Exchange rate volatility and capital inflows: role of financial development

Samodol

2021

Purpose: The modern concepts of contemplating joint dynamics of monetary policy effects on economic growth and its indicators require an indirect approach based on empirical research of mainly financial infrastructure, competitiveness of the financial markets and current economic conditions. Meanwhile, the problems of unemployment and the structure of employment within these concepts are most frequently linked with the polarization of the labor market and two important factors, that is, the effects of growth on unemployment and the fact that technological changes affect the changes in salary ranges. Methodology: By using the Adaptive Neuro-Fuzzy Inference System (ANFIS) and the set of data from 1995 to 2016, this paper analyzes these issues through a prism of established balances between the labor and financial markets, i.e., the monetization of economy (M1/GDP), financial development (Loans/GDP) and the share of gross government debt in GDP (government gross debt/GDP). Results: The proposed model suggests that the rate of unemployment is conditioned by the financial cycle and monetary policy (M1/GDP, Loans/GDP), as well as the business cycle and fiscal policy (gross d/BDP) and that a controlled and properly directed level of monetization of the economy (M1/BDP) and financial development measured as Loans/GDP can be “sufficient” for economic growth. Conclusion: Waiting in the “monetary union lobby”, i.e., waiting for the ERM II exchange mechanism can last longer than the set deadlines, leading to the need for Croatian economic policy to optimize monetary and fiscal policy measures in order to increase economic growth and reduce unemployment.

Section: Overview Of Previous Researchmentioning

confidence: 99%

Section: Introductionmentioning

confidence: 99%

Using ANFIS in joint dynamics of monetization, financial development, public debt and unemployment analysis

Samodol

2021

“…Tetapi dampak tidak langsung volatilitas nilai tukar yang terjadi karena perkembangan finansial justru positif. Hal ini menunjukkan bahwa perkembangan finansial mengurangi dampak buruk dari ketidakstabilan nilai tukar terhadap arus modal masuk (Jehan dan Hamid, 2017). Perkembangan finansial ini juga penting dalam menghadapi aliran dana asing yang masuk.…”

Section: Tinjauan Teoretisunclassified

Dampak Pertumbuhan Ekonomi, Kontrol Korupsi, Dan Yield Terhadap Investasi Asing Di Pasar Sun

Rahmawati

Makaliwe

2021

EKUITAS

Foreign investment in debt securities in Indonesia continues to grow. Foreign investor ownership in Government Securities (SUN) reached 39% at the end of 2019 from initially only less than 1% at the end of 2002. Foreign investor hold the largest ownership in tradable Government Securities. This study discusses the push and pull factors of foreign portfolio in debt securities investment in emerging markets and Indonesia on the period of 2000-2017. This research uses quantitative methods with panel data analysis. The results showed that economic growth, corruption control, dan financial openness were the main pull factors for foreign investment in debt instruments in emerging markets. Low yield in developed countries was the push factor of foreign investment in debt securities into emerging markets. In addition to economic growth and corruption control, yield on local debt instruments attract foreign investment in debt securities in Indonesia. The results showed that the yield on local debt securities have a negative effect on foreign investment in Indonesian debt securities so that the government does not need to provide too high yield on Government Securities.

Asian Development Policy Review

“…They concluded that FDI was negatively influenced by volatility in exchange rate but price volatility has shown no significant impact on foreign direct investment. Jehan and Hamid (2017) have probed the impact of exchange rate volatility on financial and physical capital inflow for a panel of developing economies incorporating the impact of financial development. They concluded that exchange rate volatility adversely affects both kinds of capital inflows however; financial development can mitigate this negative impact.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Some of the studies has measured capital inflows by foreign portfolio investment (Rashid & Husain, 2013;Udoh & Egwaikhide, 2008). Jehan and Hamid (2017) have measured the capital inflows by FDI as well as remittances inflow.…”

mentioning

confidence: 99%

Exchange Rate Volatility and Capital Inflows in Developing Economies

Ejaz

Shahzad

Khan

2021

The developing economies require inflow of capital for their economic development. The current study attempts to estimate that to what extent the capital inflows are influenced by exchange rate and volatility in exchange rate in the developing economies. Generalized Method of Moment (GMM) is applied on panel data-set of 34 developing countries for the years 1978-2015. The GARCH model is employed to measure volatility in exchange rate while capital inflows are captured by net foreign direct investment (FDI) and foreign portfolio investment (FPI). The findings explain that when the capital inflows are measured by FDI it is positively affected by exchange rate and negatively by volatility in exchange rate. The GDP growth has shown positive while terms of trade and interest rate have shown negative effect on capital inflows. The inflation has negative but negligible effect on FDI inflow. When the capital inflows are measured by FPI the results depicts that exchange rate, volatility in exchange rate and terms of trade have negative effect on FPI. The economic growth, interest rate and industrialization have shown positive effect on capital inflows captured by FPI. The volatility in exchange rate has shown negative effect on capital inflows (measured by FDI as well as FPI) so exchange rate fluctuations should be minimized in order to enhance the capital inflows in developing economies.Contribution/ Originality: This paper contributes to the literature by estimating the impact of exchange rate volatility on capital inflows captured by FDI and foreign portfolio investment. The uniqueness of the study is estimation of FDI and foreign portfolio investment on the same panel data set of developing economies. INTRODUCTIONThe developing economies frequently face the situation of a gap between the domestic savings and the financing funds to meet the needs of investment. This gap is filled by capital inflows. Capital inflows make the host countries to invest and consume more than what they can do without foreign capital inflows. A number of social and macroeconomic indicators like foreign reserves, technology transfer, savings and investment are favorably influenced by the foreign capital inflows so capital inflows are necessary for developing economies to maintain the macroeconomic growth and stability (Levine, 2001).The capital inflows particularly for developing economies are considered as driver of economic growth (Lin, Andrews, Ghosh, & Ratasuk, 2014). They may support the developing economies in financial investment and strengthening the stock market which accelerate the economic growth (Boudias, 2014). Furthermore, the capital inflows boost up the market size, as foreign investors invest in local market the market size tends to increase.