scholarly journals Currency Substitution and Monetary Policy Effects: The Case of Latin American Countries

2017 ◽  
Vol 9 (2) ◽  
pp. 32
Author(s):  
Hisao Kumamoto ◽  
Masao Kumamoto
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Latin American ◽  
Currency Substitution ◽  
Monetary Policy Shocks ◽  
Exchange Rate Movements ◽  
Policy Shocks ◽  
Parameter Values ◽  
Latin American Countries

In this study, we empirically investigate how currency substitution transmits foreign monetary policy shocks to domestic countries and evaluate how the central bank respond to real exchange rate movements in three inflation-targeting Latin American countries under currency substitution, namely Chile, Mexico and Peru, between 2000 and 2011. Our model is based on a small open economy dynamic stochastic general equilibrium model that incorporates currency substitution and incomplete financial markets, and we estimate it by using Bayesian estimation techniques. Our empirical results are as follows. First, the degree of currency substitution is higher in Mexico, while it is negligible in Chile and Peru, which reflects the slight differences in the parameter values capturing the preference for the domestic currency among these countries. Second, the estimated coefficients of the real exchange rate gap in the monetary policy rule are high, meaning that the central banks in these countries actively respond to real exchange rate movements to diminish real exchange rate volatility. Third, domestic monetary policy influences the domestic economy through the real interest rate channel. On the contrary, foreign monetary policy has a significant effect in Mexico, while it is insignificant in Chile and Peru. This finding suggests the potential instability of currency substitution in that slight changes in the parameter values capturing the preference for the domestic currency alter the degree of insulation from foreign monetary policy shocks.

scholarly journals Comparative Analysis of Monetary Policy Shocks and Exchange Rate Fluctuations in Nigeria and South Africa

2018 ◽  
Vol 9 (6) ◽  
pp. 199
Author(s):  
Sulaiman L. A. ◽  
Lawal N. A. ◽  
Migiro S. O.
Keyword(s):  
South Africa ◽  
Monetary Policy ◽  
Exchange Rate ◽  
Comparative Analysis ◽  
Interest Rate ◽  
Monetary Policy Shocks ◽  
Exchange Rate Fluctuations ◽  
The World ◽  
Policy Shocks ◽  
Short Run

The study examined a comparative analysis of monetary policy shocks and exchange rate fluctuations based on evidence from the two largest economies in Africa (Nigeria and South Africa) – from 1985 to 2015. Data were derived from various sources which include the National Bureau of Statistics, the Central Banks reports and the World Bank database. Vector Autoregressive (VAR) Analysis was used as the estimation technique. The results indicated that the foreign interest rate in South Africa had higher variations in the short-run. While in the long-run, foreign interest rate has higher percentage variations to exchange rate. In Nigeria the world oil price has the higher influence on exchange rate both in the short-run and longrun periods. Based on these results, the study then recommended that the monetary authorities and policymakers in both countries encourage external currency inflows into the economy.  

scholarly journals disaggregated analysis of monetary policy effects on the agricultural sector in Nigeria

2020 ◽  
Vol 14 (3-4) ◽  
pp. 47-58
Author(s):  
Jonathan E. Ogbuabor ◽  
Onyinye I. Anthony-Orji ◽  
Charles O. Manasseh ◽  
Anthony Orji
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Crop Production ◽  
Agricultural Sector ◽  
Forecast Error ◽  
Monetary Policy Shocks ◽  
Forecast Horizon ◽  
Policy Shocks

This study provides a disaggregated analysis of the effects of monetary policy shocks on the agricultural sector in Nigeria from 1981Q1 to 2016Q4. The study utilized the generalized impulse responses and the normalized generalized forecast error variance decompositions from an underlying VAR model, which are order-invariant. The four monetary policy variables used in the study are interbank call rate, monetary policy rate, broad money supply and exchange rate; while the four agricultural sub-sectors investigated are crop production, forestry, fishing and livestock. The study also controlled for the general price level and other economic activities in the overall economy. The findings indicate that the aggregate agricultural sector and its various sub-sectors consistently responded negatively to unanticipated monetary tightening in most of the forecast horizon; while the immediate impact of monetary policy shocks is transmitted to the agricultural sector through the interest rate and money demand (credit) channels. The findings further indicate that apart from these two channels, the roles of monetary policy rate and exchange rate are non-negligible in the long-run. The role of money supply channel in spreading monetary policy shocks to the agricultural sector remained muted all through. The study concludes that the monetary authority should evolve interest rate, credit, and exchange rate policies that will promote the development of the agricultural sector in Nigeria. JEL CODES: E52; N50; C22; N57

scholarly journals Real Exchange Rate Volatility and Financial Integration: Evidence from Latin American Countries

2020 ◽  
Vol 3 (3) ◽  
pp. 445-458
Author(s):  
Asma Awan ◽  
Imran Sharif Chaudhry ◽  
Furrukh Bashir ◽  
Rashid Ahmad
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Money Supply ◽  
Latin American ◽  
Financial Integration ◽  
Generalized Method Of Moments ◽  
Exchange Rate Volatility ◽  
Monetary Shocks ◽  
Latin American Countries ◽  
Real Exchange Rate Volatility

This research is an endeavor to reveal the dynamic association of real exchange rate volatility with real and monetary shocks and particularly with international financial integration in selected eight Latin American countries during 1992-2018. The estimation strategy employed in this research is the Generalized Method of Moments (GMM) to empirically obtain consistent estimates. Empirical results strongly supported the significant negative impact of financial integration on real exchange rate volatility when financial integration is approximated by the Chinn-Ito index. Furthermore, output volatility and money supply volatility both significantly contributed to increasing real exchange rate instability. An important policy implication is that process of financial integration needs to be more strengthened and shocks to output and money supply needs to be reduced to achieve lesser fluctuations of the real exchange rate in Latin American countries.

scholarly journals How is the dynamic impact of Undervaluation on Economic Growth in Latin American Countries?: A Panel VAR analysis

2020 ◽  
Author(s):  
CESAR CHAVEZ
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Latin American ◽  
Panel Var ◽  
Causality Test ◽  
Vector Autoregressive ◽  
The Real ◽  
Per Capita ◽  
Latin American Countries

Abstract In this research, I analyze the dynamic effects of undervaluation on the economic growth per captai of Latin American countries with a period 1980-2018. To estimate these effects, I use a Panel Vector Autoregressive (PVAR) whose estimator is System GMM. The undervaluation variable is created from different measures of the real exchange rate and I also use various measures of GDP per capita to calculate economic growth per capita. I include as control variables macroeconomic and human capital variables to control the different channels of spread of undervaluation on economic growth per capita. The results show that there is a positive effect depending on the definition of the real exchange rate used to calculate the undervaluation. In the results I include the Granger causality test, stability test and impulse response graphs in which I project the response of per capita economic growth to an undervaluation shock.

scholarly journals Economic and Monetary Integration in ECOWAS Countries: A Panel VAR Approach to Identify Macroeconomic Shocks

2021 ◽  
Vol 7 (2) ◽  
pp. 61-87
Author(s):  
Asta Ndongo ◽  
Ibrahima Thione Diop
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Real Exchange Rate ◽  
Economic Activity ◽  
West African ◽  
The Other ◽  
Panel Var ◽  
Policy Shocks ◽  
Exchange Rate Shocks ◽  
The Impact

This paper studies the impact of output, exchange rate, price, and economic policies (fiscal and monetary) shocks to Economic Community of West African States (ECOWAS) economies over the period 1977-2019. The results of the impulse response functions obtained from the panel VAR show that monetary policy shocks stimulate economic activity, whereas fiscal shocks lead to a contraction. Moreover, these economic policy shocks lead to an increase in the price level. Finally, they have opposite effects on the real exchange rate: a monetary policy shock leads to an appreciation of national currencies against the US dollar, while a fiscal innovation leads to a depreciation of these currencies. As for exchange rate and price shocks, they create inflation and consequently a decline in economic activity. Furthermore, the forecast error variance decomposition reveals that real exchange rate shocks contribute the most to future fluctuations in macroeconomic variables in ECOWAS countries. Moreover, a comparison of the impact on the two currency areas, West African Economic and Monetary Union (WAEMU) and West African Monetary Zone (WAMZ), shows the degree of asymmetry between the two areas. The analysis shows, on the one hand, that shocks are more persistent and significant in the WAMZ and, on the other hand, that except for real exchange rate shocks, the two zones respond asymmetrically to shocks emanating from the other variables.

scholarly journals Effects of Monetary Policy Shocks on the Exchange Rate in the Republic of Korea: Capital Flows in Stock and Bond Markets

2014 ◽  
Vol 31 (1) ◽  
pp. 121-135 ◽  
Author(s):  
Soyoung Kim
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Capital Flows ◽  
Bond Market ◽  
Capital Inflows ◽  
Republic Of Korea ◽  
Monetary Policy Shocks ◽  
Policy Shocks ◽  
The Exchange Rate ◽  
The Republic

Several studies have suggested that the prediction of standard theory on the effects of monetary policy on the exchange rate might not be applicable to or in the case of the Republic of Korea because participation of foreign investors is weak in the bond market but strong in the stock market. The current study examines the effects of monetary policy shocks on the exchange rate in the Republic of Korea by using structural vector autoregression models with sign restrictions. To determine the channels by which monetary policy shocks affect the exchange rate, I investigate the effects on various components of capital flows. The main empirical findings are as follows. First, a contractionary monetary policy shock, which increases the interest rate, appreciates the Korean won significantly in the short run as predicted by most theories. Second, contractionary monetary policy shocks increase capital inflows into the bond market consistent with the prediction of the uncovered interest parity condition. This seems to be the main channel by which contractionary monetary shocks appreciate the won. Finally, foreign investors tend to withdraw money from the domestic stock market in response to a monetary tightening, resulting in a decrease in capital inflows.

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