Fiscal policy and exchange rate dynamics with positive and negative net foreign asset position

2003 ◽  
Author(s):  
E. Karakitsos
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Foreign Asset ◽  
Exchange Rate Dynamics ◽  
Net Foreign Asset

scholarly journals Policy lags and exchange rate dynamics in Nigeria: Any evidence?

2020 ◽  
Vol 18 (1) ◽  
pp. 1-12
Author(s):  
Ayinde Taofeek Olusola
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Fiscal Policy ◽  
Exchange Rate Regime ◽  
National Bureau ◽  
Exchange Rate Dynamics ◽  
Exchange Rate Fluctuations ◽  
Fiscal Dominance ◽  
Switching Dynamic ◽  
Adjustment Variable

The study investigates policy lags and exchange rate dynamics in Nigeria. The downswing in the Nigerian economy attributed to recurring exchange rate fluctuations justifies this empirical investigation. The period of investigation spans 1970 – 2016 and the data were obtained from the various issues of the Central Bank of Nigeria (CBN) Statistical Bulletin and the Annual Statistics of the National Bureau of Statistics (NBS). Anchored on the monetary theory of exchange rate, the Markov-Switching Dynamic Regression (MSDR) was employed as the technique of analysis. The findings show that the supply of broad money in Nigeria is endogenous in nature as it serves as the adjustment variable for the stabilization of exchange rate in the economy. Also, the results obtained indicated that changes in the exchange rate affect the overall government income and that the Nigerian economy is still foreign dependent. An expansionary monetary policy takes three (3) years to stabilize exchange rate in Nigeria while an expansionary fiscal policy only takes one and a half (11/2) years. By implication, monetary policy is half-effective as the fiscal policy. Besides, there is evidence of fiscal dominance in Nigeria. The study found two exchange regimes of fixed- and managed-float. More so, fixed exchange rate regime in Nigeria was just not persistent but that the probability of transiting to a managed-float regime was relatively lower.

Exchange Rate Dynamics, Endogenous Risk Premium and the Balance Sheet Effect: An Effective Demand Model

2018 ◽  
Vol 7 (2) ◽  
pp. 212-239
Author(s):  
Moumita Basu ◽  
Jonaki Sengupta ◽  
Ranjanendra Narayan Nag
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Risk Premium ◽  
Balance Sheet ◽  
Endogenous Risk ◽  
Exchange Rate Dynamics ◽  
Tariff Liberalization ◽  
Foreign Bonds ◽  
Exchange Rate Depreciation

This article describes a macroeconomic framework for analysing the interaction between output, domestic interest rate and exchange rate in the presence of the endogenous risk premium and balance sheet effect of exchange rate depreciation on investment demand. Output is demand determined. There are three assets: money, domestic bonds and foreign bonds. Domestic bonds and foreign bonds are not perfect substitutes due to the presence of risk premium. The endogenous risk premium depends on certain macroeconomic fundamentals, namely budget deficit and current account balance. Using this framework, we will examine implications of monetary policy, fiscal policy, tariff liberalization and global interest rate hike for exchange rate dynamics and output. The balance sheet effect and the risk premium together explain how an expansionary fiscal policy may generate recession, while tariff liberalization may produce favourable macroeconomic outcomes. Moreover, the model shows that an increase in world interest rate may have contractionary effect on the domestic output level due to the presence of the balance sheet effect of exchange rate depreciation. JEL Classification: E27, E63, F13, F32

scholarly journals Bond Convenience Yields and Exchange Rate Dynamics

2020 ◽  
Vol 12 (2) ◽  
pp. 124-166 ◽  
Author(s):  
Rosen Valchev
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Impulse Response ◽  
Direct Evidence ◽  
Uncovered Interest Parity ◽  
Convenience Yield ◽  
Endogenous Fluctuations ◽  
Exchange Rate Dynamics ◽  
Interest Parity ◽  
Monetary And Fiscal Policy

This paper proposes a new explanation for the failure of Uncovered Interest Parity (UIP) that rationalizes both the classic UIP puzzle and the evidence that the puzzle reverses direction at longer horizons. In the model, excess currency returns arise as compensation for endogenous fluctuations in bond convenience yield differentials. Due to the interaction of monetary and fiscal policy, the impulse response of the equilibrium convenience yield is nonmonotonic, which generates the reversal of the puzzle. The calibrated model fits exchange rate dynamics very well. I also find direct evidence linking convenience yields to excess currency returns. (JEL E43, E52, F31, F41, H63)

scholarly journals Financial Exchange Rates and International Currency Exposures

2010 ◽  
Vol 100 (1) ◽  
pp. 518-540 ◽  
Author(s):  
Philip R Lane ◽  
Jay C Shambaugh
Keyword(s):  
Developing Countries ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Currency ◽  
Explanatory Power ◽  
Financial Impact ◽  
Foreign Asset ◽  
International Currency ◽  
Large Panel ◽  
Net Foreign Asset

In order to gain a better empirical understanding of the international financial implications of currency movements, we construct a database of international currency exposures for a large panel of countries over 1990-2004. We show that trade-weighted exchange rate indices are insufficient to understand the financial impact of currency movements and that our currency measures have high explanatory power for the valuation term in net foreign asset dynamics. Exchange rate valuation shocks are sizable, not quickly reversed, and may entail substantial wealth redistributions. Further, we show that many developing countries have substantially reduced their negative foreign currency positions over the last decade. (F31, F32, G15)

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