bahmani‐Oskooee, Mohsen; Halıcıoğlu, Ferda; Neumann, Rebecca

doi:10.1002/ijfe.1621

Cited by 10 publications

(10 citation statements)

References 26 publications

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“…Short-run adjustment asymmetry from Equation 5 can be established if the number of lags associated with the variable of DPOS t-i is not equal to that of DNEG t-i and can only be determined by observation, while the size effect can be inferred ifb 2i differs fromb 3i for a given value of 'i' (Bahmani-Oskooee et al, 2018). Similarly, if the null hypothesis is rejected via the Wald-Test and long-run asymmetry can be evidenced in case the Wald-Test rejects the null hypothesis associated with the normalised coefficients (Table 1 displays…”

Section: Methodsmentioning

confidence: 99%

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An analysis of the asymmetric impact of exchange rate changes on G.D.P. in Pakistan: application of non-linear A.R.D.L.

Hussain

Khan

et al. 2019

Economic Research-Ekonomska Istraživanja

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Exchange rate fluctuations play a vital role in influencing macroeconomic variables including economic growth via the channels of net exports and investments. This study claims to be the first in assessing the asymmetric effect of exchange rate fluctuations on G.D.P. in Pakistan whose currency had the title of 'worst currency of South Asia' in 2018 after more than 20% depreciation in just three months. In this study, we employ a recently developed technique of Non-linear A.R.D.L. by Shin, Yu, and Greenwood-Nimmo (2014) to test for possible asymmetric effect of exchange rate on G.D.P. along with the proxies of fiscal and monetary policies. Both A.R.D.L. and N.A.R.D.L. are applied on annual data range from 1972 to 2014. The results of A.R.D.L. are found poor and co-integration relationship lost when the assumption of symmetry is taken into consideration. On the contrary, Non-linear A.R.D.L. technique carry more rich information related to the issue at hand and co-integration relationship is confirmed. From the results we found that week currency hurts G.D.P. growth, while strong currency adds to growth. Besides these, we confirm asymmetric impact of exchange rate on G.D.P. growth in Pakistan and find the evidence of short-run, long-run and adjustment asymmetry. To achieve the objective of sustained growth, exchange rate management should focus to restore stability and go for more strong currency in Pakistan. Future research needs to consider capital flows and exchange rate regimes in the form of 'Sudden Stop hypothesis' when investigating the asymmetric impact of exchange rate.

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Section: Methodsmentioning

confidence: 99%

“…Besides this, many researchers have successfully applied N.A.R.D.L. to capture the phenomena of asymmetry (see for instance,Katrakilidis & Trachanas, 2012;Bahmani- Oskooee & Bahmani, 2015;Bahmani-Oskooee & Fariditavana, 2016;Bahmani- Oskooee & Mohammadian, 2017;Nusair, 2017;Bahmani-Oskooee, Halicioglu, & Neumann, 2018;Shin, Baek, & Heo, 2018).…”

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confidence: 99%

An analysis of the asymmetric impact of exchange rate changes on G.D.P. in Pakistan: application of non-linear A.R.D.L.

Hussain

Khan

et al. 2019

Economic Research-Ekonomska Istraživanja

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“…However, when currency depreciations are separated from appreciations and nonlinear models and an asymmetric approach is employed, relatively more significant asymmetric effects of exchange rate changes on domestic investment are discovered. This new direction was recently introduced by Bahmani‐Oskooee et al (2018) who included six emerging countries in their sample and by Bahmani‐Oskooee and Gelan (2019) who included 18 countries from Africa.…”

Section: Discussionmentioning

confidence: 99%

“…However, studies mentioned in the introductory section have also included the real exchange rate as another determinant. Thus, we follow Bahmani‐Oskooee et al (2018) and adopt the following long‐run model:

italicLn I_{t} = α + italicβLn Y_{t} + italicγLn r_{t} + italicφLn {REX}_{t} + ε_{t}

where I is the real domestic investment, Y is the real output measured by real GDP, r is the nominal interest rate and REX is the real effective exchange rate. Since in a growing economy, firms are expected to invest more, we expect an estimate of β to be positive.…”

Section: Models and Methodsmentioning

confidence: 99%

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On the asymmetric effects of the real exchange rate on domestic investment in G7 countries

Bahmani‐Oskooee

Baek

2020

Australian Economic Papers

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Two studies have assessed the symmetric and asymmetric effects of exchange rate changes on domestic investment. One included six emerging countries and the other one, 18 African nations. Both revealed that using nonlinear models to assess the asymmetric effects yield a more significant outcome compared to symmetric and linear models. We add to this small literature by showing the same using quarterly data from each of the G7 countries. Indeed, nonlinear models produced relatively more short-run and long-run effects of changes in the real effective exchange rate on domestic investment, though in an asymmetric manner.

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Monetary policy uncertainty, investor sentiment, and US stock market performance: New evidence from nonlinear cointegration analysis

2020

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The purpose of this paper is to examine non‐linear and cointegrating relationships between monetary policy uncertainty, investor sentiment, and stock market for the US economy, via controlling for potential macroeconomic risk factors. We mainly utilize non‐linear autoregressive distributed lag (NARDL) approach and findings support an existing cointegration between the aforementioned variables. Our results also suggest that there is a bidirectional and negative relationship between US stock market performance and monetary policy uncertainty in the short‐run. Furthermore, the effect of monetary policy uncertainty on investor sentiment is significantly negative and not strongly asymmetric in the long‐run. On the other hand, in the short‐run, increasing investor sensitivity to macroeconomic shocks strongly increases monetary policy uncertainty, while reducing sensitivity does not have a significant impact on the monetary policy uncertainty. Finally, we find a positive and bi‐directional relationship between stock prices and investor sentiment both in the short‐ and long‐run. In the long‐run, decreasing investor sensitivity to macroeconomic fluctuations (becoming more optimistic) has a greater positive influence on stock prices than a negative influence on stock prices, since investors are becoming more pessimistic. Implications from our analysis are important to policy makers and investors for determining effective economic policy decisions and proper investment strategies.

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Domestic investment responses to changes in the real exchange rate: Asymmetries of appreciation versus depreciation

Cited by 10 publications

References 26 publications

An analysis of the asymmetric impact of exchange rate changes on G.D.P. in Pakistan: application of non-linear A.R.D.L.

An analysis of the asymmetric impact of exchange rate changes on G.D.P. in Pakistan: application of non-linear A.R.D.L.

On the asymmetric effects of the real exchange rate on domestic investment in G7 countries

Monetary policy uncertainty, investor sentiment, and US stock market performance: New evidence from nonlinear cointegration analysis

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