Article

Output, inflation, and stabilization in a small open economy: Evidence from Mexico

April 1995
Journal of Development Economics 46(2):271-293

April 1995
46(2):271-293

DOI:10.1016/0304-3878(94)00064-J

Source
RePEc

Authors:

John H. Rogers

Fudan University

We study the sources of fluctuation in output and inflation for Mexico, considering fiscal, real, money growth, exchange rate, and asset market disturbances, which are identified using an estimable equilibrium model incorporating important features of high-inflation economies. Changes in inflation are influenced by all shocks, while output growth is explained by real, fiscal, and asset shocks. The results lend strong support to the fiscal view of inflation, and to a lesser degree support the balance of payments view. We also find that higher inflation and higher budget deficits cause each other to spiral upward.

Political Economy of High and Volatile Inflation and Real-Exchange-Rate Misalignment: Policy Issues and Some Empirical Evidence from Fourteen Countries in the Asia-Pacific

Preprint

Full-text available

Jul 2023

Akhtar Hossain

Fiscal Policy and Inflation: Understanding the Role of Expectations in Mexico

Book

Oct 2018

The effects of remittances on inflation (CPI and WPI) and exchange rate: A Case of Pakistan

Article

Full-text available

Jul 2019
ROM J ECON FORECAST

The objective of this research is to determine the effects of workers' remittances (WR) on long-term inflation in the case of Pakistan. We use the consumer price index (CPI) and the wholesale price index (WPI) as indicators of inflation and the market determined exchange rate (EXR) regime. The data of workers' remittances (WR), CPI, WPI and EXR from July 2001 to December 2016 have been used for this analysis. The outcomes of Johansen cointegration confirmed the long run association between WR and CPI and EXR, and WR and WPI and EXR. Moreover, the WR and CPI food and EXR, and WR and WPI food and EXR also demonstrated a long run association. The results of Toda-Yamamoto Wald test and Granger causality VEC/Exogeneity Wald test concluded that there is a presence of one-way causality from workers remittances to CPI and WPI. Similar results have been revealed for food groups of both inflation indicators (CPI and WPI). Therefore, it is concluded that the influx of workers' remittances causes inflation in the case of Pakistan when the exchange rate (EXR) is also included in the VAR model.

When are devaluations more contractionary? A Quantile VAR estimation for Argentina

Article

Full-text available

Mar 2022

This paper presents empirical evidence on the short- and medium-run contractionary effects of exchange rate shocks and currency devaluations for bimonetary (i. e., highly dollarized) countries. In particular, for Argentina for the period January 2004 December 2018. Using a VAR representation with quantile heterogeneity, it implements a multivariate model with four macroeconomic variables: exchange rate variations, inflation, economic activity and nominal wage growth. The empirical results show a 30% price pass-through effects and a bimodal effect on output, with both positive and negative effects. Wages ad-just less than prices with the consequent effect that real wages have a negative elasticity of 0.23 with respect to exchange rate shocks. Further analysis on the multivariate responses show that the negative effect on output is associated with a decline in real wages: a 1% fall in real wages after a currency devaluation produces a 2.3% decline in output.

Devaluaciones contractivas en América Latina. Un análisis VAR de los casos de Argentina, Chile y Colombia

Conference Paper

Full-text available

Nov 2021

Nicolas Bertholet

Resumen Utilizando metodología VAR bajo un esquema recursivo, el trabajo estima los efectos del tipo de cambio nominal sobre la inversión, el producto y la balanza comercial en Argentina, Chile y Colombia para el periodo 1950-2010. Con el objetivo de analizar la sensibilidad de los resultados obtenidos con respecto al periodo y frecuencia utilizada, también se estimaron VARs trimestrales para un periodo más reciente. Los resultados obtenidos mediante las funciones impulso-respuesta y descomposición de varianza muestran que los shocks cambiarios tienen: a) un efecto positivo sobre la balanza comercial tanto en el corto como en el mediano plazo. b) un efecto contractivo de corto plazo en el producto que está liderado por la inversión y que en el mediano plazo dicho efecto se revierte parcial o totalmente. Mediante el análisis de descomposición de varianza también encontramos que en la mayoría de los casos los shocks cambiarios explican una parte importante de la varianza de la inversión, el producto y la balanza comercial.

Exchange Rate and Macroeconomic Aggregates in Nigeria

Article

Full-text available

Dec 2022

This study analyses the impact of exchange rate on macroeconomic aggregates in Nigeria. Based on the annual time series data for the period 1970 to 2009, the research examines the possible direct and indirect relationship between the real exchange rates and GDP growth. The relationship is derived in two ways using a simultaneous equations model within a fully specified (but small) macroeconomic model, and a vector-autoregressive model. The estimation results show that there is no evidence of a strong direct relationship between changes in the exchange rate and GDP growth. Rather, Nigeria’s economic growth has been directly affected by fiscal and monetary policies and other economic variables particularly the growth of exports (oil). These factors have tended to sustain a pattern of real exchange rate over-valuation, which has been unfavourable for growth. The conclusion is that improvements in exchange rate management are necessary but not adequate to revive the Nigerian economy. A broad program of economic reform is required, which includes among others, a complementary restrictive monetary policy. On the whole, the results are informative. Keywords: Exchange rate, Macro-economy, Simultaneous equations, Nigeria.

MONETARY POLICY INNOVATIONS AND GROWTH RATE OF OUTPUT IN NIGERIA

Article

Full-text available

Jan 2015

The study examined the impact of monetary policy innovations on growth rate of output in Nigeria. This study utilized times series data within the period of 1985 to 2012 which was sourced from the statistical bulletin of Central Bank of Nigeria, Nigerian Investment Promotion Commission (NIPC) and Securities and Exchange Commission (SEC). The study employed Vector Autoregressive (VAR) estimation technique in the analysis of data. The result showed that money supply exerts significant influence on growth of output in Nigeria while exchange rate and interest rate were insignificant. The study recommended that exchange rate and interest rate should be regulated. It also suggested the need for monetary authorities to implement policy that effectively enhanced money supply.

Inflation Caused by Remittance in Nepalese Economy

Article

Nov 2022

Netra Prasad Nepal

Present paper aims at identifying the impact of remittance on inflation in Nepalese economy through econometric methodology such as Cointegration test, Vector Error Correction Models (VECM) and Granger Causality tests. Using annual data series from 1990/91 to 2018/19, the variables under study are found to be cointegrated as reported by Johansen’s cointegration test. The VECM also shows the short run and long run relationship between the variables. The Granger Causality test shows the uni-directional causality from remittance to inflation. Present paper focuses on the emphasis of using remittance on capital formation. The returned migrants are to be provided soft loans to establish domestic and small-scale industries. The returned migrants are to be encouraged to forced saving.

Empirical relationships among inflation, the real exchange rate and economic growth: an econometric investigation using annual data for 14 countries of the Asia-Pacific, 1970-2010

Conference Paper

Full-text available

Jul 2021

Akhtar Hossain

This paper uses annual data for the period 1970-2010 to conduct cointegration testing, then selects the data to a shorter period, 1980-2010, to obtain a balanced panel-data analysis. The paper investigates the triangular relationships among inflation, the real exchange rate and economic growth in 14 countries of the Asia-Pacific. It formulates two testable hypotheses for empirical investigation within a cointegration and error-correction modelling framework. The first hypothesis is that inflation and the real exchange rate have no 'cointegral relationship' although they may have a short-run causal relation especially under a real-exchange-rate targeting strategy of monetary policy. The second hypothesis is that real output and the real exchange rate may have a steady-state relation but it is not cointegral, in the sense of having causality running in at least one direction; any causality between real output (or its growth) and the real exchange rate is short-term or episodic in nature. The paper deploys two approaches ⎯ the Johansen approach and the ARDL bounds-test approach ⎯ to test for cointegral relations among inflation, the real exchange rate and real output. The test results for individual countries suggest weak cointegral relation between inflation and the real exchange rate while rejecting the presence of such a relation between real output and the real exchange rate. The Granger-causality tests, conducted within the VAR and VEC modelling frameworks, also suggest the presence of weak causality among inflation, the real exchange rate and real output. The results obtained from the panel data, however, suggest stronger causal relations among these variables. Further analysis deploying a SVAR model with panel data suggest that a real currency-appreciation raises inflation by lowering output. The results obtained by the error-correction models, however, do not suggest any significant impact of real appreciation on either output or inflation for most individual countries in the sample. Based on such varied results, the paper draws some policy implications in the context of the present debate on the economic-development policy of maintaining an undervalued real-exchange-rate as a strategy for promoting economic growth

On the Link Between Policy Uncertainty and Domestic Production in G7 Countries: An Asymmetry Analysis

Article

Apr 2021

Previous studies have assessed the impact of policy uncertainty on consumption and investment in G7 countries. In this study, we assess its impact on domestic output in the same countries. Furthermore, we argue that its impact could be asymmetric, implying that increased uncertainty affects domestic output at a different rate than decreased uncertainty. Unlike consumption and investment, we find the unanimous outcome in all G7 countries that increased uncertainty hurts domestic output and decreased uncertainty boosts it, though significant long-run asymmetric evidence was found only in the cases of Canada, Japan, and the U.S. Thus, any policy aimed at reducing uncertainty will be growth-enhancing.

Estabilidad en variables nominales y el ciclo económico: El caso de México

Book

Nov 2000

Karla Quintero

Este artículo documenta las características del ciclo económico en México durante los últimos sesenta años y analiza su relación con la estabilidad de las variables nominales. El análisis se realiza desde una perspectiva empírica y con un énfasis especial en el desempeño de largo plazo de la economía mexicana. De los años cuarenta a los años setenta la economía mexicana experimentó un periodo de crecimiento económico sostenido y de estabilidad en las principales variables nominales. Por el contrario, a partir de los años ochenta se observa una tasa de crecimiento económico menor e inestabilidad en las variables nominales. La inestabilidad nominal no solamente está asociada con un menor crecimiento económico sino que, además, coincide con cambios importantes en las características del ciclo económico. Durante el periodo con estabilidad nominal, el ciclo económico en México es muy similar al de los países industrializados y la relación con el ciclo en Estados Unidos es positiva. Sin embargo, durante el periodo con inestabilidad nominal se encuentran algunas diferencias importantes con respecto a la evidencia de las economías industrializadas y la relación con el ciclo en Estados Unidos es más difícil de identificar. Asimismo, se encuentra que las características del ciclo económico en otros países latinoamericanos, que también han experimentado periodos de inestabilidad nominal, son similares a las observadas en México y, por consiguiente, son diferentes a las observadas en los países industrializados

Empirical relationships among inflation, the real exchange rate and economic growth: an econometric investigation using annual data for 14 countries of the Asia-Pacific, 1970-2010

Preprint

Full-text available

Oct 2020

Akhtar Hossain

This paper uses annual data for the period 1970-2010 to conduct cointegration testing, then selects the data to a shorter period, 1980-2010, to obtain a balanced panel-data analysis. The paper investigates the triangular relationships among inflation, the real exchange rate and economic growth across 14 countries of the Asia-Pacific. It formulates two testable hypotheses for empirical investigation within a cointegration and error-correction modelling framework. The first hypothesis is that inflation and the real exchange rate have no 'cointegral relationship' although they may have a short-run causal relation, especially under a real-exchange-rate-targeting strategy of monetary policy. The second hypothesis is that real output and the real exchange rate may have a steady-state relation that is not cointegral, in the sense of having causality running in at least one direction; any causality between real output (or its growth) and the real exchange rate is short-term or episodic in nature. The paper deploys the Johansen and the ARDL bounds-test approaches to test for cointegration among inflation, the real exchange rate and real output. The test results for individual countries suggest weak cointegration between inflation and the real exchange rate while failing to reject the null hypothesis of no cointegration between real output and the real exchange rate. The Granger-causality tests, conducted within the VAR and VEC modelling frameworks, suggest the presence of weak causality among inflation, the real exchange rate and real output, a finding strongly supported by the panel data at a higher level of causality. Further analysis deploying a SVAR model with panel data suggest that a real currency appreciation raises inflation by lowering output. The results obtained by the error-correction models, however, do not suggest any significant impact of a real appreciation on either output or inflation for most individual countries in the sample. Based on such varied results, the paper draws some policy implications in the context of the present debate on the economic-development policy of maintaining an undervalued real exchange rate as a strategy for promoting economic growth.

On Econometric Approach to Modeling Economic Growth

Article

Full-text available

Aug 2020

. In this study, an econometric model was developed based on economic growth variables (EGV ) and macroeconomic variables(MEV ) of Nigeria using four(4) development indicators. The indicators are gross domestic product, GDP (current US Dollar), inflation rate (proxy by consumer price index, CPI), interest rate, INR (%) and exchange rate, EXR (Naira per USD). Data were collected from 1970 to 2016. The variance maximum rotation method in principal component analysis was employed. The results of the analysis aided in the classification of the variables appropriately according to the variable classification scheme at the beginning of this study. GDP and CPI are classified to positively affect economic growth variables, which means they can be used to measure Nigeria’s economic growth, while interest rate and exchange rate are classified as having positive effect on macroeconomic variables for policy making.

DETERMINANTS OF INFLATION IN EGYPT AND MEXICO: EMPIRICAL EVIDENCE

Article

Full-text available

Feb 2019

This paper empirically examines the influencing role of internal and external factors on the inflation rate for two emerging economies, Egypt and Mexico. The price level over the long run is affected by both internal and external factors in both countries. It was also found that both fiscal and monetary policies can be used to fight inflation over the long run. Furthermore, both the US interest rate and price affect the price level with the same sign in both countries over the long run. However, over the short run while as we expect the US price affects the price in Mexico it does not have any effect on Egypt's price.

Consideraciones sobre política fiscal y expectativas de inflación en México1

Article

Full-text available

Mar 2020

p>Este documento estima para México el modelo de Sargent, Williams y Zha (2009) en el cual la inflación se determina a partir de déficits fiscales financiados mediante expansiones monetarias, así como por las expectativas de inflación. La estimación del modelo sugiere que la evolución histórica de los déficits fiscales es clave para explicar la dinámica de la inflación en México. Hasta antes de la autonomía del Banco de México en abril de 1994, el modelo sugiere que la monetización de estos déficits habría determinado la dinámica de la inflación en México. Posteriormente, se encuentra evidencia que sugiere la presencia de canales indirectos a través de los cuales los déficits fiscales vía ajustes en la prima por riesgo soberano y en el tipo de cambio nominal aún han tenido cierto impacto sobre las expectativas de inflación. Esto último resalta la importancia de la disciplina fiscal, en adición a la autonomía del Banco Central, para preservar un entorno de estabilidad de precios. CONSIDERATIONS REGARDING FISCAL POLICY AND INFLATION EXPECTATIONS IN MEXICO ABSTRACT This document estimates the model of Sargent, Williams y Zha (2009) in which inflation is determined by fiscal deficits financed through monetary expansions as well as inflation expectations. The estimation of the model suggests that the historical evolution of fiscal deficits is key to explaining the dynamics of inflation in our country. Before the autonomy of the Bank of Mexico in April 1994, the model suggests that the monetization of these deficits would have determined the dynamics of inflation in Mexico. Subsequently, evidence is found that suggests the presence of indirect channels through which fiscal deficits via adjustments in the sovereign risk premium and in the nominal exchange rate have still had some impact on inflation expectations. The latter highlights the importance of fiscal discipline, in addition to the autonomy of the Central Bank, to preserve an environment of price stability. </p

Effect of Monetary-Fiscal Policies Interaction on Price and Output Growth in Nigeria

Article

Full-text available

Jun 2013

This paper investigates the effectiveness of monetary-fiscal policies interaction on price and output growth in Nigeria. The dynamic correlations of variables have been captured by the analyses of impulse response and variance decomposition. From innovation analyses, the results suggest that the policy variables money supply and government revenue have more positive impact on price and economic growth in Nigeria specifically in the long run, thus some time with lag. Although monetary and fiscal policy variables have a dominant effect on economic activity, it is clear from this study that economic activity is dominated by its own dynamics in most of the periods. The estimates presented in this paper suggest that both monetary and fiscal policy exert greater impact on real GDP and inflation in Nigeria. Overall, it is evident that the impact of policy is sorely depending on the policy variable selected, although some policy variables are considered to be more beneficial to the social and economic development.

Exchange Rate and Macroeconomic Aggregates in Nigeria

Article

Full-text available

Dec 2019

The Contributions of Domestic and External Factors to Latin American Devaluation Crises : An Early Warning Systems Approach

Article

Sep 1999

In this paper we develop a modified "early warning system" (EWS) approach to identifying the roles of domestic and external factors in Latin America's crises. Several probit models of balance-of-payments crises, based on different identified sets of crisis dates, were estimated for six Latin American countries. These models were then used to identify the separate contributions to the probabilities of crisis of domestic and external variables. Our basic finding is that, when the effect of adverse external shocks is removed from the simulated probabilities of devaluation in Latin America, the resultant simulated devaluation probabilities are still high. Taken at face value, these results indicate that devaluation crises in Latin America primarily have been a function of domestic policy and economic imbalances, with exogenous external factors playing only a secondary role. All else equal, this suggests that the adoption of strongly fixed exchange rate regimes in the region may not be too costly in terms of diminished ability to respond to exogenous external shocks.

Output and the Real Exchange Rate in Developing Countries : An Application to Mexico

Article

Full-text available

May 1997

Since Mexico's devaluation of the peso in 1994, some observers have called for policies designed to keep the real exchange rate highly competitive in order to promote exports and output growth. However, over the past few decades, devaluations of the real exchange rate have been associated nearly exclusively with economic contraction, while real appreciations have been followed almost invariably by expansions in economic activity. The purpose of this paper is to attempt to disentangle the possible factors underlying this correlation--(1) reverse causation from output to the real exchange rate, (2) spurious correlation with third factors such as capital account shocks, and (3) temporary contractionary effects of devaluation--and determine whether, once those factors are accounted for, a positive, long-run effect of real depreciation on output can be identified in the data. Based on the results of a VAR model designed to explore the linkages between the real exchange rate and output, we conclude that even after sources of spurious correlation and reverse causation are controlled for, real devaluation has led to high inflation and economic contraction in Mexico. While changes in Mexico's economic structure and financial situation may qualify the future applicability of this conclusion, we view our findings as pointing to substantial risks to targeting the exchange rate at too competitive a level.

The Contribution of Domestic and External Factors to Emerging Market Devaluation Crises : An Early Warning Systems Approach

Article

Sep 2001

In this paper, a modified "early warning system" (EWS) approach is developed to identify the roles of domestic and external factors in emerging market crises. Several probit models of financial crises were estimated for 26 emerging market countries. These models were used to identify the separate contributions to the probabilities of crisis of domestic and external variables. We found that, relative to domestic factors, adverse external shocks and large external imbalances contributed little to the average estimated probability of crisis in emerging market countries, but accounted for much more of the spikes in the probability of crisis estimated to occur during actual crisis years. We interpret these results to suggest that while, on average over time, domestic factors have tended to contribute to much of the underlying vulnerability of emerging market countries, adverse swings in external factors may have been important in pushing economies "over the edge" and into financial crisis. In consequence, the costs of giving up exchange rate flexibility through adoption of strongly fixed exchange rate regimes--e.g., currency boards or dollarization--may be quite high for some countries.

Foreign Direct Investment and Economic Growth: Evidence from Nigeria

Article

Full-text available

Apr 2019

This paper empirically examines the effects of Foreign Direct Investment (FDI) on economic growth in Nigeria. Employing the Error Correction Model (ECM), annual secondary time series data covering the period of 1979 to 2013 were analysed using an ECM technique to determine the short and long run effect of FDI on economic growth of Nigeria. Granger causality methodology was used to analyze and establish the nature of relationship (if any) between FDI and economic growth in Nigeria. Our empirical analysis reveals that Foreign Direct Investment (FDI) has both immediate and time lag effect on Nigeria economy in the short run. And FDI has a non significant negative effect on the Nigerian economy in the long run during the period under review. This was further confirmed by the causality test which shows that FDI granger causes RGDP and not the other way. Thus FDI has a significant positive effect on the growth as well as the development of the Nigerian economy only in the short run during the period under review. We therefore conclude and recommend that government should ensure stable macroeconomic policies as a stabilization tool to propel the attraction of more FDI into Nigeria and dependency on foreign direct investment should remain limited.

Variation in nominal and real effective exchange rates: evidence across developed and developing countries

Article

Full-text available

Jun 2019

Magda Kandil

Recent episodes of excessive volatility in the foreign exchange market have brought to the fore the interest in studying the transmission mechanism of global uncertainty on the domestic economy. At the core is the degree of adjustment in the exchange rate as a shock absorber and the impacts of domestic policies in mitigating the spillover effects of global volatility. Using data for a sample of advanced and developing countries, the paper studies the responses of the nominal effective exchange rate, the real effective exchange rate, and price inflation to domestic and external sources of economic shifts. Subsequently, the analysis evaluates the degree of correlations between the responses of these variables to each economic shift. The objective is to study sources of movements in the real effective exchange rate and bilateral nominal exchange rates versus price inflation. The analysis then turns to evaluation of the determinants across countries of the time-series correlations between the change in the real effective exchange rate and its underlying components—nominal change and inflation—within countries over time. Cross-country regressions establish the relevance of the trend and variability of each of price inflation, the change in the nominal exchange rate, and the change in the real exchange rate on the degree of association between each pair. The evidence attests to a high pass-through from fluctuations in the nominal exchange rate to price inflation, which is more pronounced in developing countries, attesting to the need to target the real effective exchange rate as a framework for monetary policy.

MONETARY POLICY OPERATION IN NIGERIA FROM 1980 TO 2016.

Article

Full-text available

Sep 2018

Currency Devaluation and Macroeconomic Variables Responses in Nigeria: A Vector Error Correction Model Approach: 1986-2016

Article

Full-text available

Jan 2017

Exchange rate devaluation is said to have ripple effects on macroeconomic variables. Hence, this study empirically examined how macroeconomic variables responded to currency devaluation in Nigeria: 1986-2016. In other to achieve our aim, the Augmented Dickey Fuller (ADF) and Philip Peron (PP) stationarity tests were employed to examine the stationarity properties of the variables stated in the model, while Johansen Co-integration test was employed to see if there is a long run relationship among the variables in the model. It was then revealed that, all the variables were integrated of the same order and were stationary at first difference I(1), while the result of the co-integration test revealed that, there is long run relationship among the variables. These therefore necessitates the use of Vector Error Correction Model (VECM) model and Impulse Response in the analysis. The result revealed that, exchange rate devaluation have a positive and significant impact on macroeconomic variables tested, including economic growth in Nigeria. While the impulse response result showed that, real gross domestic product (RGDP), one period lag of exchange rate devaluation, money supply, external reserve, interest rate, balance of payment all responded positively to shocks generated by exchange rate devaluation in the economy; while inflation, trade openness and non-oil export responded negatively. In the same vein, while exchange rate devaluation revealed progressive and noteworthy impact on balance of payment, its impact on non-oil export were found to be negative which is in tandem with the findings from previous studies. It is equally important to state that, even though there are diverse benefits from currency devaluation, but these benefits can only be harnessed when there is improvement in the production of goods and services for both domestic consumption and export purposes.

Industrial Output Response to Inflation and Exchange Rate in Nigeria: An Empirical Analysis

Article

Full-text available

Oct 2018

This study investigates the response of aggregate industrial output to relative change in prices and exchange rate in Nigeria using data from 1970-2011. A vector error correction (VEC) model was employed and the dynamic correlations of the variables have been captured by the analyses of the impulse response and variance decomposition. The response of industrial output to the shock to exchange rate was significantly positive more specifically in the initial years, while a shock to prices changes, the industrial output responds negatively although with small magnitude at the beginning. From variance decomposition; the study shows that although the main source of variance in output is own shocks, innovation in the exchange rate account for a higher proportion in the variation of industrial output than that of prices. The study concludes that inflation and exchange rate has the potentials of causing significant changes in industrial output in Nigeria. This study, therefore, suggests that more policy attention should be given to the proper management of the exchange rate and inflation.

Foreign Exchange Rate and the Hong Kong Economic Growth

Article

Jan 2017

RMB Exchange Rate and China’s Economic Growth: The Empirical Analysis from a Structural VAR Model

Article

Full-text available

Jun 2017

This paper analyzes the relationship between the exchange rate and the real GDP of China in the long period from 1952 to 2014 using a structural VAR model. We examine the mutual effect of the two variables in three periods: The results show that there is no obvious relationship between the exchange rate and real GDP before China’s reform and opening-up period. However, a significant positive correlation is found in the sample of 1979-1993, which means that the depreciation of the RMB is associated with the output increases. The direction between the exchange rate and real GDP becomes negative after 1994, indicating that RMB appreciates with the output increases in this period. In addition, based on Granger causality test, we found the exchange rate could Granger causes GDP after 1978, but there is no Granger causality connection between the two variables before 1978.

Output and the Real Exchange Rate in Developing Countries: An Application to Mexico

Article

Jan 1997

Asymmetry effects of exchange rate changes on domestic production in Japan

Article

May 2017

Previous studies that assessed the effects of currency depreciation on the domestic production of Japan did not find any significant long-run effects. Using the linear ARDL approach we first confirm previous findings. We then argue and show that failure to find any significant link between the value of the yen and Japanese domestic production is due to assuming a linear adjustment mechanism or symmetric effects of exchange rate changes. Once we use the nonlinear ARDL approach we show that indeed exchange rate changes do have asymmetric effects on domestic production in Japan. Not only we observe adjustment asymmetry, but also short-run asymmetry that lasts into the long run. In the long run while strong yen seems to hurt domestic production in Japan, weak yen seems to have no effect.

Oil price effects on exchange rate, output and consumer price: A case study of small open economy of Oman

Article

Full-text available

Jan 2016

Sharp fluctuations in global oil prices and their associated impact on global economic imbalances have contributed to the renewed debate among the policy makers regarding the nature and the extent of these fluctuations. This study is designed to investigate the impact of oil prices on the small open economy of Oman. Structural Vector Auto Regressive (SVAR) model has been adopted to trace the dynamic inter-relationships among the key macroeconomic variables. Evidence suggests that changes in crude oil prices significantly affect output, external balances and the monetary and fiscal variables. The external shocks induced by positive changes in global oil prices likely affect the demand management policies in the short and long-run. In the long-run, changes in oil prices determine the output and subsequent fiscal and monetary policy changes, while in the short-run, fluctuations are contained well through demand management policies. Continuation of expansionary fiscal and monetary policies may likely contain the effects of imported inflation. However, in the long run, over reliance on expansionary policies may less likely to be a feasible option. © 2016, Statistical Economic and Social Research and. All rights reserved.

Real Effective Exchange Rate and Regional Economic Growth in China: Evidence from Provincial Data

Article

Nov 2016
CHINA WORLD ECON

Using data for the period 2000–2011, we construct province-level real effective exchange rate (REER) indices for China and test the effect of REER depreciation on regional economic growth in a generalized method of moments regression framework. Our results show that REER depreciation, in general, promotes regional economic growth, through increasing net exports and lowering FDI costs. After dividing the full sample into coastal and inland subsamples, we find that REER depreciation influences economic growth in inland areas but not in coastal areas. This is due to the fact that the inland areas have more surplus labor or other resources to expand their production capacity when REER depreciation leads to increased world demand. Furthermore, compared to inland areas, processing-and-assembly trade comprises a larger share of trade in the coastal areas, where traders import more raw materials and intermediate goods to process and assemble goods. When the exchange rate depreciates, the costs of imported materials and immediate goods increase. In this case, the benefits from REER depreciation in coastal areas are offset to some extent and are thus lower than in inland areas.

Key determinants of inflation and monetary policy in the emerging markets: Evidence from Vietnam

Article

Jan 2016

The study explores the key determinants of inflation in Vietnam for a period of ten year (2000-2011) using the explanatory variables: past inflation, real income, money supply, exchange rate, interest rate and world oil price. This study uses a vector error correction model to investigate the relationship among inflation and the above variables. We found significant relationships among inflation and three variables, past inflation, real income and exchange rate, moreover, the past inflation variable plays the most important role in explaining the current inflation in Vietnam. The exchange rate pass-through is found to have a remarkable influence on inflation in the short run, in particular, a reduction in exchange rate will lead to higher prices. Real income has a negative and small impact relationship with inflation, while the other explanatory variables have insignificant impact on inflation.

Domestic policies and external spillovers: Evidence across developed and developing countries

Article

Sep 2016
Int J Dev Issues

Magda Kandil

Purpose Using data for a sample of advanced and developing countries, this paper aims to study the responses of monetary growth and the growth of government spending to external spillovers, namely, the growth of exports and imports, movement in the real effective exchange rate and the change in the oil price. The objective is to study movements in domestic policy variables in open economies that are vulnerable to trade and commodity price shocks. Design/methodology/approach The analysis evaluates correlations between the responses of the policy variables to external spillovers. Further, the analysis studies the effects of indicators of economic performance on domestic policy responses to various shifts across countries. Findings Higher variability of real and nominal growth increases the fiscal policy response to external spillovers with an aim to stem further variability. Monetary policies appear to be more responsive to trend price inflation with an aim to stem further inflationary pressures. Fiscal policy’s reaction to trend price inflation aims at striking a balance between countering potential inflationary pressures, as well as recessionary conditions attributed to the various spillovers. Originality/value Overall, the evidence points to the importance of trade and commodity price shifts to the design of domestic policies. Further indicators of economic performance differentiate the degree of policy responses to trade and commodity price developments with a goal to stem inflationary pressures and reduce aggregate uncertainty.

The Role of Oil Prices, the Real Effective Exchange Rate, and Inflation in Economic Activity of Russia: An Empirical Investigation

Article

Full-text available

Jan 2015

Asset Izatov

In this study we employ empirical analysis to observe the impact of changes in the inflation rate, real exchange rate instability, and oil price fluctuations on the level of real economic activity of Russia. A Vector Autoregressive (VAR) Model was represented and estimated along with Vector Error Correction Model (VECM). There was revealed the existence of long-run cointegration between economic activity, the real effective exchange rate and oil prices over the 01/1995-03/2015 period. In addition, the effect of these factors on the economic output is positive. However, cointegration with inflation was not present in the long-run over the sample period. While in the short-run only the real effective exchange rate had an effect on the economy of Russia. The important feature of this research is that there was revealed an automatic adjustment mechanism in the model, which helps the economy of Russia to reach its equilibrium after the shock. The paper insists on implementation of the relevant reforms to the fiscal policy to diversify and strengthen the economy.

Key determinants of inflation and monetary policy in the emerging markets: evidence from Vietnam

Article

Full-text available

Apr 2015

The study explores the key determinants of inflation in Vietnam for a period of ten year (2000–2011) using the explanatory variables: past inflation, real income, money supply, exchange rate, interest rate and world oil price. This study uses vector error correction model to investigate the relationship among inflation and the above variables. We found significant relationship among inflation and three variables, past inflation, real income and exchange rate, moreover, the past inflation variable is playing the most important role in explaining the current inflation in Vietnam. The exchange rate pass – through is found to have a remarkable influence on inflation in the short run, in particular, a deduction in exchange rate will lead to higher prices. Real income has a negative and small impact relationship with inflation, while the other explanatory variables have insignificant impact on inflation.

The Adverse Effects of Real Exchange Rate Variability in Latin America and the Caribbean

Article

Full-text available

Jan 2019
J APPL ECON

Magda Kandil

The paper examines the pros and cons of anticipated appreciation and the asymmetric effects of short-term exchange rate fluctuations in a sample of countries in Latin America and the Caribbean. On the demand side, exchange rate depreciation increases competitiveness and export growth, expanding output growth. On the supply side, depreciation increases the cost of imported inputs, increasing output capacity constraints and accelerating price inflation. The time-series evidence indicates that output expansion (contraction) and price deflation (inflation) predominate with anticipated currency appreciation (depreciation). The cross-country results show that exchange rate variability exacerbates the variability of economic activity across countries. Short-term fluctuations of the exchange rate may reflect the adverse effects of unanticipated currency fluctuations. Therefore, more flexibility towards aligning the real effective exchange rate with the underlying fundamentals could help mitigate the adverse effects of higher cost of imports and loss of competitiveness on real growth, and ease inflationary pressures.

Optimal robust monetary policy in a small open economy

Book

Full-text available

Dec 2022

En este documento estudiamos una política monetaria óptima y robusta para una economía pequeña y abierta. El enfoque de control robusto supone que los agentes económicos no pueden asignar probabilidades a un conjunto de modelos factibles; por lo tanto, se enfoca en la peor especificación posible de un modelo de referencia. Nuestros resultados sugieren que la implementación de una política monetaria óptima y globalmente robusta es limitada, debido a que las desviaciones del modelo de referencia conducen a múltiples equilibrios. Segundo, cuando el banco central considera incertidumbre exclusivamente en la curva IS o en la condición UIP, el espacio de soluciones únicas se expande. Así, el banco central reacciona de manera más agresiva a choques de demanda o de tipo de cambio real cuando es robusto a errores de especificación en la curva IS. Finalmente, encontramos que la política monetaria robusta está restringida por la persistencia de la inflación y el bajo traspaso del tipo de cambio a los precios. Destaca la importancia de anclar las expectativas de inflación.

EFFECT SELECTED MACRO ECONOMIC VRIABLES ON THE PERFOMANCE OF SMALL AND MEDIUM SCALE ENTERPRISES

Article

Full-text available

Dec 2022

Sani AbdulRahman Bala

This study was carried out to investigate the effect of selected macro-economic variables on the performance of Small and Medium Scale Enterprises (SMEs) in Kebbi State, Nigeria. The research employed a quantitative survey design. The purpose of the study was to assess effect of interest rate, exchange rate, and inflation rate on the SMEs financial performance in Kebbi State. SMES was seen in the study as indispensable components of natural development in both developed and developing economies. The research employed purposive sampling technique to sample 100 SMEs out of 815 across all the 21 local governments of Kebbi State. Secondary data extracted from reports of the Central Bank of Nigeria (CBN) statistical bulletin (2018), Federal Ministry of Finance (2018), and Nigerian National Petroleum Corporation Annual Statistical Bulletin (2018) were used. The collected data were analysed with Time Series analysis tool but estimated with Fully Modified Least Square (FMLS) Regression Technique. The findings of the study revealed that when all the explanatory variables are kept constant, the output of the SMEs sector in Kebbi State is 3.012. Also, the result showed that exchange rate significantly impacted on SMEs output in Kebbi State. Its value of .028 implies that while keeping constant inflation rate and interest rate, a percentage increase in the naira relative to the US dollar (currency depreciation) brought about 2.8% increase in the output of SMEs in Kebbi State. The study, therefore, concludes that monetary policy has a very important role to play in determining the performance of the SMEs in Kebbi State. The study recommended that there should be flexibility in monetary and expansionary policies that will stimulate the performance of SMEs in Kebbi State.

The Effect of Exchange Rate on Gross Domestic Product (GDP) on the Nigerian Economy using ARDL-ECM approach

Article

Full-text available

Jun 2022

This paper investigates the effect of exchange rate on gross domestic product (GDP) on the Nigerian economy from 1981-2021. The data was obtained from the CBN annual statistical bulletin. The application of the ARDL-ECM procedure for the analysis indicated that GDP in Nigeria is not responsive to exchange rate movement on the long run. A short run relationship was found to exist between GDP and exchange rate which is statistically significant. The Error correction mechanism (ECM) was found to have a short run dis-equilibrium adjustment of about 68.75% for correcting any deviation from the long run equilibrium. The model did not have a serial correlation but was found to be stable, which indicated that the result maybe appropriate for policy stipulation. Findings from the data obtained confirmed that policy makers should not completely rely on exchange rate manipulation as an instrument to boost the economy but should consider other economic variables to strengthen the GDP of the economy.

Exchange rate regime, world oil prices and the Mexican economy

Article

Nov 2021

This paper studies the effects of the exchange rate regime of the Mexican economy on how the oil price shocks affect the domestic economic performance by considering the period from January 1992 to December 2019. The empirical evidence reported here reveals that a positive oil price shock appreciates the local currency, increases interest rates, output, and prices. However, once the exchange rate channel is closed, the interest rate increases, and prices will be higher. However, we could not find any statistically significant evidence of the effect on output changes with the exchange rate regime. Thus, the flexible exchange rate regime may promote price stability when the Mexican economy faces an oil price shock.

Oil prices and correlation with fundamentals of the Economy

Preprint

Full-text available

May 2021

Efthymios Papadopoulos

The relationship between oil price, exchange rate, inflation, unemployment and economic activity is analysed

Macroeconomic Fluctuations in Developing Countries: Some Stylized Facts

Article

Jan 1999

Exchange Rate Fluctuations and Output in Oil-Producing Countries: The Case of Iran

Article

Jan 2007

The Effects of Exchange Rate Fluctuationson Output and Prices: Evidence From Developing Countries

Article

Jan 2003

Impact of the Foreign Direct Investment on Economic growth in the Republic of Benin

Article

Jul 2019

Toyo Amègnonna Marcel Dossou

Asymmetry Effects of Exchange Rate Changes on Domestic Production in Emerging Countries

Article

Full-text available

Jul 2017

Previous studies that tried to assess the impact of exchange rate changes on domestic production of emerging economies assumed that the effects are symmetric and used a linear model to provide mixed results. In this paper, we try to determine whether exchange rate changes could have asymmetric effects which amounts to using a nonlinear model. We find that the nonlinear model performs much better than the linear model and yields results that support asymmetry effects of exchange rate changes on domestic production in many of the countries in our sample, both in the short run and in the long run.

Inflación, crecimiento y política económica en México

Article

Sep 2008

Víctor Cuevas

This paper investigates the leading sources of inflationary pressure and output variations in the Mexican economy. To this end, we make use of a multivariate error-correction model, which is consistent with a small open economy with a floating exchange rate system. As our object is to let the data expose the key determinants of prices and output, we resort to a broad aggregate demand-aggregate supply model consisting of three markets: goods, money, and labor. Taken as a whole, the empirical evidence suggests that monetary expansions are basically accommodated through a higher price level, rather than a higher economic activity. In the short run, real exchange rate depreciations produce a moderate effect on inflation and an insignificant effect on output. In the long run, however, an undervalued currency results in production losses. In addition, we find that i) both inertial inflation and inflationary expectations are among the driving forces of price instability, and ii) shocks to nominal wages are recessionary at impact and this negative effect is persistent over time. Lastly, nominal wages are a positive function of capacity utilization and the expected rate of inflation, thereby suggesting a forward-looking wage adjustment process. As we shall see, these findings have some relevant implications not only for the monetary and the exchange rate policies, but also for the so-called central bank's credibility.

Currency flexibility and real output volatility: Evaluating the credibility of Zimbabwe's exchange rate policies

Article

Aug 2011

Thandinkosi Ndhlela

Using a case study of Zimbabwe, this paper evaluates the performance of Zimbabwe's post independence exchange rate regimes. The analysis employs an exchange rate regime evaluation model that captures the link between deviations of the real exchange rate from its 'equilibrium' shadow price level, and real output volatility. The underlying hypothesis is that this 'link,' or relation, varies systematically with the exchange rate regime. Using the parallel market rate and an estimated equilibrium real exchange rate index as alternative shadow prices, the empirical exercise involves estimating the parameters of an aggregate demand and money demand model, and then to simulate the evaluation model to determine the optimal exchange rate regime. The findings show that a flexible rate regime systematically outperforms a fixed exchange rate in the Zimbabwean setting, resulting in more stable output under both measures, even after controlling for themost volatile period of the sample. The paper can infer that the Reserve Bank's inflexible approach to exchange rate management, even at a time when the currency was meant to be floating could have largely contributed to the failure of exchange rate policy.

Does the Status of Governance Practices Differentiate Countries in the Forex Market?

Article

May 2014

Naseem Ahamed

Liberalization of the Indian economy (in 1991) and many other economies contemporarily made the survival of isolated economies out of question. With the opening up of economic barriers, better governance practices flowed from good governed to relatively badly governed countries. Now, with increased industrialization and opening up of economies for trade and commerce, political boundaries of nations have been transgressed by businesses. However, this opportunity of making money abroad may also bring some inconvenience to the parent company as it might suffer losses or receive eroded profits when the foreign currency is converted to the local currency at prevailing rates (Pandey, 2010). There may be several other examples like this in real and hypothetical scenarios, and these need to be addressed with prudence. This topic does the same as it calls for attention towards these risks and precautions/remedies available for the same. Apart from the MNCs, there are people who enter into the currency markets for speculative gains. These traders do not require these foreign currencies, but they buy/sell them for making profits from the existing market situations. The proportion of these traders is much larger than those who need foreign currency to make payments, give wages, and so forth. The present paper intends to provide an econometric model for the traders in the currency market which could, up to a reasonable extent, anticipate the fluctuations in major globally transacted currency pairs. This would be handy for the traders and for large businesses running overseas (which have to deal in different currency regions) as they can accordingly decide whetherto invest in a particular currency or not.

Long Run Impact of Exchange Rate on Nigeria's Industrial Output IOSR Journal of Economics and Finance

Article

Full-text available

Sep 2015

While many scholars have carried out a lot of research on the impact of exchange rate volatility and price shocks on economic growth, this study departs from previous studies and seeks to provide suggestions for Nigerian policy makers on the attainment of an ideal exchange rate necessary to boost industrialization and industrial output. The economies of all the countries of the world are linked directly or indirectly through asset and goods markets. This linkage is made possible through trade and foreign exchange. The price of foreign currencies in terms of a local currency (i.e. foreign exchange) is therefore important to the understanding of the growth trajectory of all countries of the world. The consequences of substantial misalignments of exchange rates can lead to output contraction and extensive economic hardship. These therefore, bring up the issue of an ideal exchange rate necessary for the achievement of a set of diverse objectives-economic growth, containment of inflation and maintenance of external competiveness. This study employed the use of the ordinary least square technique to examine the impact of exchange rate stability on industry output in Nigeria using annual time series data from 1980 to 2013. The result of the study showed that domestic capital, foreign direct investment, population growth rate, and real exchange rate were significant determinants of industrial output. The changes in external balance and inflation were of little or no consequences to industrial output. Based on the findings, the researcher recommended that conscious efforts should be made by government to fine-tune the various macroeconomic variables in order to provide an enabling environment that stimulates industrial output and eventual economic growth.

Anomalies: Foreign Exchange

Article

Full-text available

Aug 1990
J ECON PERSPECT

most (all?) behavior can be explained by assuming that agents have stable, well-defined preferences and make rational choices consistent with those preferences in markets that (eventually) clear. An empirical result qualifies as an anomaly if it is difficult to "rationalize," or if implausible assumptions are necessary to explain it within the paradigm. This column will present a series of such anomalies. Readers are invited to suggest topics for future columns by sending a note with some reference to (or better yet copies of) the relevant research. Comments on anomalies printed here are also welcome. The address

Government Spending and the Real Exchange Rate

Article

Full-text available

May 1987
J INT ECON

Alessandro Penati

I study the effect of government spending on the real exchange rate in an open economy version of the Sidrauski model with a time-varying rate of time preference that introduces complementarity between consumption at different points in time. I show that a balanced budget fiscal expansion causes a real depreciation and a current account surplus if the expansion falls on traded goods. If the increase falls instead on nontraded goods, both the ‘stylized’ results of a real appreciation and a current account deficit and the ‘perverse’ result of an appreciation and a surplus can occur.

The dynamic effects of aggregate demand and supply disturbances

Article

Full-text available

Jan 1990

A Traditional Interpretation of Macroeconomic Fluctuations

Article

Full-text available

Jan 1989

Olivier Blanchard

Under the traditional interpretation of macroeconomic fluctuations, aggregate demand shocks move output and prices in the same direction, while aggregate supply shocks move output and prices in opposite directions. This paper examines the joint behavior of U.S. output, unemployment, prices, wages, and nominal money and asks whether it is consistent with this interpretation. The answer is a qualified yes. Copyright 1989 by American Economic Association.

Macroeconomis and Reality

Article

Full-text available

Feb 1980
ECONOMETRICA

Christopher Sims

Existing strategies for econometric analysis related to macroeconomics are subject to a number of serious objections, some recently formulated, some old. These objections are summarized in this paper, and it is argued that taken together they make it unlikely that macroeconomic models are in fact over identified, as the existing statistical theory usually assumes. The implications of this conclusion are explored, and an example of econometric work in a non-standard style, taking account of the objections to the standard style, is presented.

The Dynamic Effects of Aggregate Demand and Supply Disturbances: Reply.

Article

Full-text available

Feb 1993

Some Unpleasant Monetarist Arithmetic

Article

Dec 1985
Q Rev

Economic policy and foreign debt in Mexico

Article

E. Buffie

Empirical Analysis of High-Inflation Episodes in Argentina, Brazil, and Israel

Article

Jul 1988
IMF STAFF PAPERS

Peter J. Montiel

Although accommodative policies and widespread indexation may account for the persistence of high inflation, they cannot explain changes in the inflation rate. The causes of such changes for the high-inflation episodes immediately preceding the recent "heterodox" attempts at stabilization in Argentina, Brazil, and Israel are examined by computing historical decompositions of these episodes based on vector autoregressions, distinguishing between the "fiscal" and "balance of payments" views of their causes. In all three cases, nominal exchange rate shocks played the dominant role in triggering an acceleration of inflation.

Inflation, Lags in Collection, and the Real Value of Tax Revenue (L'inflation, les retards de recouvrement et la valeur rÃ©elle des recettes fiscales) (InflaciÃ³n, desfases en la recaudaciÃ³n y valor real de los ingresos tributarios)

Article

Mar 1977
IMF STAFF PAPERS

Vito Tanzi

The literature dealing with the impact of inflation on tax revenue has assumed that two conditions hold, namely, that (1) taxes are paid as they accrue, and that (2) tax systems are generally elastic. When these two assumptions are valid, inflation is likely to lead to increases in real tax revenue. On the other hand, when the assumptions do not hold--that is, when a country is characterized by substantial lags in tax collection or when its tax system has an elasticity close to one--the consequences of inflation can be quite different. This alternative situation applies to most developing countries and may even apply to some industrial countries. In this paper, the problem of lags in collection is analyzed in a theoretical framework, which is subsequently used to explain the behavior of revenue during the recent Argentine inflation. The theoretical part shows how lags in payments and rates of inflation interrelate to affect real tax revenue. Assuming that the tax system has an elasticity not too different from one, a matrix can be developed that shows by how much real revenue falls when inflation (per month) increases by a certain amount and the average lag (in months) has a given value. The matrix also shows the gain in real revenue associated with a given decrease in the length of the collection lag. In addition, a mathematical appendix shows how the lag and the rate of inflation interrelate with the elasticity of the tax system. This analysis is finally applied to Argentina. Defining Ti as the proportion of 1974 total tax revenue generated by a particular tax (or group of taxes), and Li as the lag between the time when the liability for that tax payment was created and the time when the payment was actually made, the tax system's total lag was the sum of the product of Ti and Li. This total lag was estimated at 4.3 months and 5.7 months, depending on whether social security taxes were included. Using these total lags in conjunction with the change in the monthly rate of inflation between 1974 and 1975, it was shown that much of the sharp fall in revenue over those years could be attributed to the acceleration of inflation in conjunction with the lag in collection. /// Les ouvrages qui traitent de l'incidence de l'inflation sur les recettes fiscales prennent comme point de dÃ©part deux hypothÃ¨ses, Ã savoir, 1) que les impÃ´ts sont payÃ©s au fur et Ã mesure qu'ils Ã©choient et 2) que les rÃ©gimes fiscaux sont gÃ©nÃ©ralement Ã©lastiques. Lorsque ces deux hypothÃ¨ses sont valides, l'inflation aboutit normalement Ã un accroissement des recettes fiscales rÃ©elles. Par contre, lorsqu'elles ne le sont pas -- c'est-Ã -dire lorsqu'un pays se caractÃ©rise par des retards substantiels dans le recouvrement de l'impÃ´t ou lorsque son rÃ©gime fiscal a une Ã©lasticitÃ© proche de l'unitÃ© -- les consÃ©quences de l'inflation peuvent Ãªtre trÃ¨s diffÃ©rentes. Cette situation s'applique Ã la plupart des pays en dÃ©veloppement et peut mÃªme s'appliquer Ã quelques pays industrialisÃ©s. Le prÃ©sent article analyse le problÃ¨me des retards de recouvrement dans un cadre thÃ©orique qui est ultÃ©rieurement utilisÃ© pour expliquer le comportement des recettes pendant la rÃ©cente pÃ©riode d'inflation en Argentine. La partie thÃ©orique montre comment les retards de paiements et les taux d'inflation se conjuguent pour influer sur les recettes fiscales rÃ©elles. Dans l'hypothÃ¨se oÃ¹ le rÃ©gime fiscal a une Ã©lasticitÃ© qui n'est pas trop Ã©loignÃ©e de l'unitÃ©, il est possible de mettre au point une matrice qui montre dans quelle mesure les recettes rÃ©elles diminuent lorsque l'inflation (par mois) augmente Ã un certain rythme et lorsque le retard moyen (en mois) a une valeur donnÃ©e. La matrice montre aussi le gain des recettes rÃ©elles liÃ© Ã une diminution donnÃ©e de la durÃ©e du retard de recouvrement. De plus, une annexe mathÃ©matique montre comment le retard et le taux d'inflation sont liÃ©s Ã l'Ã©lasticitÃ© du rÃ©gime fiscal. L'auteur applique enfin cette analyse au cas de l'Argentine. DÃ©finissant Ti comme Ã©tant la part du total des recettes fiscales de 1974 engendrÃ© par un impÃ´t (ou groupe d'impÃ´ts) particulier, et Li comme Ã©tant le dÃ©calage entre la date de l'Ã©chÃ©ance de l'impÃ´t et celle du paiement effectif, il conclut que le dÃ©calage est la somme du produit de Ti et Li. Ce dÃ©calage total a Ã©tÃ© estimÃ© Ã 4,3 mois et 5,7 mois, selon que les cotisations Ã la sÃ©curitÃ© sociale sont incluses ou non. Utilisant ces dÃ©calages de concert avec la variation du taux mensuel d'inflation entre 1974 et 1975, il montre que la baisse brutale des recettes au cours de ces annÃ©es peut Ãªtre en grande partie attribuÃ©e Ã l'accÃ©lÃ©ration de l'inflation et au retard de recouvrement. /// Las obras que se ocupan del impacto de la inflaciÃ³n sobre los ingresos tributarios hacen el supuesto de que se cumplen dos condiciones: 1) que los impuestos se pagan en el momento en que se devengan y 2) que los sistemas tributarios son generalmente elÃ¡sticos. Cuando son vÃ¡lidos estos dos supuestos, lo probable es que la inflaciÃ³n ocasione aumentos en los ingresos tributarios reales. Por otra parte, cuando no se cumplen dichos supuestos --es decir, cuando un paÃs se caracteriza por grandes desfases en la recaudaciÃ³n de los impuestos o cuando su sistema tributario tiene una elasticidad cercana a la unidad-- las consecuencias de la inflaciÃ³n pueden ser muy distintas. Esta diferente situaciÃ³n se aplica a la mayorÃa de los paÃses en desarrollo y puede incluso aplicarse a algunos paÃses industriales. En el presente artÃculo, el problema de los desfases en la recaudaciÃ³n se analiza en un marco teÃ³rico que se utiliza posteriormente para explicar el comportamiento de los ingresos pÃºblicos durante la reciente inflaciÃ³n en Argentina. La parte teÃ³rica indica la forma en que los desfases en los pagos y las tasas de inflaciÃ³n se interrelacionan para afectar a los ingresos tributarios reales. Suponiendo que el sistema tributario tenga una elasticidad no muy distinta de la unidad, puede formarse una matriz que indique la cuantÃa de la disminuciÃ³n del ingreso real al aumentar la inflaciÃ³n (mensual) en una cantidad determinada, teniendo el desfase medio (en meses) un valor dado. La matriz indica tabiÃ©n el aumento de ingresos reales que va unido con una determinada disminuciÃ³n en la longitud del desfase de recaudaciÃ³n. Se presenta, ademÃ¡s, un apÃ©ndice matemÃ¡tico en el que se indica la forma en que estÃ¡n interrelacionados el desfase y la tasa de inflaciÃ³n con la elasticidad del sistema tributario. Por Ãºltimo, se aplica a Argentina el mencionado anÃ¡lisis. Definiendo Ti como la proporciÃ³n de los ingresos tributarios totales generados en 1974 por un determinado impuesto (o grupo de impuestos), y Li como el desfase entre el momento en que se origina la obligaciÃ³n de pagar dicho impuesto y el momento en que efectivamente se efectuÃ³ el pago, el desfase total del sistema tributario es la suma del producto de Ti y Li. Este desfase total se estimÃ³ en 4,3 meses y 5,7 meses, segÃºn que se incluyeran los impuestos de la seguridad social. Utilizando dichos desfases totales junto con la variaciÃ³n en la tasa mensual de inflaciÃ³n entre 1974 y 1975, se demuestra que gran parte de la fuerte disminuciÃ³n en los ingresos durante dichos aÃ±os puede atribuirse a la aceleraciÃ³n de la inflaciÃ³n junto con el desfase de recaudaciÃ³n.

Confidence Intervals for the Largest Autoresgressive Root in U.S. Macroeconomic Time Series

Article

Jun 1991
J MONETARY ECON

James H. Stock

This paper provides asymptotic confidence intervals for the largest autoregressive root of a time series when this root is close to one. The intervals are readily constructed either graphically or using tables in the appendix. When applied to the Nelson-Plosser (1982) data set, the main conclusion is that the confidence intervals typically are wide. The conventional emphasis on testing for whether the largest root equals one fails to convey the substantial sampling variability associated with this measure of persistence.

Atheoretical macroeconometrics: A critique

Article

Feb 1985
J MONETARY ECON

The spurious nature of the restrictions used to identify many macroeconometric models has led some researchers to advocate a style of econometric inquiry that is less dependent on prior theoretical restrictions of the sort that were central to the approach of the Cowles Commission. This development, which we call atheoretical macroeconometrics, is summarized and evaluated in the current paper. It is contrasted with an updated version of the Cowles Commission approach. We conclude that while some of the exercises of atheoretical macroeconometrics are valid, those that have attracted the most attention and appear the most innovative-exogeneity testing, impulse response analysis and policy analysis using estimated vector autoregressions - are based on incorrect analysis.

Prices and output in the Mexican economy Emperical testing of alternative hypotheses

Article

Apr 1985
J DEV ECON

This paper derives and compares alternative formulations of price and output formation for the Mexican economy over the period 1961–1981. A structuralist type model with working capital is found to dominate its monetarist and keynesian counterparts. A breakdown of the causes of inflation is offered, and some simulations are carried out to highlight some trade-offs among real wages, the real exchange rate, real interest rates and output.

Recurrent Devaluation and Speculative Attacks on the Mexican Peso

Article

Feb 1986

>p>This article examines the economic aspects of European Union (EU) policy toward its eastern neighbors in the Commonwealth of Independent States (CIS). This region was long considered less important for the EU in comparison with Central and Eastern Europe, which was the subject of farreaching economic and political integration during the two EU eastern enlargements (2004, 2007). However, moving the EU's geographical frontier further to the east and southeast increased the importance of the CIS region as a potential partner of the enlarged EU. In 2004, East European and Caucasus countries were invited to participate in the European Neighborhood Policy (ENP) a new EU external framework that also addressed the southern Mediterranean countries. Russia has been attempting to build a strategic political and economic partnership with the EU outside the ENP framework but the content of this relationship is, in fact, very similar to the ENP.>/p>>p>A general weakness of the ENP is that there is a lack of balance between far-reaching expectations with respect to neighbors' policies and reforms, and limited and distant rewards that can potentially be offered. Thus, making this cooperation framework more effective requires a serious enhancement of the rewards using, to the extent possible, the positive experience of previous EU enlargements. The nature of contemporary economic relations in the globalized world calls for taking a more complex package-type approach to economic integration rather than limiting cooperation to some narrow fields.>/p>

Stopping Hyperinflations Past and Present

Article

Feb 1986

We examine four successful stabilizations from high inflation -- Germany in 1923,Austria in 1922, in Poland 1924-27, Italy 1947 --and the two ongoing attempted stabilization in Israel and Argentina, with the aim of identifying general lessons from those episodes. The key issues in a stabilization are the budget, the exchange rate, and money. Budget deficits were significantly reduced in each case , but were not in all cases completely removed. The exchange rate was pegged in each case , through in all but the Italian case, each stabilization was also preceded by at least one episode in which attempted stabilization through exchange rate pegging was unsuccessful. As pointed out by Sargent and others , money growth rates were high after each stabilization, suggesting that any stabilization that strictly controls the growth of money will produce serious recession. A common feature of stabilizations is a period of extremely high real interest rates.

Exchange Rates, Inflation and Disinflation: Latin American Experiences

Article

May 1993

Sebastian Edwards

This paper analyzes the relationship between exchange rates, inflation and disinflation in Latin America. The analysis concentrates on two central issues. First, the historical experience with fixed exchange rates in four Latin American countries is investigated. It is shown that even though these countries had the ability to undertake independent monetary policy, they chose to play by the "rules of the game". Until 1973, when the first oil shock took place, these countries strictly respected the constraints imposed by fixed exchange rates on their domestic credit policy. Between that date and the late 1980s, when the fixed rates were finally abandoned, they tried to ignore these constraints. This generated losses of reserves and increased inflation. The second issue addressed in the paper refers to the use of a nominal exchange rate anchor to reduce inflation. Data on Chile, Mexico and Venezuela are used to investigate the extent to which alternative exchange rate regimes affect inflationary inertia. It is found that fixing the exchange rate will not, on its own, reduce the degree of inertia.

The Currency Substitution Hypothesis and Relative Money Demand in Mexico and Canada

Article

Feb 1992
J MONEY CREDIT BANK

John H. Rogers

The author estimates demand for dollars relative to domestic currency in Mexico and Canada using (1) a multivariate model with a relative money demand equation, and (2) single- equation models, including an error-correction representation. He also analyzes the models' encompassing properties. The anomalous correlation between the Mexican dollarization ratio and expected peso depreciation implies that "convertibility risk" was associated with holding Mexidollars. Under this interpretation, higher expected depreciation coincides with a drop in relative demand for dollars because there is the possibility that the government will forcibly convert Mexdollars when these central bank liabilities rise and foreign reserves run low. Several testable alternative explanations are rejected. Copyright 1992 by Ohio State University Press.

Federal Credit, Private Credit, and Economic Activity

Article

Feb 1990
J MONEY CREDIT BANK

James S. Fackler

The Federal Open Market Committee has been monitoring total domestic nonfinancial debt since early 1983. The evidence reported in this paper shows that the federal and non-federal (" private") components of the debt have significantly different impacts on economic activity. Thus, monitoring total debt, rather than its major subcomponents, implies that the Federal Open Market Committee is ignoring important information contained in a more disaggregated analysis. Copyright 1990 by Ohio State University Press.

Currency Substitution in Mexico: The Dollarization Problem

Article

Feb 1983
J MONEY CREDIT BANK

Guillermo Ortiz

The Ends of Four Big Inflations

Article

Feb 1981

Thomas J. Sargent

Some Unpleasant Monetary Arithmetic

Article

Feb 1981
Q Rev

In his presidential address to the American Economic Association (AEA), Milton Friedman (1968) warned not to expect too much from monetary policy. In particular, Friedman argued that monetary policy could not permanently influence the levels of real output, unemployment, or real rates of return on securities. However, Friedman did assert that a monetary authority could exert substantial control over the inflation rate, especially in the long run. The purpose of this paper is to argue that, even in an economy that satisfies monetarist assumptions, if monetary policy is interpreted as open market operations, then Friedman’s list of the things that monetary policy cannot permanently control may have to be expanded to include inflation.

International Business Cycles

Article

Feb 1993

The authors estimate a dynamic two-country model in which economic fluctuations are driven by a worldwide supply shock; country-specific supply shocks; and relative fiscal, money, and preference shocks. Identification is achieved using only long-run restrictions based on a theoretical model. The main results are: (1) supply shocks, particularly country-specific ones, are very important in generating international business cycles and (2) although the post-1973 flexible-exchange-rate period has been inherently more volatile, there are no differences in transmission properties of economic disturbances across exchange-rate regimes for the endogenous variables they focus on. Copyright 1993 by American Economic Association.

Alternative Explanation of the Money-Income Correlation

Article

Feb 1986

Ben Bernanke

Standard explanations of the bivariate correlation of money and income attribute this correlation to an inability of agents to discriminate in the short run between real and nominal sources of price shocks. This paper is an empirical comparison of the standard explanation with two alternatives: 1) the"credit view", which focuses on financial market imperfections rather than real-nominal confusion; and 2) the real business cycle approach, which argues that the money-income correlation reflects a passive response of money to income. The methodology, which is a variant of the Sims VAR approach, follows Blanchard and Watson (1984) in using an estimated, explicitly structural model to orthogonalize the VAR residuals. (This variant methodology, I argue, is the more appropriate for structural hypothesis testing.) The results suggest that the standard explanations of the money-income relation are largely, but perhaps not completely, displaced by the alternatives.

Transition from Inflation to Price Stability

Article

Feb 1982

Peter M. Garber

This paper provides a detailed discussion of the real phenomena that materialized in the stabilization period which followed the German hyper-inflation. Significant real dislocations arose after the monetary reform; and these can be attributed to a government policy which subsidized heavy industry through the inflation tax proceeds. The "credibility problem" appears not to have been a significant factor in the post-reform dislocation.

Forecasting and Testing in Co-Integrated Systems

Article

Feb 1987
J ECONOMETRICS

This paper examines the behavior of forecasts made from a co-integrated system as introduced by Granger (1981), Granger and Weiss (1983) and Engle and Granger (1987). It is established that a multi-step forecast will satisfy the co-integrating relation exactly and that this particular linear combination of forecasts will have a finite limiting forecast error variance. A simulation study compares the multi-step forecast accuracy of unrestricted vector autoregression with the two-step estimation of the vector autoregression imposing the co-integration restriction.To test whether a system exhibits co-integration, the procedures introduced in Engle and Granger (1987) are extended to allow different sample sizes and numbers of variables.

Changes in Economic Instability in 19th-Century America

Article

Jan 1993

John A James

In contrast to the twentieth century, over the nineteenth century economic fluctuations became increasingly severe. This paper uses a structural vector autoregression estimated on ante- and postbellum data to distinguish the influences of changes in the nature or magnitude of the disturbances from those of changes in the response of the system to shocks (i.e., changes in structure) in contributing to this increased economic instability. The increased cyclical severity in the postbellum period is found to have been the result of greater sensitivity to monetary disturbances, rather than of larger or more volatile shocks. Copyright 1993 by American Economic Association.

Extreme Inflation: Dynamics and Stabilization

Article

Feb 1990

No abstract is available for this paper.

The ends of four big inflations, reprinted in: Rational expectations and inflation

Jan 1980

Sargent
Thomas

Sargent, Thomas, 1980, The ends of four big inflations, reprinted in: Rational expectations and inflation (Harper and Row, New York).

Exchange rates, inflation and disinflation: Latin American experiences, NBER Working Paper no Forecasting and testing in co-integrated systems

Jan 1987
143-159

Edwards
Sebastian

Edwards, Sebastian, 1993, Exchange rates, inflation and disinflation: Latin American experiences, NBER Working Paper no. 4320. Engle, Robert F. and Byung Sam Yoo, 1987, Forecasting and testing in co-integrated systems, Journal of Econometrics 35, 143-159.

Inflation, lags in collection, and the real value of tax revenue

Jan 1977
154

Tanzi

Tanzi, Vito, 1977, Inflation, lags in collection, and the real value of tax revenue, IMF Staff Papers 24, 154-167.

Inflation stabilization

Jan 1987

Bruno
Guido Di Michael
Rudiger Tella
Stanley Dornbusch
Fischer

Bruno, Michael, Guido Di Tella, Rudiger Dornbusch and Stanley Fischer, 1987, Inflation stabilization (MIT Press, Cambridge).

Output, inflation, and stabilization in a small open economy: Evidence from Mexico

Abstract

No full-text available

Recommended publications

On the Link between Dollarization and Inflation : Evidence from Turkey

Budget Deficit, Money Supply and Inflation: Evidence from Low and High Frequency Data for Turkey

Brazilian Inflation from 1980 to 1993: Causes, Consequences and Dynamics

Inflation and the Monetary Transmission Mechanism in Belarus, 1996-2001