Macroeconomic Effects of the Exchange Rate : A Non-linear Analysis
The thesis employs non-linear econometric techniques to explore the relationships involving the exchange rate and selected macroeconomic variables, which are subjects of controversy. First, the thesis examines the relationship between globalisation and the exchange rate passthrough to domestic prices, using the panel smooth transition regression model and a sample of 16 African countries. The thesis establishes evidence suggesting a non-linear relationship between globalisation and the pass-through exists, and that globalisation causes a rise in the level of the pass-through. Additional evidence suggests that the influence of globalisation on the pass-through varies with exchange rate regimes, with globalisation causing the pass-through to decrease in fixed regimes and to increase in flexible regimes.
Secondly, the thesis investigates non-linearity, asymmetry, and J-curve effects in the relationship between the exchange rate and the trade balance of Zambia with its 17 trading partners. The thesis uses the logistic vector smooth transition regression model and the non-linear panel autoregressive distributed lag model for estimations. Evidence favouring non-linearity and asymmetry effects is established. However, limited evidence of J-curve is found, especially with individual trading partners. Evidence suggests that currency depreciation cannot be relied on to improve trade balance.
Third, the thesis examines the relationship between the exchange rate and foreign direct investments, taking into account the role of trade openness, natural resources, and institutional quality. Based on the estimation of the dynamic panel threshold model on a sample of 44 African countries, the thesis establishes evidence of non-linear effects. Specifically, the thesis finds that trade openness, natural resources, and institutional quality induce a non-linear response in foreign direct investments to their determinants. Furthermore, the thesis establishes new evidence suggesting that currency depreciation attracts FDI inflows in countries characterised by greater economic openness, abundant natural resources, and weaker institutions.
The findings of the thesis elicit important macroeconomic implications.
Supervisor(s)Don Egginton; Deborah Gefang
Date of award2023-12-07
Author affiliationSchool of Business
Awarding institutionUniversity of Leicester