Impact of exchange rate volatility on economic growth pdf

So ordinary least squares method is applied to check the relation between dependent. A fixed exchange rate, sometimes called a pegged exchange rate, is a type of exchange rate regime in which a currencys value is fixed or pegged by a monetary authority against the value of another currency, a basket of other currencies, or another measure of value, such as gold. Economic theory shows how foreign currency exchange rate movements can help negate the direct cost impact of tariffs on a countrys businesses but potentially create different problems for that countrys exporters. Augmented dickey fuller adf test is applied to check the stationary of variables. New theories emphasize the high correlation between economic growth and innovation. Banks finance economic aspects economic growth foreign exchange prices and rates foreign exchange rates. On the causes and effect of exchange rate volatility on. Exchange rate regimes and economic performance eduardo levyyeyati and federico sturzenegger this paper studies the impact of exchange rate regimes on inflation, nominal money growth, real interest rates, and gdp growth. Exchange rate volatility and trade flows some new evidence.

This paper investigates the impact of inflation, nominal exchange rate, fdi and capital stock on economic growth of pakistan by using time series data for the period of 19752011. Pdf the effect of exchange rate on economic growth. The relationship between exchange rate volatility and. This paper examines the impact of real exchange rate volatility on economic growth in kenyan. Even though our focus on exchange rate volatility and growth is novel, we carefully examine the related exchange rate literature and show that it can be fully reconciled with our results. The empirical analysis starts by analyzing the time series properties of the data which is followed by examining the nature of causality among the variables. The aim of this article is to assess the role of real exchange rate rer volatility on longrun economic growth for a set of 82 advanced and emerging economies, using a panel data set ranging from 1970 to 2009.

Effect of exchange rate fluctuations on manufacturing. The impact of real exchange rate volatility on economic. The effect of exchange rate volatility on economic growth. Exchange rate volatility in pakistan and its impact on selected macro economic variables 19802014. The results in this paper suggest that home and us economic policy uncertainty directly increase exchange rate volatility for some of the currencies examined. Complete report in english official version of document may contain signatures, etc official pdf, 24 pages 0. The study employed the generalized autoregressive condition of heteroscedasticity garch and computation of the unconditional standard deviation of the changes to measure volatility and generalized method moments gmm to assess the impact of the real exchange rate volatility on. To check of the existence of autocorrelation in validating the estimability of economic indicators parameters. Between 2002 and 20, peru was one of the fastestgrowing countries in latin america, with an average gdp growth rate of 6.

The overall aim of this study was to examine the impact of exchange rate volatility on the performance of kenya. The effect of exchange rate fluctuations on economic growth varies in different countries. Financial variables contained in the index account for exchange rate stability and international liquidity among others. With an accurate measure for exchange rate volatility. Exchange rate volatility can affect economic growth in different ways such as. A currency that uses a floating exchange rate is known as a floating currency. The peruvian economy has experienced two distinct phases of economic development since the turn of the century. The impact of interest rate and exchange rate volatility. This paper scrutinizes theoretically and empirically the impact of exchange rate stability on economic growth for this region.

The impact of exchange rate volatility on foreign direct investment in iran article pdf available in procedia economics and finance 1. This study contributes to understanding the role of financial development on economic growth theoretically and empirically. Pdf exchange rate volatility and economic growth researchgate. Therefore the main objective of the study was to identify the effect of exchange rate volatility on economic growth in kenya. Consumption insurance over the business cycle tobias broer. This paper seeks to assess the impact of oil price shock and real exchange rate volatility on real economic growth in nigeria on the basis of quarterly data from 1986q1 to 2007q4. The effects of exchange rate volatility on economic growth in iran. This paper examines the impact of exchange rate volatility on economic growth. Some new evidence for regional asean countries by norimah ramli aand jan. Section 3 outlines the empirical strategy and model specifications while section 4 presents the empirical results. An empirical investigation based on a sample of 45. We find that, for nonindustrial economies, long pegs lasting five or more years are associated with lower. Exchange rate volatility and economic growth in ghana. Impact of exchange rate movements, global economic.

Impact of oil prices and exchange rate volatility on economic growth has been significant. Podivinskyb a lecturer, university of education sultan idris, tanjong malim, malaysia b senior lecturer, university of southampton, united kingdom currently, is a phd student in university of southampton, united kingdom. Growth volatility in belize english the world bank. This study also tests the hypothesis that economic openness decreases zar volatility. The impact of exchange rate fluctuations on private domestic investment performance. From our estimation results, the conclusion drawn was that exchange rate volatility exerted significant negative effect on economic growth during the period both in. This paper seeks to identify the impact of exchange rate volatility and oil prices fluctuations on economic growth in france based on annual data for fourty years. The pandemic is having a noticeable impact on global economic growth. Pdf the impact of exchange rate volatility on the nigerian. Impact of exchange rate volatility on growth and economic performance. International trade and exchange rate international trade volume data indicates developing countries play a bigger role in holding back trade growth, while developed countries show quite robust import growth. The impact of interest rate and exchange rate changes on banks stock returns has been of major interest to bank managers, regulatory authorities, academic communities and investors, since the failure of numerous banks has been especially attributed to the adverse impacts of fluctuations in interest rates and exchange rates. The aim of this article is to assess the role of real effective exchange rate volatility on longrun economic growth for a set of 82 advanced and emerging economies using a panel data set ranging from 1970 to 2009.

Energy markets and global economic conditions christiane baumeister, dimitris korobilis, thomas k. Measuring economic policy uncertainty the quarterly. Mori, asid, lily, mulok, and loganathan 2012 examined the impact of exchange rates on economic growth. Impact of exchange rate movements, global economic activity. Exchange rate volatility in pakistan and its impact on. The emerging market and developing economy group is expected to grow at 4. In the theoretical part of the paper, by developing a solowswan growth model augmented with financial markets in the tradition of wu, hou, and cheng 2010, we show that debt from credit markets and equity from stock markets are two long run determinants of gdp per capita.

The effects of exchange rate volatility on exports. Comparative advantage in nonroutine production liza archanskaia, johannes van biesebroeck, gerald willmann. Congressional research service summary the march 11, 2011, earthquake and tsunami that occurred in japan followed by the nuclear crisis are having a large negative impact on the economy of japan but a lesser effect on world trade and financial markets. Shehu 2009, assessed the impact of oil price shock and real exchange rate volatility on real economic growth in nigeria on the basis of quarterly data from 1986q1 to. Exchange rate and economic growth in pakistan 19752011. With an accurate measure for exchange rate volatility, the results for the twostep system generalized method of moments gmm panel growth models show that a more less volatile. Few studies investigate the determinants of zar volatility. The empirical analysis starts by analyzing the time series properties. The categoryspecific epu variables do not have statistically significant. The real exchange rate and economic growth abstract i show that undervaluation of the currency a high real exchange rate stimulates economic growth. First an analytical framework is developed to identify the. The impact of exchange rate fluctuations on private. Impact of oil price shock and exchange rate volatility on.

On the causes and effects of exchange rate volatility on economic. Pdf the impact of exchange rate volatility on foreign. What drives exchange rate volatility, and what are the effects of excessive fluctuations in the exchange rate on economic growth in ghana. There appears to be no theoretical or empirical consensus on the effect of exchange rate volatility on economic growth. It can be said that one of the factors determining the way exchange rate fluctuations affect economic growth is the development level of each countrys financial markets. To examine the impact of exchange rate volatility on nigeria economy growth. While anecdotally the volatility of exchange rate has been linked to macroeconomic instability, very little attempt has been made to examine the factors behind it and the impact it has for both internal and external stability.

Evaluation of changes in the exchange rate on business. Does lower exchange rate volatility influence economic growth. The argument is well known and is made forcefully by woodford 2008 in his discussion of rodrik 2008. The effects of exchange rate volatility on economic growth of west. Exchange rate volatility and economic growth journal of. If there is a depreciation in the value of the pound, the impact depends on the elasticity of demand. Because movements in exchange rates impact the success. Mar, 2020 since the covid19 outbreak was first diagnosed, it has spread to over 150 countries and all u. This depicts a high degree of volatility in the exchange rate during the period under investigation. One argument in defense of ols regressions of economic growth on the real exchange rate is that the direction of the possible reverse causality, i. Thus, this study aimed at examining the impact of exchange rate volatility on economic growth in nigeria.

The knowledge of the impact of such volatility of exchange rate will facilitate in the determination of an exchange rate regime that favors tea exports and by extension increase foreign exchange earnings. The objectives of this study were to examine the impact of exchange rate on economic growth in nigeria, to examine the impact of exchange rate on financial sector. Brooksthe impact of exchange rate volatility on germanus trade flows. Pdf this study analyzes the effect of the nominal exchange rate, inflation, capital stock and foreign direct investment on economic growth in. Exchange rate volatility can also have indirect effects on economic growth through its impact on the key determinants of the economic activity. The impact of exchange rate volatility on international. The effect of rmb exchange rate volatility on import and. That is, more open economies should have less exchange rate volatility. Pdf impact of exchange rate volatility on growth and. Estimates so far indicate the virus could trim global economic growth by at least 0. The study is among few studies in developing countries and africa that have examined the impact of exchange rate volatility on economic growth.

Pdf this paper examines the impact of exchange rate volatility on economic growth. At the present time, new members of the eu are trying to achieve this stability. The aim of this paper is to analyze this effect for south korea. Using secondary time series data for the period 1980 to 2012, the study employed ols estimation method to identify the effect of exchange rate volatility on gdp growth rate. A floating exchange rate also called a fluctuating or flexible exchange rate is a type of exchange rate regime in which a currencys value is allowed to fluctuate in response to foreign exchange market events. The impact of real exchange rate volatility on economic growth.

The paper employed time sequence data from 1971 to. The effect of exchange rate volatility on growth has become a major source. Despite the best efforts of economists, a basic paradox as to the impact of exchange rate volatility on trade flows remains unresolved at both the theoretical and. The risk of dutch disease can also be addressed by other national policy measures, such as by enhancing linkages from commodity. This paper not only empirically investigates the impact of the exchange rate, but also it examines the impact of exchange rate volatility on the economic growth because countrys growth is highly influenced by exchange rate volatility. The determinants of exchange rate volatility in south africa. An empirical investigation based on a sample of 45 developing and emerging countries over the period of 19852015 is. Abstract the study explores the impact of exchange rate on economic growth in nigeria. The impact of exchange rates on economic growth via capital markets has both a shortterm microeconomic and a long term macroeconomic dimension. Pdf the effect of exchange rates on economic growth. The findings suggest that, the depreciation of the currency and interest. From a longerterm perspective, however, global trade volume has not deviated much from its longterm trend.

Economic policy uncertainty and exchange rate volatility. There are benefits and risks to using a fixed exchange rate system. Cointegration technique is applied to check exchange rate volatility has been significant. Figure 3 summarizes the scores for countries for the governance risk relative to the united states. This paper investigates the impact of general economic and economic policy uncertainty on exchange rate volatility for ten industrial and emerging economies since 1990. Trade openness, ordinary least square, growth rate, exchange rate volatility. In fact, provisional gdp growth rate for 2014 is estimated at 6. The data used were sourced from the cbn statistical bulletin for the period.

This paper studies the effects of exchange rate volatility on economic growth by applying. It is also concluded that exchange rate volatility positively affects gdp, growth rate and trade openness and negatively affects the fdi. Effect of exchange rate volatility on nigeria economy. How tariffs affect foreign currency exchange rates and. The impact of volatility on economic growth aurelijus dabusinskas, dmitry kulikov and martti randveer abstract this paper investigates the impact of macroeconomic volatility on growth in a panel of 121 countries over the period 1980 to 2010.

Effects of exchange rate movements on economic growth in. Events homepage centre for economic policy research. Through the adf stationary test, the cointegration test, and the. This paper investigates the effect of nominal rmb exchange rate volatility on economic growth in china from 1981 to 2012. Effects of exchange rate fluctuations on economic growth.

We discuss the implications of the long and short run determinants of exchange rate volatility and the volatility growth nexus. The effect of the exchange rate on business depends on several factors. Effect of the exchange rate on business economics help. The main focus of this paper is to examine the impact of the real effective exchange rate on economic growth in sierra leone. Theoretical evidence concerning the impact of exchange rate stability on growth is mixed.