Capital Flows, Exchange Rate Flexibility, and the Real Exchange Rate

Combes, Jean-Louis; Plane, Patrick; Kinda, Tidiane

doi:10.5089/9781455211876.001

Cited by 55 publications

(65 citation statements)

References 41 publications

(32 reference statements)

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“…The attempt to answer this question has produced a number of controversial results (e.g. Amuedo‐Dorantes and Pozo, ; Lopez et al ., ; Acosta et al ., ; Sy and Tabarraei, ; Combes et al ., ; Fayad, ; Makhlouf and Mughal, ; Roy and Rahman, ). Chami et al () and Loser et al (), based on general equilibrium analysis, argue that the optimal monetary policy effects of remittances are not the same in all countries.…”

Section: Theoretical Framework and Empirical Literature Reviewmentioning

confidence: 99%

“…Furthermore, cross‐section analysis can only ascertain the behavioural pattern at a particular point and therefore cannot correctly capture behavioural dynamics (Baltagi, ). Thus, Combes et al () argue that panel data analysis provides sufficient observations and, consequently, more sample variability, less collinearity, more degree of freedom and, therefore, more accurate inferences of model parameters.…”

Section: Theoretical Framework and Empirical Literature Reviewmentioning

confidence: 99%

“…Based on panel cointegration techniques, Combes et al () analyse the impact of capital inflows and exchange rate flexibility on the real exchange rate in developing countries and show that public and private flows are associated with a real exchange rate appreciation. Working with cross‐country and time‐series observations, Sy and Tabarraei () also examine the link between capital inflows and real exchange rate movements and find a weak Dutch disease effect in less developed countries (LDCs).…”

Section: Theoretical Framework and Empirical Literature Reviewmentioning

confidence: 99%

See 2 more Smart Citations

Workers’ Remittances and the Dutch‐Disease Argument: Investigating the Relationship in Sub‐Saharan Africa

Ojapinwa¹,

Nwokoma²

2018

African Development Review

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Based on the Salter-Swan-Corden-Dornbusch framework, which argues that capital inflows may appreciate the official exchange rate by aggravating the effects of any previously existing domestic distortions, this paper examines the claim that workers' remittances cause the Dutch disease in sub-Saharan Africa (SSA). Specifically, the study investigates whether remittances cause financial overheating and spending effects. The study adopts the dynamic panel instrumental variable system generalized method of moment (IVSGMM). This study finds that although workers' remittances cause financial overheating, they neither increase general spending nor appreciate the real exchange rate, thereby implying that workers' remittances do not cause the Dutch disease in SSA from 1996 to 2013. These findings suggest that governments should establish diaspora incentive schemes so as to encourage remitters and recipient households' to invest productively. Government efforts should be integral at improving the financial education for remitters and the recipient households so as to avoiding channelling overheating effects to spending effects and to the Dutch disease.

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Section: Theoretical Framework and Empirical Literature Reviewmentioning

confidence: 99%

Section: Theoretical Framework and Empirical Literature Reviewmentioning

confidence: 99%

Section: Theoretical Framework and Empirical Literature Reviewmentioning

confidence: 99%

See 1 more Smart Citation

Workers’ Remittances and the Dutch‐Disease Argument: Investigating the Relationship in Sub‐Saharan Africa

Ojapinwa¹,

Nwokoma²

2018

African Development Review

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“…Since, REER is by definition the relative price of tradable to non‐tradables, an increase in the price of non‐tradable goods leads to REER appreciation 5 . The “transfer problem” refers to this impact of capital flows on the economy that is captured by the real exchange rate (Combes et al ., 2011). The inflows appreciate the recipient country's currency in real terms, eroding profitability in the tradable sector and thus causing a boom in consumption rather than investment.…”

Section: Introductionmentioning

confidence: 99%

“…As public capital flows are on a constant falling trend, the private capital flows were the main reasons behind the REER appreciation. Since 1980s, private capital flows increased from less than 1.5‐2% to more than 6% of gross domestic product (GDP) in the world economies and to 10% of GDP in low‐income countries by 2005‐2006 (Combes et al ., 2011) Today, remittances account for 2% of GDP in developing countries, representing around two thirds of foreign direct investment (FDI) flows (Acosta et al ., 2009). Although bank loans in general used to be an important factor mainly in 1980s, they are replaced by FDIs and remittances, whereas private investment liabilities have been the most volatile type of private capital inflows with the highest appreciation effect on REER since 1990s (Combes et al ., 2011).…”

Section: Introductionmentioning

confidence: 99%

The Role of Private Capital Inflows and the Exchange Market Pressure on Real Exchange Rate Appreciation: The Case of Turkey

Ersoy

2013

South African J Economics

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The aim of this paper is to investigate the role of different private capital inflows and the exchange market pressure (EMP) on the real effective exchange rate (REER) appreciation of the currency in Turkey. To that end, the paper first investigates the long‐run equilibrium relationship and then employs Granger causality analysis. Results of the bounds test for cointegration within the autoregressive distributed lag (ARDL) modelling approach of Pesaran et al. (2001) reveal level relationship between the diverse private capital inflows, EMP and REER. Granger causality analysis suggests that there is a unidirectional causality running from all the concerned private capital inflows and EMP to REER. The ARDL model shows first that the impact of bank liabilities and portfolio investment liabilities are almost equal, high and positive. Second, foreign direct investment and workers' remittances have a negative but statistically insignificant effect. Third, EMP mitigates REER appreciation of the currency in Turkey. The empirical results suggest that speculative portfolio investment liabilities but particularly bank liabilities with short maturities should be better managed; more flexibility should be introduced to the floating exchange rate regime to avoid loss of competitiveness related with capital inflows; whereas foreign direct investments and remittances should be encouraged.

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Studying the flip side of migrant remittances: A panel cointegration analysis of 18 selected Asian countries

Dutta¹

2021

Journal of Public Affairs

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This study is an attempt to gauge the effect of remittances on Real Effective Exchange Rate (REER) with the help of a panel of 18 selected Asian countries. The period considered for this study is from 1998 to 2016. To achieve the objective of the study, along with Pedroni panel cointegration technique, 'Fully Modified Ordinary Least Square' and 'Dynamic Ordinary Least Square' methods were applied. The results of the study suggest that remittances exert upward pressure on REER. In case of both the estimators (FMOLS and DOLS), the coefficient of remittances is negative and statistically significant at 1% level. Impulse response functions (IRFs) derived from the Panel Vector Auto Regressive model (PVAR) exhibits similar kind of results.The results obtained from this study raise the concerns similar to the ones raised by the Dutch disease or discoveries of natural resources leading to the appreciation of REER.

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Capital Flows, Exchange Rate Flexibility, and the Real Exchange Rate

Abstract: This Working Paper should not be reported as representing the views of the IMF.

Cited by 55 publications

References 41 publications

Workers’ Remittances and the Dutch‐Disease Argument: Investigating the Relationship in Sub‐Saharan Africa

Workers’ Remittances and the Dutch‐Disease Argument: Investigating the Relationship in Sub‐Saharan Africa

The Role of Private Capital Inflows and the Exchange Market Pressure on Real Exchange Rate Appreciation: The Case of Turkey

Studying the flip side of migrant remittances: A panel cointegration analysis of 18 selected Asian countries

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