Sovereign Risk, Net Foreign Assets and Exchange Rate Dynamics in Developing Economies

2007 ◽  
Author(s):  
Dionísio Dias Carneiro ◽  
Thomas Wu
Keyword(s):  
Exchange Rate ◽  
Developing Economies ◽  
Sovereign Risk ◽  
Net Foreign Assets ◽  
Exchange Rate Dynamics ◽  
Foreign Assets

scholarly journals Net foreign assets and the exchange rate: Redux revived

2002 ◽  
Vol 49 (5) ◽  
pp. 1057-1097 ◽  
Author(s):  
Michele Cavallo ◽  
Fabio Ghironi
Keyword(s):  
Exchange Rate ◽  
Net Foreign Assets ◽  
The Exchange Rate ◽  
Foreign Assets

scholarly journals Test of Monetary Approach to Balance of Payments in West Africa Monetary Zone

2020 ◽  
Vol 4 (1) ◽  
pp. 9-17
Author(s):  
Foluso Ololade Oluwole ◽  
John Adebayo Oloyede
Keyword(s):  
Exchange Rate ◽  
West Africa ◽  
Positive Relationship ◽  
Positive Impact ◽  
Negative Relationship ◽  
Rate System ◽  
Net Foreign Assets ◽  
Monetary Approach ◽  
Domestic Credit ◽  
Foreign Assets

This research tested the monetary approach to Balance of Payment in developing countries of West Africa in order to affirm whether the specified relationship in the approach depicts correctly the actual behaviour of the economies. Time series and cross-sectional data that ranges from 1970 – 2016 were used. The empirical results of the fixed effect model established a significant positive relationship between net domestic credit, interest rate and exports; an insignificant positive relationship between capital movements, imports, income and the dependent variable. Exchange rate, however, had a significant negative relationship with the net foreign assets, while inflation had an insignificant but negative relationship with net foreign assets. The pairwise causality tests indicated a unidirectional relationship between exchange rate, net domestic credit and net foreign assets while the other variables move independently and cannot granger cause net foreign assets. Hence, the study concludes that the Polak model is valid in the West Africa Monetary Zone despite the fact that they are no more operating a fixed exchange rate system. The study suggests that the attention of the monetary authorities and the governments should not only be on decreasing the money supply in the economy, since an increase in net domestic credits has a positive impact on the net foreign assets provided it is channeled towards domestic production.

scholarly journals Determinants of the Real Equilibrium Exchange Rate in Albania: An Estimation Based on the Co-Integration Approach

2019 ◽  
Vol 8 (1) ◽  
pp. 84-94
Author(s):  
Natasha Ahmetaj ◽  
Merita Bejtja
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Exchange Rate Regime ◽  
Nominal Exchange Rate ◽  
Equilibrium Exchange Rate ◽  
Net Foreign Assets ◽  
The Real ◽  
Long Run ◽  
Equilibrium Exchange ◽  
Foreign Assets

Problem/Relevance: Investigation of exchange rate behaviour has been an important topic in international monetary economics because of the impact of exchange rates on economies. One strand of the literature has focused on explaining the observed movement of the nominal or real exchange rate in terms of macroeconomic variables. Another strand of the literature has evaluated the behaviour of the real exchange rates in relation to the equilibrium exchange rate, which is the real exchange rate that is consistent with macroeconomic balances. Albania implements a free floating exchange rate regime; therefore, evaluating whether the actual real exchange rate is too strong or too weak compared with the real equilibrium exchanges rate has great relevance for the Albanian economy. Research Objective/Questions: Generally, the real exchange rate is defined as the nominal exchange rate adjusted for the relative price differential between domestic and foreign goods and services. So, an appreciation of the nominal exchange rate or higher inflation at home relative to other countries may lead to an appreciation of the real exchange rate. Such appreciation weakens the competitiveness of a country, widens the current account deficit and increases vulnerability to financial crises. The opposite holds true when the real exchange rate depreciates. The aim of this paper is, first, to estimate the equilibrium real exchange rate for the Albanian currency against the euro and, second, to assess the total exchange rate misalignment during the period of 2001Q1-2017Q1. Thus, the equilibrium real exchange rate is used as a benchmark for evaluating the misalignment of the actual real exchange rate. Methodology: This paper explores the determinants of the real exchange rate for Albania, during the period of 2001Q1-2017Q1, based on the stock-flow approach, the so called Behavioural Equilibrium Exchange Rate (BEER), which effectively employs reduced-form modelling of the exchange rate based on standard co-integration techniques. The stock of net foreign assets and productivity changes has been considered fundamental for the real exchange rate. We have used the Johansen co integration technique to test the existence of long-run relationships between our main variables and to evaluate the path of the equilibrium real exchange rate based on vector error correction model (VECM) results. Then the analysis is completed by calculating the degree of misalignment as the difference between the actual real exchange rate and the equilibrium real exchange rate. Major Findings: Based on the Johansen co-integration approach, we find one long-run relationship between the real exchange rate of the Albanian lek against the euro, relative productivity and net foreign assets during the period of 2001Q1 to 2017Q1. The model implies that the real exchange rate is affected, as we expected, by relative productivity and net foreign assets, confirming that an increase in both variables leads to an appreciation of the real exchange rate in the long run. Our results show that the behaviour of the actual real exchange rate is similar to the path of the equilibrium exchange rate and that the degree of misalignment throughout the period is estimated to be moderate. Implications: Our empirical results confirm that the degree of misalignment is reasonable, suggesting a consistency between macroeconomic (especially monetary) policies and the free floating exchange rate regime. Assessing real exchange rate misalignment is a very important issue for policy makers because of the severe welfare and efficiency costs that such misalignment can have for an economy.

scholarly journals APLIKASI PENDEKATAN KESEIMBANGAN PORTOFOLIO TERHADAP NILAI TUKAR RUPIAH/DOLLAR AMERIKA

2012 ◽  
Vol 1 (1) ◽  
pp. 1
Author(s):  
Nurbetty Herlina Sitorus
Keyword(s):  
Exchange Rate ◽  
Balance Model ◽  
Rate System ◽  
Net Foreign Assets ◽  
Portfolio Balance ◽  
Balance Approach ◽  
Floating Exchange Rate ◽  
Exchange Rate System ◽  
The Exchange Rate ◽  
Foreign Assets

Since the adoption of freely floating exchange rate system, the rupiah against the U.S. dollar continues to fluctuate. This has stimulated research on the instability of the rupiah and the factors that influence it. This study aims to analyze the variables that affect the exchange rate using the  portfolio balance approach. The portfolio balance approach is an extension of the monetary theory by incorporating a combination of assets other than domestic currency. The results  of the portfolio balance approach shows some variables that affect the exchange rate are Indonesia’s money supply (broad money), Indonesia’s net foreign assets and United States’ net foreign assets. It was also found that the speed of adjustment of the portfolio balance approach is 60,56. From this finding, it can shows that the portfolio balance model can be a good reference for explaining the movements of Indonesian Rupiah – US dollar exchange rate.

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