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.

Exchange rate regime choice : some determinants and consequences

This thesis establishes that exchange rate regime choice is persistent for low-income and high-income countries. It also confirms the crucial role of capital account openness, financial development and product diversification as possible determinants of regime choice. Moreover, the thesis provides strong evidence that exchange rate regime influences fiscal discipline directly and through interaction with trade openness.

Does data frequency matter for the impact of forward premium on spot exchange rate?

In this paper we take the forward premium and exchange rate literature forward by asking whether data frequency matters in that relationship. We use four frequencies of data, namely, quarterly, monthly, weekly and daily. We find that data frequencies matter both statistically and economically. More specifically, we document that investors prefer the forward premium model over a constant returns model in most countries when models are estimated using daily, weekly, and quarterly data, but not when using monthly data.

Persistence, capital account openness, and financial sector health in exchange rate regime choice

This paper investigates empirically the persistence in exchange rate regimes as well as the role of capital account openness and financial sector health (measured by financial development and financial sector fragility) in exchange rate regime determination for a panel of 143 countries covering the post-Bretton Woods period. The results demonstrate that while low- and high-income countries exhibit highly persistent exchange rate regimes, middle-income countries display relatively lower persistence. For middle-income countries, capital account openness and the level of financial development play important roles in exchange rate regime choice. The fragility of the financial sector does not affect the exchange rate regime determination.

The relationship between stock returns and the foreign exchange rate: the ARDL approach

This study employs the ARDL cointegration approach in order to examine the impact
of financial liberalization on the relationships between the exchange rate and share
market performance in China. We discovered that cointegration has existed between the
Shanghai A Share Index and the exchange rate of the renminbi against the US dollar
and Hong Kong dollar since 2005, when the Chinese exchange rate regime became a
flexible, managed, floating system. We found that both the exchange rate and the money
supply influenced stock price, with a positive correlation. We further show that the
money supply increase was largely caused by a huge ‘hot money’ inflow from other
countries in recent years. After local currency appreciation, hot money, followed by
the money supply increase, pushed the market into a high level, based on expectations
regarding the local currency’s further appreciation.

Can panel data really improve the predictability of the monetary exchange rate model?

A common explanation for the inability of the monetary model to beat the random walk in forecasting future exchange rates is that conventional time series tests may have low power, and that panel data should generate more powerful tests. This paper provides an extensive evaluation of this power argument to the use of panel data in the forecasting context. In particular, by using simulations it is shown that although pooling of the individual prediction tests can lead to substantial power gains, pooling only the parameters of the forecasting equation, as has been suggested in the previous literature, does not seem to generate more powerful tests. The simulation results are illustrated through an empirical application. Copyright © 2007 John Wiley & Sons, Ltd.

Panel cointegration and the monetary exchange rate model

This paper re-examines the validity of the monetary exchange rate model during the post-Bretton Woods era for 18 OECD countries. Our analysis simultaneously considers the presence of both cross-sectional dependence and multiple structural breaks, which have not received much attention in previous studies of the monetary model. The empirical results indicate that the monetary model emerges only when the presence of structural breaks and cross-country dependence has been taken into account. Evidence is also provided suggesting that the breaks in the monetary model can be derived from the underlying purchasing power parity relation. © 2008 Elsevier B.V. All rights reserved.

Actual intervention and verbal intervention in the Chinese RMB exchange rate

Central bank communication has become a more and more important instrument for the monetary authorization to intervene its exchange rate. This paper investigates the impact of both verbal and actual intervention on the exchange rate of China's currency, which has become the second-used currency in international trade settlement. The empirical evidence indicates that the central bank communication can influence the exchange rate, but the efficient is quite weak. Moreover, the effect of verbal intervention on the exchange rate of the RMB is weaker than that of actual intervention. One possible explanation is that most of the statements made by the governor of central bank on the RMB exchange rate are neutral in China. Overall, this study identifies the difference between the actual and verbal intervention in exchange rate in China, the largest emerging economy in the world.

Debt composition and exchange rate balance sheet effects in Brazil: A firm level analysis

In this paper we study the interaction between macroeconomic environment and firms’ balance sheet effects in Brazil during the 1990’s. We start by assessing the influence of macroeconomic conditions on firms’ debt composition in Brazil. We found that larger firms tend to change debt currency composition more in response to a change in the exchange rate risk than small firms. We then proceed to investigate if and how exchange rate balance sheet effects affected the firms’ investment decisions. We test directly the exchange rate balance sheet effect on investment. Contrary to earlier findings (Bleakley and Cowan, 2002), we found that firms more indebted in foreign currency tend to invest less when there is an exchange rate devaluation. We tried different controls for the competitiveness effect. First, we control directly for the effect of the exchange rate on exports and imported inputs. We then pursue an alternative investigation strategy, inspired by the credit channel literature. According to this perspective, Tobin’s q can provide an adequate control for the competitiveness effect on investment. Our results provide supporting evidence for imperfect capital markets, and for a negative exchange rate balance sheet effect in Brazil. The results concerning the exchange rate balance sheet effect on investment are statistically significant and robust across the different specifications. We tested the results across different periods, classified according to the macroeconomic environment. Our findings suggest that the negative exchange rate balance sheet effect we found in the whole sample is due to the floating exchange rate period. We also found that exchange rate devaluations have important negative impact on both cash flows and sales of indebted firms. Furthermore, the impact of exchange rate variations is asymmetric, and the significant effect detected when no asymmetry is imposed is engendered by exchange rate devaluations.