Devaluation and economic stimulation: the Fiji economy post-coup (original) (raw)
Related papers
2014
The J-curve phenomenon argues that currency devaluation leads to worsening of trade balance in the short run but gradually improves in the long run. The current paper attempts to empirically investigate this in the context of Fiji which has undergone devaluation four times during the last three decade. Using Vector Error Correction Model, we find evidence of J-curve phenomenon on goods trade, but not on services over the period 1975 to 2012. We argue that adjustment in the goods takes place gradually with domestic production, but not in exportable services.
Exchange rate variability and export growth in Fiji
1999
This paper conducts an empirical investigation of the effects of increase in real exchange variability on the slowdown of exports growth in Fiji for the period 1981:01 to 1997:06. Using error-correction and cointegration modelling techniques, it is shown that real exchange rate variability has both short-and long-run adverse effects on exports growth. However, the magnitude of the effects is not as significant as expected. Other factors which have a greater impact on exports growth are the level of the real exchange rate, foreign real income and relative prices. It is concluded that policy makers must give attention not only to the level of the real exchange rate but also its stability in efforts to promote exports growth. Exchange rate variability and export growth in Fiji, John Asafu-Adjaye, SP99-4 3
The Impact of Devaluation on the Country's Macroeconomic Performance
2017
This paper reexamines aggregate and disaggregate import and export demand functions for Japan. This re-examination is warranted the country has undergone substantial structural transformation, particularly with regard to the East Asian production chain. In the long run, nonfuel goods imports are highly income sensitive, while the price elasticity is near unity. Goods exports are similarly income sensitive. The price elasticity is around 0.7. In these preferred specifications, the Marshall-Lerner conditions hold, so that an exchange rate depreciation results in an improved trade balance.
A monetary analysis of foreign exchange market disequilibrium in Fiji
International Journal of Economic Policy in Emerging Economies, 2012
This paper evaluates a monetary model of foreign exchange market pressure in Fiji using the autoregressive distributed lag bounds testing methodology. The results suggest that if the monetary authorities in Fiji fix the exchange rate, they lose the ability to implement an independent monetary policy through control of central bank credit. Stronger monetary control is regained to the extent that pressure in the foreign exchange market is relieved through exchange rate movements rather than reserve movements.
The Real Exchange Rate: Assessment and Trade Impact in the Context of Fiji and Samoa
IMF working paper, 2016
This paper provides an assessment of real exchange rate measures and their impact on trade performance with special reference to two Pacific island countries, Fiji and Samoa. The analysis shows that the commonly used CPI-based real effective exchange rate (REER) measure provides a useful starting point of assessment, but alternative measures based on other price and cost indices should be used to check the robustness of the results, particularly given the large impact of global commodity prices on small open economies. The paper also offers some illustrations of how to quantify the impact of exchange rate movements on trade, especially in the face of data constraints in small open economies.
Determinants of Exports in a Small and Vulnerable Economy: Fiji Islands—A Disaggregated Analysis
The European Journal of Development Research
The previous studies of exports performance in Fiji were carried out at the aggregate level. We conduct a disaggregated analysis of exports of three major products, namely, sugar, tourism, and gold. This analysis is useful for developing sector-based export promotion policies. The long run as well as dynamic export demand functions are estimated at the aggregate and disaggregate levels. The results identify a number of factors such as trading partner income, relative prices, productivity shocks, natural disasters, political disturbances, and the exchange rate that affect the export demand for sugar, tourism, and gold, though not in the same way. For instance, tourism and sugar enjoy the highest income elasticity. Sugar export is adversely affected by natural calamities and political upheavals. The political upheavals also affect tourism adversely in Fiji. The exchange rate affects the export of sugar more than others. The idea that devaluation will promote exports in Fiji needs careful investigation because results show that this will happen with a high cost, i.e. 5% nominal devaluation will be required to increase real exports by 1%.
The main purpose of this study is to examine the effects of the exchange rates, international prices, and the demand shocks on inflation in Fiji Island. The study covered the annual data from 1975 to 2010.The variables are found to be following unit root process at the level form and stationary at the difference form, and the multi variate cointegration tests showed that there is one cointegratng vector between the Fiji consumer price index, Australian consumer price index, domestic demand shocks, Exchange rate Australian dollars /unit Fiji dollar, and devaluation years dummies. Further, Vector Error Correction (VEC)model shows that the changes in Fiji consumer price index is Granger caused by the long term trends in all other variables afore mentioned, especially when the Consumer Price Index in Australia , and devaluation dummy years are ,put as exogenous variables in the VEC model, with the with the changes in exchange rate, and changes in demand shocks as independent variables but endogenous in the VEC model. The impulse response function also shows that due to the exchange rate depreciation, inflation increases for many years in Fiji. Due to one standard deviation shock in demand shocks, though Fiji inflation declines initially, it subsequently increases for many years. One standard deviation shock in inflation also increases demand shocks in Fiji for many years. Impulse response function appears to show that the devaluation is contractionary in the long run for Fiji. The Variance Decomposition results also that a major part of the variations in inflation is explained by the Fiji dollar exchange rate movements. The Policy implication of our study is that as a monetary policy instrument the flexibility of the exchange rate policy is indispensable for Fiji to absorb appropriately the international supply and price shocks
Does Currency Devaluation Improve the Trade Balance in the Long Run? Evidence from Malawi
African Development Review, 2003
Abstract: This paper explores the impact of nominal exchange rate devaluation on the trade balance for Malawi. A small-open economy IS-LM aggregate supply model of Malawi estimated using time series data covering the period 1967–96 is used in the simulation analysis. The results of the simulation experiment show that devaluation helps to improve export performance and to curtail the growth of imports in the long run, which lead to improvement in the trade balance position. The results provide evidence supporting the view that nominal devaluation can indeed be a quite powerful tool in minimizing the imbalances in Malawi's international trade.Résumé: Le présent article analyse l’incidence de la dévaluation du taux de change nominal sur la balance commerciale du Malawi. Ses auteurs se servent d’un modèle IS-ML d’entreprise en économie ouverte spécialisée dans la fourniture d’agrégats, censé utiliser des données chronologiques concernant la période 1967 à 1996, a pour effectuer cette analyse. Les résultats de cet exercice de simulation montrent que la dévaluation contribue, à long terme, à améliorer la qualité des exportations — et, partant, la situation de la balance commerciale — et à freiner la croissance des importations. Ils viennent, en outre, appuyer la théorie selon laquelle la dévaluation peut, en réalité, contribuer sensiblement à réduire les déséquilibres du commerce international au Malawi.
Assessment of impact devaluation on trade balance and marketing in Zimbabwe (1990-2005)
2015
The cost of Marketing in a company is so critical that, marketing become costly in International Business, especially when devaluation hits local currency. The primary purpose of this study is to find the impact of devaluation on trade balance in Zimbabwe using the Johansen-Juselius Cointegration and Vector Error Correction Model (VECM), unit root tests, and impulse response analysis. Quarterly data for the period 1990 to 2005 is used. The result shows that devaluation is effective in improving trade balance in the long run and there is a cointegrated relationship between the real effective exchange rate and trade balance in the long run. The findings initially revealed that there is a long run relationship between trade balance and exchange rate. Secondarily the real exchange rate is an important variable to the trade balance, and that devaluation will improve trade balance in the long run, thus consistent with the Marshall-Lerner condition and finally, the results indicate no J-cu...
Devaluation in Developing Countries: Expansionary or Contractionary?
2000
This paper discusses the effects of devaluation on output growth in Less Developed Countries (LDCs). The issue has played an important role in the economic and political agendas of developing countries for several decades during which devaluation has been one of the most frequently used policy tools under both IMF-regulated and independent stabilization programs in these countries. Whether devaluation of the currency affects national income positively or negatively has also received considerable attention among academic researchers. In this paper, in order to analyze empirically whether or not devaluation results in output contraction in LDCs, data from 18 sample countries are used in a fixed-effect procedure. LDCs are divided into two categories and two different regression analyses are conducted. First, data from a group of 10 countries, including both manufacturing product exporters as well as agricultural and primary product exporters, are used to estimate a model of real output behavior for a period of 25 years. Then, to investigate if there exists a qualitative difference between different countries in terms of the effect of devaluation on economic growth, data from two different groups of countries (8 manufacturing exporters, 8 agricultural and primary exporters) are analyzed for a 20year period. In addition to the change in real exchange rates, the role of monetary and fiscal policies, as well as terms of trade changes, are incorporated into the model as the possible determinants of real output growth. The results indicate that devaluation creates a contractionary effect on output in the first year, whereas it has an expansionary effect in the following year. Also, the results suggest that there is no qualitative difference between manufacturing exporters and agricultural exporters in terms of the effect of devaluation on output growth. Fiscal expansion (increasing relative size of government expenditure) has a significant positive effect on output growth for all countries, regardless of their export composition. The effect of terms of trade changes on output is generally negative for agricultural and primary exporters, but fluctuating for manufacturing exporters. Manufacturing product exporters have a higher output growth trend than agricultural and primary exporters.