We dissect the impact of a large and sudden exchange rate appreciation on Swiss border import prices, retail prices, and consumer expenditures on domestic and imported nondurable goods, following the removal of the EUR/CHF floor in January 2015. Cross-sectional variation in border price changes by currency of invoicing carries over to consumer prices and allocations, impacting retail prices of imports and competing domestic goods, as well as import expenditures. We provide measures of the sensitivity of retail import prices to border prices and the sensitivity of import shares to relative prices, which is higher when using retail prices than border prices. (JEL E21, E31, F14, F31, L11)
{"title":"Exchange Rates and Prices: Evidence from the 2015 Swiss Franc Appreciation","authors":"Raphael A. Auer, Ariel T. Burstein, Sarah M. Lein","doi":"10.1257/AER.20181415","DOIUrl":"https://doi.org/10.1257/AER.20181415","url":null,"abstract":"We dissect the impact of a large and sudden exchange rate appreciation on Swiss border import prices, retail prices, and consumer expenditures on domestic and imported nondurable goods, following the removal of the EUR/CHF floor in January 2015. Cross-sectional variation in border price changes by currency of invoicing carries over to consumer prices and allocations, impacting retail prices of imports and competing domestic goods, as well as import expenditures. We provide measures of the sensitivity of retail import prices to border prices and the sensitivity of import shares to relative prices, which is higher when using retail prices than border prices. (JEL E21, E31, F14, F31, L11)","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":"104 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78039211","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-07-01DOI: 10.5089/9781484371671.001
A. Kabundi, Montfort Mlachila
This paper investigates the key factors that explain the documented decline in the exchange rate pass-through in South Africa over the past two decades, which coincides with the adoption of the inflation-targeting regime. The paper conjectures, in line with the literature, that this outcome is largely due to improved monetary policy credibility. To do this, it first documents the factors that explain monetary policy credibility. Using the standard deviation of individual inflation forecasts as a measure of monetary policy credibility, its shows that the latter is negatively affected by the level of inflation itself, monetary policy uncertainty, and a measure of the unobserved stochastic volatility of inflation. The second phase proceeds by analyzing the determinants of the pass-through using the monetary policy credibility index derived from the first phase. The paper confirms the remarkable achievement that, despite the many shocks that the economy has witnessed, the declining pass-through is indeed explained by the improving monetary policy credibility.
{"title":"Monetary Policy Credibility and Exchange Rate Pass-Through in South Africa","authors":"A. Kabundi, Montfort Mlachila","doi":"10.5089/9781484371671.001","DOIUrl":"https://doi.org/10.5089/9781484371671.001","url":null,"abstract":"This paper investigates the key factors that explain the documented decline in the exchange rate pass-through in South Africa over the past two decades, which coincides with the adoption of the inflation-targeting regime. The paper conjectures, in line with the literature, that this outcome is largely due to improved monetary policy credibility. To do this, it first documents the factors that explain monetary policy credibility. Using the standard deviation of individual inflation forecasts as a measure of monetary policy credibility, its shows that the latter is negatively affected by the level of inflation itself, monetary policy uncertainty, and a measure of the unobserved stochastic volatility of inflation. The second phase proceeds by analyzing the determinants of the pass-through using the monetary policy credibility index derived from the first phase. The paper confirms the remarkable achievement that, despite the many shocks that the economy has witnessed, the declining pass-through is indeed explained by the improving monetary policy credibility.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":"39 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"79928058","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Russian Abstract: В работе мы анализируется литература, исследующая влияние волатильности обменных курсов на объем торговли, и показано, что ранние оценки, свидетельствовавшие о значительном росте торговли между странами, состоящими в валютных союзах, являются ошибочными, и вызваны рядом причин, связанных с эндогенностью статуса валютных союзов и наличием трендов в регрессионных переменных. Один из разделов посвящен обзору литературы по общей проблематике эффектов обменных курсов на торговлю; в нем рассмотрен обширный класс моделей, описывающих спрос потребителей на импортные товары. Далее следует обзор эмпирических исследований, в которых, в том числе, изучается разница в оценке уравнений для случаев «малой открытой экономики» и «большой открытой экономики». В практической части работы оценивается влияние волатильности обменных курсов на объем торговли, используя панельные данные по 214 странам мира, используя прокси-переменную статуса валютных союзов. English Abstract: The paper analyzes literature exploring the influence of exchange rate volatility on trade volume and it is shown that early estimates indicating a significant increase in trade between countries that are in currency unions are erroneous and are caused by a number of reasons related to the endogenous status of monetary unions and the existence trends in regression variables. One of the sections is devoted to a review of the literature on the general problems of the effects of exchange rates on trade; in it an extensive class of models describing consumers' demand for imported goods is considered. This is followed by a review of empirical studies, which, among other things, study the difference in the estimation of equations for cases of "small open economy" and "large open economy". In the practical part of the work, the influence of exchange rate volatility on the volume of trade is estimated using panel data for 214 countries of the world, using the proxy variable of the status of monetary unions.
俄罗斯Abstract:我们分析了研究汇率波动对贸易量影响的文献，我们发现早期的估计表明货币联盟国家之间贸易增长显著，这是错误的，原因与货币联盟地位的内源性和趋势有关。其中一节是关于贸易汇率影响的文学概述;它概述了大量模型，描述了消费者对进口商品的需求。接下来是经验研究，其中包括对“小开放经济”和“大开放经济”方程的评估差异。该工作的实际部分评估了汇率波动对贸易量的影响，使用了214个国家的板块数据，使用了货币联盟的代理变量。抽象:The报纸analyzes English literature exploring The influence of exchange速率(volatility on trade volume and it is shown that early estimates indicating a increase in trade between国家的一张重要that are in上述一揽子unions are erroneous and are caused by a number of reasons related to The endogenous status of货币unions and The existence trends in regression variables。《sections》是对通用贸易政策问题的评论;在这一扩展的模型解析器类中，“被遗忘的神是被接受的。”这是对帝国工作室的评论，which, among things，为“小开放经济”和“大开放经济”的案例研究中的差异。在《工作》的笔录部分，《贸易保护》是《世界214个国家的潘纳数据》，《蒙太奇联盟》的序曲。
{"title":"Влияние Обменных Курсов и Их Волатильности На Внешнюю Торговлю России С Учетом Её Членства в Еаэс (The Impact of Exchange Rates and Their Volatility on Russia's Foreign Trade, Taking into Account its Membership in EAEU)","authors":"Alexander Knobel, Alexander Chentsov","doi":"10.2139/ssrn.3204314","DOIUrl":"https://doi.org/10.2139/ssrn.3204314","url":null,"abstract":"<b>Russian Abstract:</b> В работе мы анализируется литература, исследующая влияние волатильности обменных курсов на объем торговли, и показано, что ранние оценки, свидетельствовавшие о значительном росте торговли между странами, состоящими в валютных союзах, являются ошибочными, и вызваны рядом причин, связанных с эндогенностью статуса валютных союзов и наличием трендов в регрессионных переменных. Один из разделов посвящен обзору литературы по общей проблематике эффектов обменных курсов на торговлю; в нем рассмотрен обширный класс моделей, описывающих спрос потребителей на импортные товары. Далее следует обзор эмпирических исследований, в которых, в том числе, изучается разница в оценке уравнений для случаев «малой открытой экономики» и «большой открытой экономики». В практической части работы оценивается влияние волатильности обменных курсов на объем торговли, используя панельные данные по 214 странам мира, используя прокси-переменную статуса валютных союзов. <b>English Abstract:</b> The paper analyzes literature exploring the influence of exchange rate volatility on trade volume and it is shown that early estimates indicating a significant increase in trade between countries that are in currency unions are erroneous and are caused by a number of reasons related to the endogenous status of monetary unions and the existence trends in regression variables. One of the sections is devoted to a review of the literature on the general problems of the effects of exchange rates on trade; in it an extensive class of models describing consumers' demand for imported goods is considered. This is followed by a review of empirical studies, which, among other things, study the difference in the estimation of equations for cases of \"small open economy\" and \"large open economy\". In the practical part of the work, the influence of exchange rate volatility on the volume of trade is estimated using panel data for 214 countries of the world, using the proxy variable of the status of monetary unions.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":"26 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-06-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82664297","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Ernesto H. Stein, Andrés Fernández, Samuel Rosenow, Víctor Zuluaga
We develop a methodology to construct real effective exchange rates that incorporate two distinctive elements not accounted for in the traditional measures: i) competition in third markets and ii) adjustments for similarity in export baskets between exporters and their competitors. In addition to constructing competition adjusted real effective exchange rates at the aggregate country level, we develop similar measures at the country-product, country-destination, and country-product destination level. We then build a novel and public dataset where we apply this methodology to compute monthly adjusted REERs for a panel of 120 countries and 769 products. As an application, we use the dataset to examine the changes in export competitiveness in countries in Latin America and the Caribbean between May 2014 and February 2016, a period characterized by substantial movements in exchange rates. We find that using traditional measures of real effective exchange rates misallocates between one third and one half of the relevant weights, and it leads to an important underestimation of the loss in export competitiveness. Furthermore, we find that there are very significant differences across products and destinations with regards to changes in export competitiveness.
{"title":"Competition-Adjusted Measures of Real Exchange Rates","authors":"Ernesto H. Stein, Andrés Fernández, Samuel Rosenow, Víctor Zuluaga","doi":"10.2139/ssrn.3305512","DOIUrl":"https://doi.org/10.2139/ssrn.3305512","url":null,"abstract":"We develop a methodology to construct real effective exchange rates that incorporate two distinctive elements not accounted for in the traditional measures: i) competition in third markets and ii) adjustments for similarity in export baskets between exporters and their competitors. In addition to constructing competition adjusted real effective exchange rates at the aggregate country level, we develop similar measures at the country-product, country-destination, and country-product destination level. We then build a novel and public dataset where we apply this methodology to compute monthly adjusted REERs for a panel of 120 countries and 769 products. As an application, we use the dataset to examine the changes in export competitiveness in countries in Latin America and the Caribbean between May 2014 and February 2016, a period characterized by substantial movements in exchange rates. We find that using traditional measures of real effective exchange rates misallocates between one third and one half of the relevant weights, and it leads to an important underestimation of the loss in export competitiveness. Furthermore, we find that there are very significant differences across products and destinations with regards to changes in export competitiveness.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":"1 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-05-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85293310","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2018-03-28DOI: 10.13133/2037-3643_71.284_5
Temitope L. A. Leshoro
Inflation expectations play a critical role in the formation of prices and wages. Hence, the South African Reserve Bank (SARB) reacts to inflation’s direct effects by tightening the monetary policy in order to avoid any second-round effects. The study we conducted attempts to investigate whether the inflation rate are led by inflation expectations or vice versa. We analyse quarterly data using the Toda-Yamamoto causality technique and three different measures of inflation expectations of the trade union representatives. We also investigate the role of the exchange rate in leading or lagging the inflation rate. Overall, the results obtained demonstrate that the inflation and the exchange rates have bidirectional causality, while unidirectional causality exists from the inflation rate to inflation expectations. We therefore conclude that a second-round effect of inflation cannot be induced by changes in the inflation expectations of the trade unions, and provide some policy recommendations.
{"title":"Trade Unions’ Inflation Expectations and the Second-Round Effect in South Africa","authors":"Temitope L. A. Leshoro","doi":"10.13133/2037-3643_71.284_5","DOIUrl":"https://doi.org/10.13133/2037-3643_71.284_5","url":null,"abstract":"Inflation expectations play a critical role in the formation of prices and wages. Hence, the South African Reserve Bank (SARB) reacts to inflation’s direct effects by tightening the monetary policy in order to avoid any second-round effects. The study we conducted attempts to investigate whether the inflation rate are led by inflation expectations or vice versa. We analyse quarterly data using the Toda-Yamamoto causality technique and three different measures of inflation expectations of the trade union representatives. We also investigate the role of the exchange rate in leading or lagging the inflation rate. Overall, the results obtained demonstrate that the inflation and the exchange rates have bidirectional causality, while unidirectional causality exists from the inflation rate to inflation expectations. We therefore conclude that a second-round effect of inflation cannot be induced by changes in the inflation expectations of the trade unions, and provide some policy recommendations.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":"67 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-03-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"87801306","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Two types of currency in circulation models are identified: (1) a first generation derived fromthe theory of money demand and (2) a second generation aimed at producing daily forecastsof currency in circulation. In this paper, we transform the currency demand function into aVAR to capture the dynamic link between interest rates and the demand for cash. We alsoapply ARIMA modeling to forecast the daily currency in circulation for Brazil, Kazakhstan,Morocco, New Zealand, and Sudan. Our empirical work shows that some of the conclusionsin the economic literature on the impact of interest rates on the demand for currency do notnecessarily hold, and that central banks would benefit from running both generations ofcurrency in circulation models. The fundamental longer-run determinants of the demand forcash are distinct from its short-run determinants.
{"title":"Monetary Policy and Models of Currency Demand","authors":"Mariam El Hamiani Khatat","doi":"10.2139/ssrn.3138512","DOIUrl":"https://doi.org/10.2139/ssrn.3138512","url":null,"abstract":"Two types of currency in circulation models are identified: (1) a first generation derived fromthe theory of money demand and (2) a second generation aimed at producing daily forecastsof currency in circulation. In this paper, we transform the currency demand function into aVAR to capture the dynamic link between interest rates and the demand for cash. We alsoapply ARIMA modeling to forecast the daily currency in circulation for Brazil, Kazakhstan,Morocco, New Zealand, and Sudan. Our empirical work shows that some of the conclusionsin the economic literature on the impact of interest rates on the demand for currency do notnecessarily hold, and that central banks would benefit from running both generations ofcurrency in circulation models. The fundamental longer-run determinants of the demand forcash are distinct from its short-run determinants.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":"12 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-02-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"82923257","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Determining the correct monetary aggregate to use is (or at least should be) an important consideration when taking any monetary model to the data. In this paper I present a basic monetary search model with two assets, currency and bonds. I assume that in order for assets to be used in trade, they require some verification that the asset is authentic. Some fraction of the assets are destroyed in the verification process. This suggests that when both assets circulate in equilibrium, the appropriate monetary aggregate is a linearly homogeneous function with the weights of each asset determined by its degree of liquidity. When one normalizes the degree of liquidity of currency to 1, this implies that the appropriate monetary aggregate is the Currency Equivalent Index proposed by Rotemberg, Driscoll, and Poterba (1995). One advantage of this result is that researchers can construct a monetary aggregate that is exactly applicable to the model. Finally, I show that it is only permissible to use simple sum monetary aggregates when all assets offer the same liquidity properties or the central bank conducts policy according to the Friedman Rule.
在对数据采用任何货币模型时，确定要使用的正确货币总量是(或至少应该是)一个重要的考虑因素。本文提出了一个包含货币和债券两种资产的基本货币搜索模型。我认为，为了让资产在贸易中使用，他们需要一些验证，以证明资产是真实的。部分资产在核查过程中被销毁。这表明，当两种资产处于均衡状态时，适当的货币总量是一个线性齐次函数，其中每种资产的权重由其流动性程度决定。当将货币的流动性程度归一为1时，这意味着适当的货币总量是Rotemberg, Driscoll, and Poterba(1995)提出的货币等值指数。该结果的一个优点是，研究人员可以构建一个完全适用于该模型的货币总量。最后，我表明，只有当所有资产提供相同的流动性属性或中央银行根据弗里德曼规则执行政策时，才允许使用简单的货币总量。
{"title":"Monetary Search, Proportional Transaction Costs, and the Currency Equivalent Index","authors":"Joshua R. Hendrickson","doi":"10.2139/ssrn.3045307","DOIUrl":"https://doi.org/10.2139/ssrn.3045307","url":null,"abstract":"Determining the correct monetary aggregate to use is (or at least should be) an important consideration when taking any monetary model to the data. In this paper I present a basic monetary search model with two assets, currency and bonds. I assume that in order for assets to be used in trade, they require some verification that the asset is authentic. Some fraction of the assets are destroyed in the verification process. This suggests that when both assets circulate in equilibrium, the appropriate monetary aggregate is a linearly homogeneous function with the weights of each asset determined by its degree of liquidity. When one normalizes the degree of liquidity of currency to 1, this implies that the appropriate monetary aggregate is the Currency Equivalent Index proposed by Rotemberg, Driscoll, and Poterba (1995). One advantage of this result is that researchers can construct a monetary aggregate that is exactly applicable to the model. Finally, I show that it is only permissible to use simple sum monetary aggregates when all assets offer the same liquidity properties or the central bank conducts policy according to the Friedman Rule.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":"2016 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2018-01-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"86140066","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We propose an integrated fiscal and monetary approach to economic stabilisation policy in small open financially integrated economies (SOFIE’s), using fiscal policy to achieve external balance at a targeted exchange rate. This approach overcomes the conundrum of the conventional Mundell-Fleming view, in today’s world of international financial integration, where capital controls do not insulate the small domestic economy, and where local authorities cannot be indifferent to the volatility of the exchange rate of local currency, and the potential harm to savings, investment, capital flight and domestic financial stability. In today’s world, the standard prescription of flexible exchange rates and independent monetary control targeting inflation presents challenges with which SOFIE’s have struggled, with little success. We describe the framework for an alternative which suits the circumstances of SOFIE’s.
{"title":"A New Approach to Exchange Rate Management in Small Open Financially Integrated Economies","authors":"Delisle Worrell, W. Moore, Jamila Beckles","doi":"10.2139/ssrn.2986488","DOIUrl":"https://doi.org/10.2139/ssrn.2986488","url":null,"abstract":"We propose an integrated fiscal and monetary approach to economic stabilisation policy in small open financially integrated economies (SOFIE’s), using fiscal policy to achieve external balance at a targeted exchange rate. This approach overcomes the conundrum of the conventional Mundell-Fleming view, in today’s world of international financial integration, where capital controls do not insulate the small domestic economy, and where local authorities cannot be indifferent to the volatility of the exchange rate of local currency, and the potential harm to savings, investment, capital flight and domestic financial stability. In today’s world, the standard prescription of flexible exchange rates and independent monetary control targeting inflation presents challenges with which SOFIE’s have struggled, with little success. We describe the framework for an alternative which suits the circumstances of SOFIE’s.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":"26 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78730552","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
In this paper we estimate the impact on domestic trade in agricultural commodities of India's demonetization exercise that invalidated 86 of the currency in circulation. Using data on arrivals and prices from close to 3000 regulated markets in India for 35 major agricultural commodities for the period 2011-2017, we focus on short term effects up to 3 months after demonetization, tracking both the impact and recovery. These 35 commodities account for an overwhelming share of land under cultivation and value of production and hence are representative of Indian agriculture in more than one sense. Using earlier years as comparison years, we use a combination of difference in differences techniques and synthetic control methods to identify the causal impact of demonetization. We find that demonetization has displaced domestic agricultural trade in regulated markets by over 15 in the short run settling at 7 after recovery at the end of the 90 day period after demonetization. Trade in perishables was displaced to the extent of 23 in the week following demonetization. It recovered slightly by the end of 90 days, but was still 18 lower than the usual. Most of this decline is on account of the significant decline in prices rather than of arrivals, which appear to have recovered over a period of three months. There are significant differences across commodities but almost all of these are in expected ways. The impacts are sharpest for kharif crops where government intervention is minimal or absent and for perishables and least for crops where farmers are well organized or commodities which governments actively procure. Robustness checks and falsification tests support our findings to a large extent. Overall, it seems to be the case that the monetary contraction embodied in demonetization significantly impacted arrivals and prices, though the price impacts are perhaps more lasting. The findings from this analysis and anecdotal evidence from field visits suggest that the impacts of demonetization potentially have effects that could last beyond the immediate impact.
{"title":"Impact of India's Demonetization on Domestic Agricultural Markets","authors":"Nidhi Aggarwal, S. Narayanan","doi":"10.2139/ssrn.3066042","DOIUrl":"https://doi.org/10.2139/ssrn.3066042","url":null,"abstract":"In this paper we estimate the impact on domestic trade in agricultural commodities of India's demonetization exercise that invalidated 86 of the currency in circulation. Using data on arrivals and prices from close to 3000 regulated markets in India for 35 major agricultural commodities for the period 2011-2017, we focus on short term effects up to 3 months after demonetization, tracking both the impact and recovery. These 35 commodities account for an overwhelming share of land under cultivation and value of production and hence are representative of Indian agriculture in more than one sense. Using earlier years as comparison years, we use a combination of difference in differences techniques and synthetic control methods to identify the causal impact of demonetization. We find that demonetization has displaced domestic agricultural trade in regulated markets by over 15 in the short run settling at 7 after recovery at the end of the 90 day period after demonetization. Trade in perishables was displaced to the extent of 23 in the week following demonetization. It recovered slightly by the end of 90 days, but was still 18 lower than the usual. Most of this decline is on account of the significant decline in prices rather than of arrivals, which appear to have recovered over a period of three months. There are significant differences across commodities but almost all of these are in expected ways. The impacts are sharpest for kharif crops where government intervention is minimal or absent and for perishables and least for crops where farmers are well organized or commodities which governments actively procure. Robustness checks and falsification tests support our findings to a large extent. Overall, it seems to be the case that the monetary contraction embodied in demonetization significantly impacted arrivals and prices, though the price impacts are perhaps more lasting. The findings from this analysis and anecdotal evidence from field visits suggest that the impacts of demonetization potentially have effects that could last beyond the immediate impact.","PeriodicalId":20949,"journal":{"name":"PSN: Exchange Rates & Currency (Comparative) (Topic)","volume":"138 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2017-11-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85583790","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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