International portfolio flows and exchange rate volatility in emerging Asian markets

Caporale, Guglielmo Maria; Ali, Faek Menla; Spagnolo, Fabio; Spagnolo, Nicola

doi:10.1016/j.jimonfin.2017.03.002

Cited by 45 publications

(51 citation statements)

References 32 publications

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“…Following an increase in the short-term interest rates relative to the US interest rate, the exchange rate volatility (filtered series) may increase due to a flow of funds into the exchange rate market. This finding was consistent with the Mundell-Fleming (M-F) model and in line with [2,5,8,17]. The IRFs implied that contractionary monetary policy implementations in these countries may lead to a deterioration in stability in currency markets and also other financial markets, which, in turn, may negatively affect the foreign competiveness of these countries and deteriorate real economic activity.…”

Section: Impulse Response Analysis Resultssupporting

confidence: 85%

“…The variance decomposition exercise also showed strong interactions among economic activity and currency markets in these countries, whereby the structure of foreign trade and competiveness level of firms are critical factors in terms of lowering exchange rate volatility in each country parallel to [20]. On the other hand, VDCs of PVAR 1 provided weak evidence for the effects of shocks in financial markets on exchange rate volatility in these countries in contrast to [17]. Increases in short-term interest rates and stock prices accounted for nearly 10% of the variation in exchange rate volatility in PVAR 1.…”

Section: Variance Decomposition Analysis Resultsmentioning

confidence: 96%

“…There studies in the literature analysing the relationship between exchange rates and flows focus on developed economies [11][12][13], the minority of the contributions to the literature in the relevant topic for developing countries are conducted by [14][15][16]. Most recently, [17] studied the effects of equity and bond portfolio inflows on exchange rate volatility using monthly bilateral data for the US vis-a-vis seven Asian developing and emerging countries. Using GARCH models and Markov switching specifications with time-varying transition probabilities in addition to a linear regression model, [17] found that high (low) exchange rate volatility is associated with equity (bond) inflows from the Asian countries towards the US except for the Philippines.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Most recently, [17] studied the effects of equity and bond portfolio inflows on exchange rate volatility using monthly bilateral data for the US vis-a-vis seven Asian developing and emerging countries. Using GARCH models and Markov switching specifications with time-varying transition probabilities in addition to a linear regression model, [17] found that high (low) exchange rate volatility is associated with equity (bond) inflows from the Asian countries towards the US except for the Philippines. Thus, it was suggested by [17] that capital controls could be an effective tool to stabilise the volatility in exchange rates.…”

Section: Literature Reviewmentioning

confidence: 99%

“…Using GARCH models and Markov switching specifications with time-varying transition probabilities in addition to a linear regression model, [17] found that high (low) exchange rate volatility is associated with equity (bond) inflows from the Asian countries towards the US except for the Philippines. Thus, it was suggested by [17] that capital controls could be an effective tool to stabilise the volatility in exchange rates. Along with macroeconomic factors, exchange rates can be highly influenced by variations in different financial markets during periods of prevalent financial integration processes.…”

Section: Literature Reviewmentioning

confidence: 99%

See 4 more Smart Citations

Analysis of the Role of Exchange Rate Volatility in Monetary Policy Conduction in OECD Countries: Empirical Evidence from Panel-VAR Models

Özçelebi¹

2018

Trade and Global Market

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In this study, panel vector autoregression (PVAR) models are employed to examine the relationships between industrial production growth rate, consumer price inflation, short-term interest rates, stock returns and exchange rate volatility. More specifically, I explored the consequences of the dynamics detected by the models on monetary policy implementation for 10 OECD countries. This study indicates that factors that may cause a rise in short-term interest rates with respect to the USA can lead to volatility in exchange rates and thus macroeconomic instability. It is also implied that sustaining macroeconomic growth and decreasing inflation can result in increased export performance, which in turn provides the amount of US dollars to curb volatility in US dollar quotations. Accordingly, this study reveals that high importance should be given to both monetary and non-monetary factors in the open-economy framework to detect the possible impacts on trade and capital flows by dynamic stochastic general equilibrium (DSGE) models.Due to their exchange rate risk of economic agents, I also suggest that the economic policy makers of these countries had better create a theoretical framework including financial frictions, economic agents' preferences and different shocks to smooth the variations in exchange rates and minimise the negative outcomes of Brexit.Keywords: panel vector autoregression, exchange rate volatility, monetary policy, macroeconomic and financial stability, OECD countries to the Taylor-rule framework, this paper focuses on the interactions between the industrial production growth rate, consumer price inflation, short-term interest rates, stock returns and exchange rate volatility by employing panel VAR (PVAR) methodology for 10 OECD countries outside the Euro area (Canada, Czech Republic, Iceland, Israel, Korea, Mexico, Norway, Poland, Sweden and the United Kingdom). More specifically, the impacts of industrial production growth rate, consumer price inflation, short-term interest rates and stock returns on exchange rate volatility are examined for those countries. Countries included in the panel Trade and Global Market

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Section: Impulse Response Analysis Resultssupporting

confidence: 85%

Section: Variance Decomposition Analysis Resultsmentioning

confidence: 96%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

Section: Literature Reviewmentioning

confidence: 99%

See 3 more Smart Citations

Analysis of the Role of Exchange Rate Volatility in Monetary Policy Conduction in OECD Countries: Empirical Evidence from Panel-VAR Models

Özçelebi¹

2018

Trade and Global Market

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Exchange rate and volatility: A bibliometric review

Flores‐Sosa¹,

Avilés‐Ochoa²,

Merigó

2020

Int. J Fin Econ

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The exchange rate is one of the most important prices in open economies.Exchange rate volatility (ERV) has been studied in terms of its measurement, forecast and impact and relationship with other variables. This article proposes a bibliometric analysis of ERV compared with two databases Web of Science and Scopus. The number of data obtained reflects the importance of the topic in scientific research. In addition, we identify authors, institutions and countries of great influence studying currency volatility. The evolution of the study through time shows the increase in attention on the topic. VOS viewer software has been used to create graphic maps and visualize the connections existing in the study.

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Exchange rate dynamics of emerging and developing economies: Not all capital flows are alike

Nguyen

Nasir

2022

Int. J Fin Econ

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The increasing cross-border capital flows have raised the question of whether capital inflows and outflows have different impacts on exchange rates in emerging markets than they do in developed markets and economies. To explore the potential heterogeneity in the impacts that can arise from the different types and directions of capital flows, we classify them according to whether they involve foreign direct investment (FDI) or foreign portfolio investment (FPI) and examine these inflows and outflows separately. The characteristics of these different types of capital flows and their effects on the real exchange rate in both advanced and emerging markets during 2002-2017 are investigated using a set of estimation approaches. To capture the relationship between real exchange rates and capital flows while controlling for other variables, a dynamic panel data model is utilized for the dataset covering emerging countries. Key findings suggest that the composition of capital flows determines the impact of those flows on real exchange rates, whereby FPI brings a faster appreciation of the real exchange rate than FDI and capital outflows bring a sharper degree of exchange rate adjustment than capital inflows. F20F30.

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International portfolio flows and exchange rate volatility in emerging Asian markets

Cited by 45 publications

References 32 publications

Analysis of the Role of Exchange Rate Volatility in Monetary Policy Conduction in OECD Countries: Empirical Evidence from Panel-VAR Models

Analysis of the Role of Exchange Rate Volatility in Monetary Policy Conduction in OECD Countries: Empirical Evidence from Panel-VAR Models

Exchange rate and volatility: A bibliometric review

Exchange rate dynamics of emerging and developing economies: Not all capital flows are alike

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