Forecasting industry-level CPI and PPI inflation : does exchange rate pass-through matter?

We show that incorporating the effects of exchange rate pass-through into a model can help in obtaining superior forecasts of domestic, industry-level inflation. Our analysis is based on a multivariate system of domestic inflation, import prices and exchange rates that incorporates restrictions from economic theory. These are restrictions on the transmission channels of the exchange rate pass-through to domestic prices, and are presented as testable hypotheses that lead to model reduction. We provide the results of various tests, including causality and prior restrictions, which support the underlying economic arguments and the model we use. The forecasting results for our model suggest that it has a superior performance overall, jointly producing more accurate forecasts of domestic inflation.

Exchange rate pass-through and relative prices : an industry-level empirical investigation

In this paper we explore the extent of exchange rate pass-through for the USA, UK and Japan using a post-Bretton Woods industry-level dataset. We investigate how different channels of exchange rate pass-through affect domestic and import prices. Our analysis is suggestive of two channels of transmission and we find considerable variation in the extent of pass-through across industries and countries.

Understanding the oil price-exchange rate nexus for the Fiji Islands

In this paper, we examine the relationship between oil price and the Fiji–US exchange rate using daily data for the period 2000–2006. We use the generalised autoregressive conditional heteroskedasticity (GARCH) and exponential GARCH (EGARCH) models to estimate the impact of oil price on the nominal exchange rate. We find that a rise in oil prices leads to an appreciation of the Fijian dollar vis-à-vis the US dollar.

Estimating exchange rate responsiveness to shocks

The goal of this paper is to examine the importance of permanent and transitory shocks using a more efficient trend-cycle decomposition of the real exchange rate series. Our main contribution is that in measuring the impact of shocks, we not only impose common trend restrictions but also common cycle restrictions. We later confirm, through a post sample forecasting exercise, the efficiency gains from imposing common cycle restrictions. Our results indicate that permanent shocks are responsible for the bulk of the real exchange rate variations for Japan, Italy, Germany, France, and the UK vis-à-vis the US dollar over short horizons. For Canada, however, transitory shocks are dominant over the short horizon. In sum, while for Japan, France, and Italy, around 15% of the variation in real exchange rate is due to transitory shocks, for Canada, Germany and the UK, over 25% of the variations over the short horizon are due to transitory shocks. Thus, we claim that the role of transitory shocks should not be ignored.

Examining the relationship between trade balance and exchange rate : the case of China's trade with the USA

In this paper, we investigate the nexus between China's trade balance and the real exchange rate vis-à-vis the USA. Using the bounds testing approach to cointegration, we find evidence that China's trade balance and real exchange rate vis-à-vis the USA are cointegrated, and using the autoregressive distributed lag model we find that in both the short run and the long run a real devaluation of the Chinese RMB improves the trade balance; as a result, there is no evidence of a J-curve type adjustment.

Modelling Fiji-US exchange rate volatility

In this article, we examine the Fiji-US exchange rate volatility using daily data for the period 2000 to 2006. Our modelling framework is based on the EGARCH model. We find robust evidence of conditional shocks having a positive effect on exchange rate volatility, shocks having asymmetric effects on exchange rate volatility and shocks having a transitory effect on exchange rate volatility.

The relationship between the real exchange rate and balance of payments: empirical evidence for China from cointegration and causality testing

This article examines the relationship between the renminbi real exchange rate and China's foreign exchange reserves using cointegration and Granger causality testing. The main findings are that in the long run foreign exchange reserves Granger cause the real exchange rate. Meanwhile, in the short run there is unidirectional Granger causality running from foreign exchange reserves to the real exchange rate.

Volatility spillover between New Zealand stock market returns and exchange rate changes before and after the 1997 Asian financial crisis

Researchers in the last decade have been investigating the interdependence of stock returns and exchange rate changes within the same economy. Kanas (2000) and Yang and Doong (2004) find that for the G-7 countries, in general, the volatility of the stock market spills over to the exchange rate market but that volatility spillovers from the exchange rate market to the stock market are insignificant. Chen, Naylor, and Lu (2004) find that NZ individual firm returns are significantly exposed to exchange rate changes. This study complements their work by investigating the volatility spillover between the stock market and the foreign exchange market within the NZ economy.

An empirical analysis of the effects of the exchange rate on Canadian tourism

The effects of depreciation of the Canadian dollar on the Canadian tourist industry are estimated, and it is shown that the exchange rate had a modest impact in attracting U. S. visitors to Canada. However, the favorable exchange rate effects seem to be offset by other factors.