Exchange rate pass-through and volatility: Impacts on domestic prices in four Asian countries

The paper undertakes a comparative empirical analysis on the effects of shocks on domestic prices in four Asian countries before and after the financial crisis of 1997. We apply two different estimation methodologies, namely a structural VAR and a single equation approach. The results of the two methods are consistent, although the magnitude of the elasticities of the exchange rate pass-through are different due to the inclusion of different variables, lag terms and different assumptions made in both methods. The results show that the degrees of the exchange rate pass-through are different across countries and over time. In most cases, the pass-through rates are incomplete. The degree of the exchange rate pass-through is the highest on import prices, moderate on PPI and is the lowest on CPI. In some cases, the pass-through rates on CPI are even negative. The effect of the import price shock is stronger as compared to that of the exchange rate shock in determining the movement of the domestic prices in these countries. Trade openness has a weak correlation with the degree of the exchange rate pass-through.domestic prices, exchange rate pass-through, SVAR, single equation approach

Terms of trade shocks and structural adjustments in Kazakhstan

Kazakhstan is a natural resources abundant country with the large amount of stocks of crude petroleum and natural gas. Favorable conditions at the world hydrocarbon markets, building of the oil pipelines led to the increase of the export of crude petroleum and natural gas abroad. This constituted the main factor of the positive and sustained growth in Kazakhstan during the last eight years with 9.8% of economic growth per annual on average. The paper constitutes an attempt to quantitatively evaluate the effects of the two simulated oil price shocks on the structural adjustments in the economy using a multisectoral static CGE model. The paper delivers two main results. First, the economy responds asymmetrically to the oil price shocks, although the magnitude of the oil price changes is the same, but different in signs. Second, paper represents a clear indication of the vulnerability of the Kazakhstani economy to the world oil price changes and thus represents a clear evidence of the possible Dutch disease consequences for the Kazakhstani economy

Effects of World Price and Oil Export Price Increases in the Framework of One-sector and Two-Sector Stylized Models

Interesting stylized models that discuss the implications of the oil boom or oil export price increase on an oil-rich economy must involve a tension between effects that tend to boost oil sector and harm non-oil sector and effects that vice versa tend to boost non-oil sector and harm oil sector. This paper explores such models and examines at large the implications of the oil export price increase through the prism of interaction between these two effects. This paper applies the 1-2-3-model of Devarajan et al. (1990) and develops two stylized models that examine the effects of the world price increase and oil export price increase on the economy respectively. A central feature of the developed stylized models is that they can distinguish between the two effects generated by the oil export price increase, namely the balance-of-trade effect and the import-competing effect. The balance-of-trade effect shows the response of the economy to the oil export price increase, depending on whether the economy runs a trade surplus or a trade deficit in the benchmark equilibrium, with the import-competing effect set equal to one. It shows conditions that cause changes in the producers’ real costs and hence determines which sector grows and which sector shrinks in the wake of the oil export price increase. The import-competing effect, under the assumption that trade is balanced, shows the effect of the variation in the Armington elasticity of substitution between oil goods in the second model and non-oil goods in the third model. It shows how competition between imported and import-competing goods affects producers’ real costs and hence determines which sector grows and which sector shrinks in the wake of the oil export price increase

Effects of the oil export price increase on the economy: theoretical and empirical issues ; a CGE analysis of the case of Kazakhstan

This study is an experimental study that examines the effects of the oil export price increase in both theoretical and empirical contexts considering the Kazakhstani economy as a particular case, and discusses the effects of different macro closure rules. This study has been motivated by several factors. First, the theoretical literature on the effects of the oil export price increase is to some extent limited as it uses the Salter-Swan framework that does not incorporate two-way trade or it assumes the oil sector an enclave. Second, the empirical literature on the effects of the oil export price increase on Kazakhstan using an economy-wide framework is limited as well. To the best of my knowledge there are no studies available that quantify these effects on Kazakhstani economy in isolation, which, however, are necessary to study since the oil prices have been soaring in the recent decade and since Kazakhstan has large oil resources. Third, although macro closure rules lie at the core of the static CGE models and different macro closure rules might trigger different results, there is hardly anything in the literature that tests the effects of different macro closure rules in detailed theoretical models. The theoretical literature on macro closure rules remains limited, as it primarily considers only one-sector models, which obviously fail to incorporate fully the intricacies of real-life multisector planning models. As a result, most of the CGE modelers conventionally do not explain the rationale behind their choice of macro closure rules, although the results might be different under different macro closure rules. To overcome these limitations and test the effects of alternative macro closure rules, this study develops several stylized models and applies Lofgren et al.’s (2002) model to the Kazakhstani economy

Effects of World Price and Oil Export Price Increases in the Framework of One-sector and Two-Sector Stylized Models

Interesting stylized models that discuss the implications of the oil boom or oil export price increase on an oil-rich economy must involve a tension between effects that tend to boost oil sector and harm non-oil sector and effects that vice versa tend to boost non-oil sector and harm oil sector. This paper explores such models and examines at large the implications of the oil export price increase through the prism of interaction between these two effects. This paper applies the 1-2-3-model of Devarajan et al. (1990) and develops two stylized models that examine the effects of the world price increase and oil export price increase on the economy respectively. A central feature of the developed stylized models is that they can distinguish between the two effects generated by the oil export price increase, namely the balance-of-trade effect and the import-competing effect. The balance-of-trade effect shows the response of the economy to the oil export price increase, depending on whether the economy runs a trade surplus or a trade deficit in the benchmark equilibrium, with the import-competing effect set equal to one. It shows conditions that cause changes in the producers’ real costs and hence determines which sector grows and which sector shrinks in the wake of the oil export price increase. The import-competing effect, under the assumption that trade is balanced, shows the effect of the variation in the Armington elasticity of substitution between oil goods in the second model and non-oil goods in the third model. It shows how competition between imported and import-competing goods affects producers’ real costs and hence determines which sector grows and which sector shrinks in the wake of the oil export price increase

Exchange rate pass-through and volatility: Impacts on domestic prices in four Asian countries

The paper undertakes a comparative empirical analysis on the effects of shocks on domestic prices in four Asian countries before and after the financial crisis of 1997. We apply two different estimation methodologies, namely a structural VAR and a single equation approach. The results of the two methods are consistent, although the magnitude of the elasticities of the exchange rate pass-through are different due to the inclusion of different variables, lag terms and different assumptions made in both methods. The results show that the degrees of the exchange rate pass-through are different across countries and over time. In most cases, the pass-through rates are incomplete. The degree of the exchange rate pass-through is the highest on import prices, moderate on PPI and is the lowest on CPI. In some cases, the pass-through rates on CPI are even negative. The effect of the import price shock is stronger as compared to that of the exchange rate shock in determining the movement of the domestic prices in these countries. Trade openness has a weak correlation with the degree of the exchange rate pass-through

Exchange rate pass-through and volatility: Impacts on domestic prices in four Asian countries

The paper undertakes a comparative empirical analysis on the effects of shocks on domestic prices in four Asian countries before and after the financial crisis of 1997. We apply two different estimation methodologies, namely a structural VAR and a single equation approach. The results of the two methods are consistent, although the magnitude of the elasticities of the exchange rate pass-through are different due to the inclusion of different variables, lag terms and different assumptions made in both methods. The results show that the degrees of the exchange rate pass-through are different across countries and over time. In most cases, the pass-through rates are incomplete. The degree of the exchange rate pass-through is the highest on import prices, moderate on PPI and is the lowest on CPI. In some cases, the pass-through rates on CPI are even negative. The effect of the import price shock is stronger as compared to that of the exchange rate shock in determining the movement of the domestic prices in these countries. Trade openness has a weak correlation with the degree of the exchange rate pass-through

OIL PRICE SHOCKS AND GREEN BONDS: AN EMPIRICAL EVIDENCE

This paper contributes to the existing literature by investigating the impacts of crude oil price shocks on financial markets through an examination of the effect of oil price shocks on the issuance of corporate green bonds. Green bond issuance has been growing fast over the past several years; despite this, the share of green bonds in the total bonds remains less than 1%. Using the multilevel models, this study investigates the effect of flow oil-supply, flow oil-demand, and speculative oil-demand shocks on (1) probability of the corporate green bond issuance and (2) the share of corporate green bond issuance. We find that flow supply shocks, flow demand shocks and the issuance of sovereign green bonds have a positive and significant effect on the probability of the issuance of corporate green bonds, but shocks have no significant impact on the share of the corporate green bond issuance. The results are robust to alternative specifications of our models