investment and the exchange rate an analysis with firm level panel data abstract this paper investigates the relationship between exchange rate fluctuations and the investment decisions of a sample of italian manufacturing firms the results support the view that a depreciation of the exchange rate has a positive effect on investment through the revenue channel and a negative effect through the cost channel the magnitude of these effects varies over time with changes in the firm s external orientation as measured by the share of foreign sales over total sales and the reliance on imported inputs consistent with the predictions of our theoretical framework the effect of exchange rate fluctuations on investment is stronger for firms with low monopoly power facing a high degree of import penetration in the domestic market and of a small size we also provide evidence that the degree of substitutability between domestically produced and imported inputs influences the effect through the expenditure side

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

sudden stops and the mexican wave currency crises capital flow reversals and output loss in emerging markets sudden stops are the simultaneous occurrence of a currency balance of payments crisis with a reversal in capital flows we investigate whether sudden stop crises are a unique phenomenon and whether they entail an especially large and abrupt pattern of output collapse a bmexican waveq using a panel data set over 1975 1997 and covering 24 emerging market economies we distinguish between the output effects of currency crises capital inflow reversals and sudden stop crises sudden stop crises have a large negative but short lived impact on output growth over and above that found with currency crises a currency crisis typically reduces output by about 2 3 while a sudden stop reduces output by an additional 6 8 in the year of the crisis the cumulative output loss of a sudden stop is even larger around 13 15 over a 3 year period our model estimates correspond closely to the output dynamics of the dmexican wavet such as seen in mexico in 1995 turkey in 1994 and elsewhere and out of sample predictions of the model explain well the sudden and seemingly unexpected collapse in output associated with the 1997 1998 asian crisis d 2005 elsevier b v all rights reserved

exchange rate exposure and industry characteristics evidence from canada japan and the usa abstract this paper examines industry level exchange rate exposures for canada japan and the usa measuring exposure by adding the change in the exchange rate to the domestic market model of industry portfolio returns some industries in all three countries display significant exposures moreover for each country the exchange rate is important for explaining industry returns at the economy wide level to explore whether exchange rate exposures are systematically linked to the activities of the industries we model exposure as a function of industry characteristics for all three countries the relation between exposure and industry characteristics is broadly consistent with economic theory jel f3

poverty income distribution and child welfare in latin america a comparison of pre and post recession data abstract the traditional and external dependency of most latin american economies and their recent pattern of growth has made them particularly vulnerable to the unexpected and severe changes of the world economy that began in 1979 1980 even those countries with less open economies have been forced to seek adjustments to the new world situation that are both in nature and consequences essentially different from those of the interdependent industrial economies this paper attempts to evaluate the impact of these recent economic changes on the living conditions of the populations of chile colombia costa rica panama and venezuela it is based on household data and is limited to those aspects of household living conditions that can be observed through the variables included in labour surveys it analyses changes in overall income distribution the movement of different socio economic groups within the income pyramid and changes in these groups livelihood strategies

measuring the intensity of competition in export markets abstract this paper develops an approach to measuring the intensity of competition in international markets using readily available data on destination specific values and quantities of exports at the seven digit industry level the intensity of competition a group of exporters faces in a particular export market is measured by the residual demand elasticity the group faces this elasticity is identified by exchange rate shocks which rotate the supply relation of the source country export group relative to competitors located in other countries we apply this method to german exports of beer and us exports of linerboard paper the resulting estimates of market power appear to be plausible and consistent with other indicators of competition e g market shares the number of competitors providing support for the applicability of our framework in measuring competition in international markets

growth and exchange rate volatility a panel data analysis the aim of this article is to assess the role of real exchange rate rer volatility on long run economic growth for a set of 82 advanced and emerging economies using a panel data set ranging from 1970 to 2009 with an accurate measure for exchange rate volatility the results for the two step system generalized method of moments gmm panel growth models show that a more less volatile rer has a significant negative positive impact on economic growth the results are also robust for different model specifications

business cycles and the relationship between concentration and price cost margins using a newly constructed panel data base we examine changes in price cost margins in 284 manufacturing industries between 1958 and 1981 a key finding is a dramatic narrowing of the spread between the margins of concentrated and unconcentrated industries over this period we provide evidence that this narrowing is a result of the greater sensitivity of price cost margins in more concentrated industries to demand fluctuations this finding is robust to the inclusion of other industry variables and to measures of import competition the results indicate that cross sectional estimates of the concentration margins relationship are likely to be both biased and misleading

modelling real exchange rate effects on output performance in latin america this article empirically analyses real per capita gdp growth for six latin american countries argentina brazil chile columbia mexico venezuela in terms of real exchange rate depreciations inflation and us interest rates focussing on the role of the real exchange rate we find evidence of nonlinearity in this relationship which we capture through a smooth transition regression model with the exception of mexico nonlinearity in economic growth is associated with changes in the real exchange rate with depreciations leading to different relationships compared with appreciations regimes for mexico are associated with the past growth rates with effectively symmetric effects of real exchange rate changes although our results are in accord with other recent literature in that depreciations may have negative effects for growth the asymmetries we uncover indicate that these effects depend on the conditioning state

investment pass through and exchange rates a cross country comparison using detailed data from the united states canada the united kingdom and japan we examine the implications of exchange rates for time series of sectoral investment both theoretically and empirically we show that investment responsiveness to exchange rates varies over time positively in relation to sectoral reliance on export share and negatively with respect to the share of imported inputs in production important differences exist in investment endogeneity across high and low price over cost markup sectors with investment in low markup sectors often significantly more responsive to exchange rates cross country differences in investment response are only partially explained by industrial organization arguments

investment in manufacturing exchange rates and external exposure abstract this paper introduces a new measure of external exposure which emphasizes exposure to external markets both through export sales and imported inputs into production and uses this measure to explore the linkage between exchange rates and investment in us industry on average manufacturing sectors have evolved to being primarily import exposed by the early 1980s in low price over cost markup sectors markups are relatively unresponsive to exchange rate changes whereas sectoral investment patterns are strongly affected by contrast high markup industries absorb much of the exchange rate fluctuations in markups and pass relatively little through to real investment

efficiency equity tradeoffs in targeting payments for ecosystem services this article develops an analytic framework to analyze the tradeoff between economic efficiency and distributional equity in targeting payments for ecosystem services pes it also proposes an empirical procedure to trace out the efficiency equity frontier where the program is pareto optimal in the sense that it cannot be improved upon to achieve either higher efficiency or distributional equity without compromising the other we apply the procedure to the conservation reserve program crp the largest pes program in u s history to analyze a whether it is possible to improve both the efficiency and the distributional equity of the program and b what the choice made by crp administrators implies about the political economic balance results reveal that a crp administrators forfeited about 9 of efficiency for an 18 23 improvement in distributional equity depending on the equity indicator used in the eighteenth signup of the crp b reducing the maximum allowable rental rate for all contracts would improve efficiency at the cost of distributional equity c reducing the maximum county enrollment cap would reduce efficiency without generating much improvement in distributional equity and d the crp targeting criterion could be redesigned to achieve both higher efficiency and higher distributional equity

exchange rates and investment in united states industry the path of the dollar has significantly influenced investment activity in u s industry the effects of both exchange rate levels and exchange rate volatility have been more pronounced in the 1980s than in the 1970s although aggregate investment data mask some of these relationships the effects of exchange rates on investment are most pronounced in the disaggregate data for manufacturing durable goods sectors and nonmanufacturing sectors these relationships also have changed over time in contrast to the conventional wisdom in the 1980s real dollar depreciations appreciations were likely to be associated with investment contractions expansions copyright 1993 by mit press

the impact of exchange rate volatility on plant level investment evidence from colombia abstract we estimate the impact of exchange rate volatility on firms investment decisions in a developing country setting employing plant level panel data from the colombian manufacturing census we estimate a dynamic investment equation using the system gmm estimator developed by arellano and bover 1995 and blundell and bond 1998 we find a robust negative impact of exchange rate volatility constructed either using a garch model or a simple standard deviation measure on plant investment consistent with theory we also document that the negative effect is mitigated for establishments with higher mark up or exports and exacerbated for lower mark up plants with larger volume of imported intermediates

the exchange rate exposure of u s multinationals this article examines the exposure of u s multinationals to foreign currency risk evidence is presented that the relationship between stock returns and exchange rates differs systematically across multinationals given these results the study focuses on the determinants of exchange rate exposure the comovements between stock returns and the value of the dollar is found to be positively related to the percentage of foreign operations of u s multinationals copyright 1990 by the university of chicago

goods prices and exchange rates what have we learned import prices typically change by a smaller proportion than the exchange rate between the exporting and importing country recent research indicates that common currency relative prices for similar goods exported to different markets are highly correlated with exchange rates between those markets this evidence suggests that incomplete pass through is a consequence of third degree price discrimination while distance matters for market segmentation borders have independent effects the source of the border effect has not been clearly identified furthermore there is little evidence yet to suggest substantial market power is implied by the observed price discrimination

nominal and real volatility as determinants of fdi this article examines the role of country specific sources of output and interest rate or exchange rate volatility in driving foreign direct investment fdi activities building on a dataset with bilateral fdi flows among 24 organization for economic co operation and development oecd economies over the period 1985 2007 we find that nominal and real volatility strongly deter foreign investments output and exchange rate volatility matter in particular for the decision whether to invest in a foreign country in the first place interest rate volatility mainly influences the amount of foreign investments

pass through and exposure firms differ in the extent to which they pass through changes in exchange rates into foreign currency prices and in their exposure to exchange rates the responsiveness of their profits to changes in exchange rates because pricing affects profitability a firm s pass through and exposure should be related this paper develops models of exporting firms under imperfect competition to study these related phenomena from these models we derive the optimal pass through decisions and the resulting exchange rate exposure the models are estimated on eight japanese export industries using both the price data pass through and financial data for exposure exchange rates can have a major inf luence on the pricing behavior and profitability of exporting and importing firms firms differ in the extent to which they pass through the change in exchange rates into the prices they charge in foreign markets they also differ in their exposure to exchange rates the responsiveness of their profits to changes in exchange rates previous papers have studied either pass through or exposure but none has studied these two phenomena together yet because pricing directly affects profitability the exposure of a firm s profits to exchange rates should be governed by many of the same firm and industry characteristics that determine pricing behavior this paper develops models of firm and industry behavior that are used to study these closely related phenomena together it also provides estimates of pass through and exposure behavior using data from japanese export industries to examine pass through behavior and exchange rate exposure we model a firm with sales to a foreign export market this exporting firm competes with a foreign firm in that export market the costs of the exporting firm are based primarily in the local domestic currency while the foreign firm

fiscal and monetary policies and the cost of sudden stops abstract this article investigates the effects of monetary and fiscal policies on output growth during sudden stop balance of payments crisis in emerging markets and developing countries sudden stops in capital flows and subsequent deep recessions are a frequent occurrence in these countries but there is no professional consensus and little systematic empirical evidence shedding light on the macroeconomic policy mix most likely to limit output losses during these episodes to address this issue we investigate 83 sudden stop crisis in 66 countries using a baseline empirical model to control for the various determinants of output losses during sudden stops we measure the marginal effects of policy on output losses and find strong evidence that monetary tightening rise in the discount rate or unsterilized rise in international reserves and discretionary fiscal contraction are significantly correlated with larger output losses following a sudden stop fiscal expansion is associated with smaller output losses following a sudden stop but monetary expansion has no discernable effect the macroeconomic policy mix associated with the least output loss during a sudden stop financial crisis is a discretionary fiscal expansion combined with a neutral monetary policy

strategic foreign exchange management this paper argues that it is possible to advise firms on how to hedge against foreign exchange risks only if one has detailed knowledge of the competitive environment they work in to illustrate this we compare firms hedging requirements in a number of different standard industrial organizations models in particular the cournot model a model with conjectural variations price taking firms and monopolistic competition consider the situation of a firm producing in germany and selling an important part of its total output in the us obviously its profitability may be seriously compromised by an unexpected appreciation of the dm relatively to the the company can react to this uncertainty in two ways either it can assume that the conditions of the modigliani miller theorem are approximately fulfilled and that it best serves the interests of its shareholders by behaving in a risk neutral fashion alternatively the firm may for a variety of reasons behave as a risk averter itself and try to obtain some coverage against exchange rate risk when looking at the amount of insurance taken up by companies on conventional insurance markets one gets the impression that the latter alternative risk averse firms is for many practical cases a realistic assumption the activities of many companies are more easily understood if one admits that they exhibit a certain degree of risk aversion if one accepts this one may go on to ask just how companies should go about insuring themselves against unexpected exchange rate fluctuations more specifically one has to study how much exchange risk the firms should insure against and which exchange rates are of relevance in the example above of a german company selling in the us the answer might at first sight seem obvious the company should obtain coverage against dm fluctuations for an amount approximately equal to its anticipated revenues on brief reflection it immediately appears that this is surely an excessively simplistic answer first the amount of coverage required must be affected by the question of how the price of the product varies when the dm exchange rate shifts second it may be the case that the german company s main competitors are located in say france in this case fluctuations of the

exchange rate exposure hedging and the use of foreign currency derivatives abstract we examine whether firms use foreign currency derivatives for hedging or for speculative purposes using a sample of s p 500 nonfinancial firms for 1993 we find evidence that firms use currency derivatives for hedging as their use significantly reduces the exchange rate exposure firms face we also find that while the decision to use derivatives depends on exposure factors i e foreign sales and foreign trade and on variables largely associated with theories of optimal hedging i e size and r d expenditures the level of derivatives used depends only on a firm s exposure through foreign sales and trade

the relationship between investment and large exchange rate depreciations in dollarized economies abstract we use a simple financial friction in an economy with high degree of liability dollarization and currency mismatch to show that the negative balance sheet effect of an exchange rate depreciation may be observable only if the magnitude of the depreciation is large enough this result justifies the difficulty to find strong empirical evidence for balance sheet effects and suggests the convenience of including a large depreciation term in empirical analyses we review some of the related empirical literature and provide some new evidence of this large depreciation effect

exchange rates and prices the adjustment of relative prices to exchange rate movements is explained in an industrial organization approach given labor costs in the respective currencies exchange rate movements change costs for firms selling in the home market and thus disturb the industry equilibrium the extent of absolute and relative price adjustment is shown to depend on market integration product substitutability the relative number of domestic and foreign firms and the market structure the impact of exchange rates on prices is illustrated in a variety of approaches including the cournot a dixit and j stiglitz 1977 and s salop 1979 models some empirical evidence is offered in support of the theory copyright 1987 by american economic association

international comparisons of pricing to market behavior this paper measures the degree of price discrimination across export destinations that is associated with exchange rate changes using u s u k german and japanese industry level data given the industries sampled more price discrimination across destinations is observed in the u k german and japanese data for industries that match across source countries however behavior is very similar across source countries furthermore destination specific price adjustment on exports to the united states from germany and japan is similar to price adjustment observed on shipments to other destinations most variation in the data appears to be related to industry copyright 1993 by american economic association