Threshold effects of openness on real and nominal effective exchange rates in emerging and developing economies

Keefe, Helena Glebocki; Saha, Sujata

doi:10.1111/twec.13212

Cited by 4 publications

(2 citation statements)

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“…In other words, the more liberalized a country’s capital account is, the less the pressure global shocks would impose on the foreign exchange rates. Besides, Keefe and Saha ( 2022 ) show financial openness–proxied by the KOF globalization index–can partially absorb the impact of domestic shocks, such as shocks to inflation, interest rate differentials, and government debt. Their threshold model regressions reveal that in less open economies, macro variables elicit larger responses in the real exchange rates; in highly open economies, such responses are negligible, if not nonexistent.…”

Section: Theoretical Underpinningsmentioning

confidence: 99%

Openness and Real Exchange Rate Volatility: Evidence from China

Yang

Peng

2023

Open Econ Rev

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In recent years, China has introduced a series of trade and financial liberalization policies and taken a crucial step towards the internationalization of RMB. These new developments bring about one question: how has openness affected the RMB real exchange rate volatility? Our empirical results reveal that in the long term, both trade and financial openness reduce exchange rate volatility; in the short term, the effect of financial openness varies across the three financial sub-accounts. Financial development can magnify (mitigate) the impact of trade openness on volatility in the short (long) term, but its role in affecting the impact of financial openness depends on the financial sub-account involved. Economic policy uncertainty (EPU) weakens the impact of openness on exchange rate volatility. In addition, financial openness absorbs more external shocks than trade openness. Foreign exchange reserves, while offsetting financial crisis shocks, cannot adequately absorb current account balance shocks.

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Section: Theoretical Underpinningsmentioning

confidence: 99%

Openness and Real Exchange Rate Volatility: Evidence from China

Yang

Peng

2023

Open Econ Rev

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“…The authors found particularly trade openness to be connected with economic growth and exchange rates. In a related study the direct and indirect effects of the degree of openness in emerging and developing economies on exchange rate movements are shown by Keefe and Saha (2022). Another factor is revealed by the study Chen et al (2020), where the authors determined the impact of economic policy uncertainty on exchange rates.…”

Section: Introductionmentioning

confidence: 95%

Domestic and Global Causes for Exchange Rate Volatility: Evidence From Turkey

Ozkaya,

Altun

2024

Sage Open

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Understanding which factors influence exchange rate movements is important for understanding economic development, trade patterns, investment decisions, and for designing economic policies. In this study, we allow for monetary, domestic and global financial variables to assess the relevant importance of each of the variables to exchange rate volatility in the case of Turkey. The paper investigates the dynamics of exchange rate volatility of the Turkish lira in a complementary perspective by employing both Generalized autoregressive conditional heteroskedasticity (GARCH) method and Lyapunov exponents over the period from March 1, 2019 to November 11, 2021. Firstly, decomposing the impact of domestic and global financial variables, the results of the GARCH model indicate that the exchange rate volatility is affected by Volatility index (VIX) and Credit default swaps (CDS). This result suggests that the exchange rate shocks experienced are mainly caused by global factors, therefore policymakers should focus on volatility spillovers caused by global financial markets. Secondly, detected positive maximal Lyapunov exponent shows that complexity in foreign exchange markets has been increased, market expectations lead to multiple-equilibria and diverging volatility eventually will generate recurrent spikes in currency value. These complementary findings have important implications for interventions of Central banks and preventing systemic risks, as well as portfolio and risk management. JEL Classification: C32, G14, G15.

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Fiscal policy and real exchange rate variations in India

Maitra,

Ganguli

2024

Eurasian Econ Rev

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Threshold effects of openness on real and nominal effective exchange rates in emerging and developing economies

Cited by 4 publications

References 60 publications

Openness and Real Exchange Rate Volatility: Evidence from China

Openness and Real Exchange Rate Volatility: Evidence from China

Domestic and Global Causes for Exchange Rate Volatility: Evidence From Turkey

Fiscal policy and real exchange rate variations in India

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