Exchange Rate Uncertainty and Import Demand of Thailand

This study investigates the impact of real exchange rate uncertainty on import demand of Thailand. The period of study is during July 1997 to December 2011. The results from bounds testing for cointegration show that all variables are cointegrated. Even though there is no short-run impact, but the long-run negative impact of real exchange rate uncertainty on real imports is large and highly significant under the floating exchange rate regime. In the long run, a rise in real exchange rate uncertainty can improve the country’s trade balance by substantially lowering import demand, but can harm industrial production at the same time. Therefore, stabilization of real effective exchange rate via major nominal exchange rates may deem necessary

The Ricardian equivalence hypothesis: evidence from Bangladesh

This article examines the Ricardian equivalence hypothesis (REH) and its sources of failure in the case of Bangladesh using various theoretical specifications, annual data from 1974-2001 and linear and nonlinear time series techniques. The general findings tend to invalidate the REH: a finite time horizon and the presence of liquidity-constrained individuals are the sources of deviation from the REH. Empirical results reveal that real per-capita private consumption (C) under various specifications is cointegrated generally at the 5% level with real per-capita income (Y), government expenditure before and after interest rate repayments (G and G2), taxes (T) and the interest rate (r). Results reveal that an increase in G, G2, T and r reduces C and that an increase in budget deficits raises trade deficits. These results highlight the importance of fiscal policies in boosting private consumption and controlling trade deficits, which are the prime goals of stabilization policies being followed by Bangladesh.