Growth and exchange rate volatility: a panel data analysis

Vieira, Flávio Vilela; Holland, Márcio; Silva, Cleomar Gomes da; Bottecchia, L. C.

doi:10.1080/00036846.2012.730135

Cited by 57 publications

(40 citation statements)

References 53 publications

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“…Yi (2013) proves that exchange rate fluctuations have a significant influence on producer price and consumer price through imports. Vieira, Holland, Silva, and Bottecchia, (2013) reveal that highly fluctuating exchange rates have negative impacts on economic growth. Su, Zhang, Chang, countries.…”

Section: Introductionmentioning

confidence: 99%

Does the purchasing power parity fit for China?

Wang

Tao

et al. 2019

Economic Research-Ekonomska Istraživanja

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This paper aims to assess whether the purchasing power parity (PPP) holds by examining the dynamic link between nominal exchange rate (NER) and relative consumer price (RCP) in China. With economic transitions and structural changes existing, we discover that by using full sample data the PPP does not hold. Consequently, we apply the rolling window causality method in order to reconsider the dynamic causal link, and as a result we observe NER having both positive and negative impacts on RCP in some sub-periods. However, RCP has no effect on the NER, meaning that the PPP does not hold. Trade cost, restrictions and imperfect competition are considered in explaining the deviations in some sub-sample periods. Therefore, this empirical result has important implications for stakeholders to distinguish factors that bring about the PPP deviations and further offers policy suggestions for the Chinese monetary authority. ARTICLE HISTORYand Nian, (2016) assess the impact on exchange rates of inflation during the economic crisis. Therefore, the People's Bank of China (PBOC) chooses discreet monetary policies when decreasing the negative influence from deviations. The PPP condition between RCP and NER forward premiums or discounts does not only provide a basis for the evaluation of the effectiveness of monetary policy but offers as well suggestions to promote NER mechanism reform.Since 2005, China has experienced the following striking shocks both from inside and outside. The PBOC launched the reform of the RMB exchange rate regime by switching from the dollar peg to a basket of currencies in 2005:M07. Meanwhile, the PBOC also allow the bilateral exchange rates to float within a daily band from 0.3% to 2%. (Cui, 2015) indicates that the reform increases the flexibility of the RMB exchange rate. The effects of the global financial crisis are widespread, which obviously impacts on the Chinese economy, affecting exports and the NER and inducing the need for structural adjustments. The RMB is included in Special Drawing Rights (SDR) by the International Monetary Fund (IMF) in 2016 denoting a substantial progress in internationalisation and liberalisation of the RMB (Xu et al., 2015). All the incidents mentioned above may bring structural changes in the NER and result in the NER deviating from the PPP. Consequently, there is an imminent concern regarding whether the PPP still fits for China. If the PPP holds, the higher domestic inflation rate will result in a RMB exchange rate depreciation in the future. Meanwhile, keeping price stability is one of the main goals for the PBOC, which is greatly motivated to pursue an investigation, related to the PPP condition between the RCP and the NER in China. Combined with corresponding results, we provide suggestions for reforming the NER mechanism and implementing a discreet monetary policy.Substantial studies have been undertaken with focus on the PPP. However, the empirical researches have not reached a consensus on whether the PPP holds or not. Engel and Rogers (2004) argue that in a fle...

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Section: Introductionmentioning

confidence: 99%

Does the purchasing power parity fit for China?

Wang

Tao

et al. 2019

Economic Research-Ekonomska Istraživanja

View full text Add to dashboard Cite

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“…Boar () and Vieira et al . () demonstrate that more volatile exchange rates have significant negative impacts on economic growth.…”

Section: Introductionmentioning

confidence: 99%

“…Shioji (2006) argues that Asian countries could stabilize their trade balances against shocks by stabilizing their currencies to a basket of currencies weighted by trade shares. Boar (2010) and Vieira et al (2013) demonstrate that more volatile exchange rates have significant negative impacts on economic growth.…”

Section: Introductionmentioning

confidence: 99%

Possible Best Currency Basket Selection from the Perspective of Real Effective Exchange Rate

Wang

Balli

2015

Pacific Economic Review

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We calculated the real effective exchange rate indexes and measured their volatilities based on four currency baskets to find which currency basket is optimal for achieving China's policy target of keeping exchange rates stable. The volatility of the bilateral exchange rate between the RMB and the US dollar is also calculated to make a comparative analysis. Results showed that the bilateral exchange rate of the RMB and the US dollar is only stable in special time periods. In most time periods, pegging to the G3 currency basket is optimal to achieve the goal of stabilizing exchange rates while pegging to the AMU currency basket will result in the most volatile exchange rates.

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“…Exchange rate misalignment is defined as the deviation of the RER from its equilibrium value. The extant studies suggest that highly fluctuated exchange rate has negative impacts on economic growth (Tharakan, 1999;Vieira et al, 2013), and moderately volatile exchange rate has positive impacts on growth (Tarawalie, 2010;Vieira et al, 2013). In reality, the currencies in emerging economies usually undervalued or overvalued.…”

Section: The Linkages Between the Rer And Economic Growthmentioning

confidence: 99%

Real exchange rate and economic growth in China: A cointegrated VAR approach

Tang

2015

China Economic Review

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This study investigates the relationship between the real exchange rate (RER) and economic growth in China applying a cointegrated VAR (CVAR) model. However, in contrast to the assumptions of trade partners, this paper finds that the Chinese economy has not benefited from the lower exchange rate of the RMB, and no direct linkages exist between the RER and growth in the long run. Interestingly, it appears that the Chinese economy is stimulated by the expansion of exports and inflow of foreign capital according to the empirical evidence, which also suggests that the long run equilibrium RER is jointly determined by the foreign trade, foreign reserves and the foreign direct investment. In addition, the 2005 RMB policy reform did not show any significant impact on the RER, but instead contributed to the steady economic growth. It is clear that, after the 2008 world crisis, the RMB exchange rates were largely dependent on the enhancing of the national strength and inflow of foreign capital, rather than the slow increase in foreign trade. As for policy implications, China may insist on the managed floating exchange rate policy making limited adjustments to the currency's daily floating range in response to the pressures from trade partners. JEL Codes: F3, O24, F43, C32

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Growth and exchange rate volatility: a panel data analysis

Cited by 57 publications

References 53 publications

Does the purchasing power parity fit for China?

Does the purchasing power parity fit for China?

Possible Best Currency Basket Selection from the Perspective of Real Effective Exchange Rate

Real exchange rate and economic growth in China: A cointegrated VAR approach

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