scholarly journals The Exchange Rate Volatility in Indonesia and Policy Response

2014 ◽  
Author(s):  
Ferry Syarifuddin
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rates ◽  
Interest Rates ◽  
Foreign Exchange ◽  
Exchange Rate Volatility ◽  
Commodity Prices ◽  
Policy Response ◽  
Long Run ◽  
The Exchange Rate

High fluctuation of exchange rate in short horizon is obviously making economic activity more risky as uncertainty rises. Moreover, volatile exchange rates also make commodity prices, interest rates and a host of other variables more volatile as well. Although changes in long-run exchange rates tend to undergo relatively gradual shifts, in the shorter horizon, the exchange rate might be very volatile. Then there should be a systematic and measured policy to mitigate the foreign exchange fluctuations and to minimize the fluctuations as well as to drive it to its fundamental value. In this part, USD/IDR volatility is investigated using GARCH approach. The results reveal that, USD/IDR volatility in Indonesia is persistent. On the other hand, the following studies also present the outcomes of effectiveness of policy response by the Central Bank. Foreign-exchange sale interventions by the Central Bank lead conditional volatility of the USD/IDR to decrease slightly.

scholarly journals Modeling Sources of Asymmetry in the Volatility of the Moroccan Dirham Exchange Rate

2021 ◽  
Vol 8 (4) ◽  
pp. 31
Author(s):  
KHATTAB Ahmed ◽  
SALMI Yahya
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Selection Criterion ◽  
Econometric Models ◽  
Interbank Market ◽  
Foreign Exchange Reserves ◽  
Central Bank Intervention ◽  
The Exchange Rate

The main objective of this paper is to study the sources of asymmetry in the volatility of the bilateral exchange rates of the Moroccan dirham (MAD), against the EUR and the USD using the asymmetric econometric models of the ARCH-GARCH family. An empirical analysis was conducted on daily central bank data from March 2003 to March 2021, with a sample size of 4575 observations. Central bank intervention in the foreign exchange (interbank) market was found to affect the asymmetry in the volatility of the bilateral EUR/MAD and USD/MAD exchange rates. Specifically, sales of foreign exchange reserves by the monetary authority cause a fall in the exchange rate, which means that the market response to shocks is asymmetric. Finally, the selection criterion (AIC) allowed us to conclude that the asymmetric model AR(1)-TGARCH(1,1) is adequate for modeling the volatility of the exchange rate of the Moroccan dirham.

scholarly journals The Dynamics of The Rupiah Exchange Rate in 2017-2020

2020 ◽  
Vol 5 (2) ◽  
pp. 1
Author(s):  
Muhammad Arief Aldila Susanto ◽  
Rr. Retno Retno Sugiharti
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Money Supply ◽  
Foreign Exchange ◽  
Time Series Data ◽  
Series Data ◽  
Foreign Exchange Reserves ◽  
Long Run ◽  
Short Run ◽  
The Exchange Rate

<p align="justify">The exchange rate is one of the most important indicators in the economy. Moreover, with the increasing intensity of trade between countries, commonly referred to as international trade, this economic indicator becomes important for every country, including Indonesia. The change in the Indonesian exchange rate system to a free-floating system has made the exchange rate fluctuations more dynamic. The fluctuations are influenced by various factors, both internal and external. This study aims to determine the effect of the money supply (M<sub>2</sub>), foreign exchange reserves, SBI interest rates and world crude oil prices on the rupiah/dollar exchange rate in 2017-2020 both in the short run and in the long run. The data used is monthly time series data from 2017-2020. The analytical method used in this study is the Error Correction Model (ECM). The results in this study indicate that in the short run and long run the money supply and foreign exchange reserves variables have a significant effect on the rupiah exchange rate in 2017-2020.</p>

scholarly journals A Theory of Foreign Exchange Interventions

2021 ◽  
Author(s):  
Sebastián Fanelli ◽  
Ludwig Straub
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Open Economy ◽  
Small Open Economy ◽  
Bond Markets ◽  
Pecuniary Externality ◽  
Optimal Intervention ◽  
The Exchange Rate ◽  
Intervention Policy

Abstract We study a real small open economy with two key ingredients (1) partial segmentation of home and foreign bond markets and (2) a pecuniary externality that makes the real exchange rate excessively volatile in response to capital flows. Partial segmentation implies that, by intervening in the bond markets, the central bank can affect the exchange rate and the spread between home- and foreign-bond yields. Such interventions allow the central bank to address the pecuniary externality, but they are also costly, as foreigners make carry trade profits. We analytically characterize the optimal intervention policy that solves this trade-off: (1) the optimal policy leans against the wind, stabilizing the exchange rate; (2) it involves smooth spreads but allows exchange rates to jump; (3) it partly relies on “forward guidance,” with non-zero interventions even after the shock has subsided; (4) it requires credibility, in that central banks do not intervene without commitment. Finally, we shed light on the global consequences of widespread interventions, using a multi-country extension of our model. We find that, left to themselves, countries over-accumulate reserves, reducing welfare and leading to inefficiently low world interest rates.

scholarly journals An Interpretation of Recent Research on Exchange Rate Target Zones

1992 ◽  
Vol 6 (4) ◽  
pp. 119-144 ◽  
Author(s):  
Lars E. O Svensson
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rates ◽  
Interest Rates ◽  
Empirical Research ◽  
Target Zones ◽  
The Difference ◽  
Exchange Rate Target Zones ◽  
Main Ideas ◽  
Central Bank Interventions

How do exchange rate bands work compared to completely fixed rates (between realignments); or, more precisely, what are the dynamics of exchange rates, interest rates, and central bank interventions within exchange rate bands? Does the difference between bands and completely fixed exchange rates matter, and if so, which of the two arrangements is best; or, more precisely, what are the tradeoffs that determine the optimal bandwidth? This article will present an interpretation of some selected recent theoretical and empirical research on exchange rate target zones, with emphasis on main ideas and results and without technical detail.

scholarly journals Are the Responses of Sectoral Energy Imports Asymmetric to Exchange Rate Volatilities in Pakistan? Evidence From Recent Foreign Exchange Regime

2021 ◽  
Vol 9 ◽  
Author(s):  
Abdul Saqib ◽  
Tze-Haw Chan ◽  
Alexey Mikhaylov ◽  
Hooi Hooi Lean
Keyword(s):  
Exchange Rate ◽  
Crude Oil ◽  
Foreign Exchange ◽  
Exchange Rate Volatility ◽  
Asymmetric Effects ◽  
Unit Root Testing ◽  
Long Run ◽  
Short Run ◽  
Bound Test

Growing energy demand but stagnant production followed by volatile exchange rate leads Pakistan to energy imbalances and potential economic contraction. Yet, studies on sectoral energy imports are limited and inconclusive without accessing the asymmetric effect of currency fluctuations. We examine the impacts of Pakistani rupee volatility on monthly energy imports based on the nonlinear autoregressive distributed lag (NARDL) estimations. Augmented Dickey–Fuller and Phillips–Perron tests were used to conduct unit root testing, and the bound testing approach was used to examine the long-term cointegration. The long-run asymmetry was tested with the Wald test, and using the NARDL model, we examined both short-run and long-run asymmetric effects of exchange rate volatility on energy imports. The bound test was established and supported through ECMt−1 (t-test), cointegrating the relationship between exchange rate volatility and energy imports in a long term. Among others, both short-run and long-run asymmetric effects were found for crude oil, coal, electricity, and petroleum products. Rupee depreciation increased crude oil and electricity imports, while the appreciation effects were insignificant. Overall, the empirical assessment reveals that the foreign exchange volatility effect is sectoral specific and asymmetric in Pakistan. It offers new insights into re-strategizing the energy policy and refining the import substitution plan.

The long-run effects of geopolitical risk on foreign exchange markets: evidence from some ASEAN countries

2021 ◽  
Vol ahead-of-print (ahead-of-print) ◽  
Author(s):  
Hon Chung Hui
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Risk Index ◽  
Foreign Exchange Markets ◽  
Content Type ◽  
Long Run ◽  
Exchange Markets ◽  
Exchange Rate Models ◽  
Asean Countries

PurposeThe purpose of this paper is to analyse the long-run relationship between geopolitical risk and exchange rates in four ASEAN countries.Design/methodology/approachWe augment theoretical nominal exchange rate models available in the literature with the geopolitical risk index developed by Caldara and Iacoviello (2019), and then estimate these models using the ARDL approach to Cointegration.FindingsOur analysis uncovers evidence of Cointegration in the exchange rate models when the MYR-USD, IDR-USD, THB-USD and PHP-USD exchange rates are used as dependent variable. Next, geopolitical risk is a significant long-run driver for these exchange rates. Third, in all countries higher geopolitical risk leads to a depreciation of domestic currency.Research limitations/implicationsThere are implications for entrepreneurs, central banks, portfolio managers and arbitrageurs who actively trade in financial markets. Financial market players can benefit from a better understanding of how geopolitical events affect the portfolio of financial assets across various countries, while entrepreneurs can work out hedging strategies.Originality/valueThis is a contribution to the study of interlinkages between political risk and foreign exchange markets. It is the first study to adopt the geopolitical risk index of Caldara and Iacoviello (2019) to the study the foreign exchange markets of ASEAN countries.

scholarly journals Exchange Rate Volatility and Its Implications on Macroeconomic Variables in East African Countries

2020 ◽  
Vol 7 (3) ◽  
pp. 145
Author(s):  
Nicas Yabu ◽  
Deogratius Kimolo
Keyword(s):  
Exchange Rate ◽  
Positive Impact ◽  
Export Performance ◽  
Exchange Rate Volatility ◽  
Mitigation Measures ◽  
Macroeconomic Variables ◽  
Long Run ◽  
Short Run ◽  
Lending Rates ◽  
The Exchange Rate

The study examines the extent of exchange rate volatility and its impact on key macroeconomic variables such as exports, FDI inflows, interest rate and inflation in Tanzania, Kenya and Uganda. The GARCH model is used to compute the extent of exchange rate volatility while the Panel Autoregressive Distributed Lag (ARDL) technique or pooled mean group (PMG) estimator was used to estimate the effects of exchange rate volatility on selected macroeconomic variables. The results indicate that volatility in the exchange rate is a real issue in all the sampled countries and is fundamentally driven by exports and FDI dynamics for the period under consideration. The results indicate a positive impact of the exchange rate volatility to export performance and lending rates in the long run. Exchange rate volatility appears to be detrimental to both export performance and leads to a reduction in lending rates in the short run. Also, the response of FDI to exchange rate volatility seems to be negative in the long run while in the short run the response from the volatility of real exchange rate seems is insignificant. Though not significant, the volatility of the exchange rate appears to have a positive impact on inflation. The study recommends that policymakers need institute mitigation measures which could smooth out excessive exchange rate volatility to minimize its likely impact on the economy. The study also indicated a need for the EAC countries to consider adopting inflation targeting monetary policy framework in order to contain inflation at the appropriate level.

scholarly journals MEASURING EFFICIENCY OF SOUTH AMERICAN FOREIGN EXCHANGE DERIVATIVES MARKET IN MINIMIZING CURRENCY RISK:

2019 ◽  
Vol 2 (1) ◽  
pp. 1-10
Author(s):  
RAAD MOZIB LALON
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Exchange Rate Regime ◽  
Exchange Rate Volatility ◽  
South American ◽  
Currency Risk ◽  
Measuring Efficiency ◽  
Spot Exchange Rate ◽  
Cross Country ◽  
The Exchange Rate

This paper attempts to reveal whether the foreign exchange (FX) derivatives market effectively and efficiently reduces the volatility to foreign exchange rate fiuctuations. Cross-country evidence suggests that development ofthe FXderivatives market does not boost up spot exchange rate volatility and reduces aggregate exposure to currency risk. Intraday evidence for Chile shows that activity in the forward market has not been associated with higher volatility in the exchange rate following the adoption ofa fioating exchange rate regime. The study also found no evidence that net positions of large participants in the FX derivatives market help to predict the exchange rate. These findings support the view that development of the FX derivatives market is valuable to reduce aggregate currency risk.

scholarly journals The “day-of-the-week” effects in the exchange rate of Latin American currencies

2019 ◽  
Vol 14 (PNEA) ◽  
pp. 485-507
Author(s):  
Roberto Joaquín Santillán Salgado ◽  
Alejandro Fonseca Ramírez ◽  
Luis Nelson Romero
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Foreign Exchange ◽  
Latin American ◽  
Foreign Exchange Market ◽  
The United States ◽  
Management Decision ◽  
Exchange Market ◽  
Day Of The Week ◽  
The Exchange Rate

This paper examines the “day-of-the-week” anomaly in the foreign exchange market of six major Latin American countries’ currencies: (Argentina, Brazil, Chile, Colombia, Mexico, and Peru), all with respect to the United States’ dollar. The returns of daily exchange rates are stationary, so we use linear regressions combined with GARCH, TARCH and EGARCH models to explore the presence of the “day-of-the-week” anomaly. The results confirm the presence of “abnormal” effects in some of the currencies and in some days of the week, particularly on Fridays and Mondays. Moreover, volatility in exchange rates shows clustering behavior, as well as leverage effects, which are carefully modelled in our analysis. This paper contributes to the literature by studying the “day-of-the-week” effects in currency exchange rate markets, a clear innovation with respect to the typical stock market analysis. The results reported are useful for foreign exchange market traders, currency exposure management decision makers, monetary authorities, and financial policy designers in the countries included in the study. Indeed, the results suggest the presence of a typical behavior of the exchange rate of all the currencies included in the sample.

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