On the benefits of nominal appreciations: Contrasting evidence across developed and developing countries

Kandil, Magda

doi:10.1016/j.bir.2015.06.003

Cited by 5 publications

(4 citation statements)

References 35 publications

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“…This implies that the depreciation of the domestic currency increases consumption, which is in line with the international real business cycle model. Our finding was in line with Kandil (2015), who found a positive link between consumption and domestic currency in emerging economies. The positive response to and consumption shock also showed in investment, where shock one standard deviation domestic currency increased 0.21 percent consumption at quarter four.…”

Section: Full Sample Countries Panel Varsupporting

confidence: 93%

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Legal independent central bank and exchange rate

2022

KJSS

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This study developed a new solution for the heterogeneity responses of exchange rate and economic activity in relation to central bank independence shocks in developing countries. It used quarterly time series panels of 26 developing countries for the period 1991Q1-2019Q4. The analysis was based on a panel Vector Autoregressive estimation. The results revealed that CBI required up to a year to cause an appreciation in the exchange rate. We also concluded that exchange rate had an essential role to play in monetary policy transmission, to the extent that a change in CBI affected the domestic currency, thereby influencing private consumption and investment. This study was different from the existing literatures from several perspectives. First, by performing pool ability tests on the effect of CBI on domestic currency, this study showed that the pooling assumption in the panel data did not hold, and hence the model was biased. Second, we performed a mean-group estimation to the panel VAR as a solution to heterogeneity problem. Third, by dividing the sample countries into three poolable sub-groups, the results showed that CBI produced appreciation of the exchange rate for group 1 but depreciation of the exchange rate for group 2. For group 3, CBI strengthened the exchange rate after 6 quarters of the shock.

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Section: Full Sample Countries Panel Varsupporting

confidence: 93%

“…Thus, the exchange rate influences imported goods prices in domestic market and domestic goods in foreign markets. Consequently, changes in the exchange rate may lead to a significant effect on domestic inflation, particularly in small open countries, affecting public consumption and investment (Kandil, 2015).…”

Section: Introductionmentioning

confidence: 99%

Legal independent central bank and exchange rate

2022

KJSS

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“…However, when the effect of export sales is more pronounced, it can augment the cost of imported inputs. All things being equal, appreciation of the local currency, should have a positive effect on domestic investment, because it reduces the cost of imported inputs (Kandil, 2015), on the contrary appreciation of the currency can also reduce export sales because export becomes more expensive on the international market (Kwasi Obeng, 2018). With these two contrasting effects, the more dominant of the two effects will prevail and its effect will be felt on the domestic investment.…”

Section: Cointegration Analysismentioning

confidence: 99%

Exchange Rate Fluctuations and Domestic Investment: Evidence From Ghana

Baah

2024

EJEFR

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Exchange rate fluctuation is one of the critical determinants of domestic investment in Ghana. Though exchange rate fluctuations can have an asymmetric effect on domestic investment, other studies assumed a symmetric relationship between these variables. Using annual data from the period of 1980-2017, the Linear Autoregressive Distributed Lag Model (ARDL) and Non-linear Autoregressive Distributed Lag model (NARDL) was used to investigate the symmetric and asymmetric effect of exchange rate fluctuation on domestic investment by creating two new variables to substitute exchange rate fluctuations (appreciation and depreciation variables). From the first objective, fluctuation in the rate exchange was found to harm domestic investment. The second objective confirmed the asymmetric effect of exchange rate fluctuations on domestic investment. Income had a positive effect on domestic investment which affirms the assertion of the accelerator theory of investment. The other explanatory variables included in the study, foreign direct investment and interest rate differential were found to be detrimental to domestic investment while domestic credit to the private sector had a positive effect on domestic investment. The study recommends that the Bank of Ghana should put in place long-lasting, effective, and efficient measures to stabilise the exchange rate.JEL: F31, F41, E22, E44, E51, E52, E58 Article visualizations:<img src="/-counters-/soc/0757/a.php" alt="Hit counter" />

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“…Most developing countries rely heavily on foreign goods; the significant increase in imports that has followed trade openness has often resulted in an increasing inflationary pressure in these countries (Benigno & Faia, 2016;Daniels & VanHoose, 2006;Ghosh, 2014). Furthermore, it is usually the nominal devaluation that is accompanied by an increase in import prices which in turn lead to an increase in production costs (Kandil, 2015;Van Wijnbergen, 1989), thus raising the general price level and strengthening inflationary pressures (Lian, Gil, & Ren, 2014). A number of studies put forward some prerequisite conditions for the success of a nominal devaluation-among these conditions, the extent to which it will lead to a real devaluation (Bahmani-Oskooee & Kandil, 2007).…”

Section: Introductionmentioning

confidence: 99%

Comparing the Relationship Between Nominal and Real Effective Exchange Rates During the Last Two Devaluations in Algeria

Boubellouta

Shahbaz

2019

Global Business Review

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This article examines the impact of nominal effective exchange rate on real effective exchange rate in Algeria, using autoregressive distributed lag bounds test approach with monthly time series data from 2008 to 2017. Empirical results suggest that the nominal devaluation leads to real devaluation not only in the long run but also in the short run in Algeria for both devaluations. But all coefficients estimated for the second devaluation are low compared to the first devaluation. Our analysis shows that reducing the import through devaluation of the dinar led to a significant increase in import prices. However, the present study shows that taking into account all of the structural problems of the Algerian economy, the devaluation of the dinar may lead to more severe inflation than anticipated by the Algerian government.

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On the benefits of nominal appreciations: Contrasting evidence across developed and developing countries

Cited by 5 publications

References 35 publications

Legal independent central bank and exchange rate

Legal independent central bank and exchange rate

Exchange Rate Fluctuations and Domestic Investment: Evidence From Ghana

Comparing the Relationship Between Nominal and Real Effective Exchange Rates During the Last Two Devaluations in Algeria

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