Faik Koray

Real Exchange Rate Volatility and U.S. Bilateral Trade: A VAR Approach

This paper uses VAR models to investigate the impact of real exchange rate volatility on U.S. bilateral imports from the United Kingdom, France, Germany, Japan and Canada. The VAR systems include U.S. and foreign macro variables, and are estimated separately for each country. The major results suggest that the effect of volatility on imports is weak, although permanent shocks to volatility do have a negative impact on this measure of trade, and those effects are relatively more important over the flexible rate period. Copyright 1989 by MIT Press.

Exchange rate volatility and U.S. multilateral trade flows

Abstract This paper investigates the relation between exchange rate volatility, international trade and the macroeconomy in the context of a VAR model. The model is estimated for U.S. multilateral trade over the current floating rate period and includes a moving standard deviation measure of real exchange volatility. There is some evidence of a statistically significant relationship between volatility and trade, but the moving average representation of the system suggests that the effects are quantitatively small. We do find that exchange rate volatility is influenced by the state of the economy.

Monetary shocks, the exchange rate, and the trade balance

Abstract This paper investigates the response of the exchange rate and the trade balance to monetary policy innovations for the US economy during the period 1973:01–1993:12. The empirical findings indicate that contractionary monetary policy shocks lead to transitory appreciations of the real and the nominal exchange rate. Exchange rate appreciations that are caused by a temporary contractionary shock to monetary policy are correlated with a short-lived improvement in the trade balance which is then followed by a deterioration, giving support to the J -curve hypothesis.

International transmission of aggregate shocks under fixed and flexible exchange rate regimes: United Kingdom, France, and Germany, 1959 to 1985

Abstract This paper analyzes the transmission of aggregate shocks between the USA and three major European economies—the UK, France, and Germany —under fixed and flexible exchange rate regimes, using time series techniques. Short-run linkages are investigated in the context of vector autoregression models, while long-run relations are analyzed by testing for cointegration. Empirical findings indicate that flexible exchange rates have not, in general, completely insulated domestic economies from foreign shocks and that the degree of insulation and interdependence, across exchange rate regimes and over the long and short runs, differs substantially across the European countries.

Government spending and the exchange rate

This paper investigates the effects of govenment spending on real and nominal exchange rates within the context of an open economy equilibrium rational expectations model. The model predicts that both real and nominal exchange rates appreciate in response to anticipated and unanticipated increases in government spending. Empirical evidence from Germany for the period 1975:2–1989:4 provides some weak support for the predictions of the model.

Inflation variability and the Turkish economy

The present paper investigates the effects of inflation variability on the level of economic activity in Turkey during 1981:3–1989:12 by employing a seven-variable vector autoregressive (VAR) model including the money supply, interest rate, real exchange rate, price level, a measure of inflation variability, output and the trade balance. The empirical findings indicate that while the output, the money supply, and the real exchange rate respond negatively to a shock to inflation variability, the trade balance and the interest rate respond positively. The responses are usually significant at the initial stages and they level off after six months.

Interest rate volatility and home mortgage loans

The US economy has experienced substantial fluctuations in real and nominal interest rates since the 1970s. This article investigates empirically the relationship between home mortgage loans and volatility in mortgage rates for the period 1971:02 to 2003:03. Contrary to common wisdom, we find a positive relationship between mortgage rate volatility and home mortgage loans. Further investigation indicates that this is due to volatility in the bond market. In times of high interest volatility, households disinvest in government securities and invest in real assets, which yields a positive relationship between mortgage rate volatility and home mortgage loans.

Does government debt affect the exchange rate? An empirical analysis of the U.S.--Canadian exchange rate

Abstract This paper examines the effects of the market value of privately held U.S. and Canadian government debt on the real Canadian dollar/U.S. dollar exchange rate within a small vector autoregressive model that includes, in addition to debt and the exchange rate, output, price level, nominal money, interest rate, and government purchases variables for both the U.S. and Canada. Variance decompositions based on this model indicate significant effects of debt on the exchange rate while impulse response functions indicate that debt shocks lead to a short-lived depreciation of the U.S. dollar rather than to an appreciation as conventional theory would suggest. Similarly we find that debt shocks have a temporary negative effect on the interest rate. These effects on the exchange rate and the interest rate can be explained within the Ricardian Equivalence framework, although there may be other explanations.

Uncertainty in Sales and Inventory Behaviour in the U.S. Trade Sectors

This paper investigates uncertainty in sales and inventory behavior for the U.S. wholesale and retail trade sectors. First, using a vector error correction model with GARCH-M, the authors find that the uncertainty measured by forecast error variance in sales does not affect inventory behavior in both trade sectors. Second, using forecast error variance decomposition and estimated permanent components, they observe that the uncertainty may be attributed more to demand shocks than to cost shocks.

Money, debt, and economic activity

Abstract This paper investigates the effects of government debt and money on real economic activity and tests the neutrality and Ricardian equivalence hypotheses. Since the observance of a positive correlation between debt and output does not necessarily imply that government bonds are net wealth, a distinction is made among anticipated changes in debt growth, unanticipated changes in debt growth, and the level of debt. The empirical evidence for the period 1957:iv-1984:iv indicates that the neutrality and Ricardian equivalence hypotheses cannot be rejected. The empirical findings also suggest that the rejection of the neutrality hypothesis in some of the previous studies could be due to a specification error caused by the omission of debt variables.