Quick recap
The meeting began with presentations on exchange rate determination and literature reviews, followed by discussions on economic research papers focusing on inflation differentials, exchange rates, and income distribution. Participants explored various methodologies including ARDL models and wavelet analysis, while examining the effects of exchange rates, domestic income, and foreign prices on trade balances and labor share. The session concluded with a quiz on financial transactions and balance of payments concepts, covering topics such as portfolio investments and international investment positions.
Next steps
- All students to upload their test answers to UVE by 5 PM.
- Students with UVE access issues to send their test answers via Messenger.
- Students to prepare for the upcoming exam on Friday at the university.
- Jen to adjust the test submission deadline from 4 PM to 5 PM to accommodate students with connectivity issues.
- Jen to provide an exercise or assignment for topics not covered in the current test.
Summary
Exchange Rate Determination Literature Review
Jen led an online class session where Zandra presented a literature review on exchange rate determination, focusing on the "uncovered interest parity puzzle" for Central and Eastern European economies. Zandra explained the study's methodology, key findings, and policy implications, highlighting the importance of considering global risk premiums and cross-currency dynamics in foreign exchange interventions. The session concluded with a brief Q&A session, where participants were encouraged to type their questions in the chat box for documentation.
Exchange Rate Adjustment Mechanisms
The meeting involved a presentation by Zandra on the interest rate puzzle in peripheral and Eastern economies, focusing on the need for updated data and alternative methodologies post-2019, including examining the impact of COVID-19. Jen then introduced Adrian, who presented on a study titled "Adjusting towards Long-Run Purchasing Power Parity," which aimed to investigate the mechanisms of adjustment in exchange rates and prices. Adrian highlighted the study's use of a system called the Mean Group Estimator, which allows for two-way long-run causality, and its findings on regime-dependent adjustment mechanisms. The discussion concluded with questions about the consistency of the study's results with existing theories and empirical works, and suggestions for further research to address limitations in the study.
Exchange Rate Regime Studies
Adrian presented on regime dependency and exchange rate studies, explaining how Hamilton's 1989 framework uses a 30-day or 30-year rolling window to identify regimes. Jessa asked about exchange rate convergence, to which Adrian explained that studies show prices converge over approximately 4.27 years. Crystal presented a literature review on exchange rate regimes in developing countries, focusing on a study by Ravi Ben that analyzed 29 developing countries from 2000 to 2016 using World Bank data to examine the effects of fixed versus flexible exchange rate systems on economic performance.
Economic Research on Exchange Rates
The meeting focused on presentations and discussions of economic research papers. Kristal presented findings from an econometric study on exchange rate regimes and inflation, highlighting that fixed exchange rate regimes tend to reduce inflation and promote stability, though government expenditure was not significantly related to economic growth. Armela discussed a literature review on inflation differentials and exchange rates in Pakistan, using a multi-method approach including wavelet coherence analysis to examine the relationship between inflation differentials and exchange rates across time and frequency domains. The study found partial validation of the purchasing power parity hypothesis for Pakistan, with significant co-movements between inflation differentials and exchange rates in 12 out of 23 trading partners. Both presentations sparked questions about country selection criteria and the implications of the findings for policy.
Research on Inflation and Income
The meeting focused on presentations and discussions about research topics related to inflation differentials, exchange rates, and income distribution. Armela presented on inflation differential pass-through to exchange rates, highlighting the manual computation of inflation differentials due to data limitations and the use of wavelet analysis for further research. Mark presented on the impact of real interest rates on income distribution using an ARDL model, discussing policy implications and suggesting further research on household saving behavior. The audience asked questions about the Gini coefficient, the rationale for focusing on five developing economies, and the selection of lag lengths in the model.
South Africa's Trade Balance Analysis
Snooky presented a study on South Africa's trade balance, analyzing the effects of exchange rates, domestic income, and foreign prices using ARDL models. The study found that domestic income has the strongest negative impact on trade balance, while exchange rates have the smallest effect. Snooky proposed expanding the research to include ASEAN countries, using monthly or quarterly data from 1970 to 2024, and incorporating Foreign Direct Investment as a new variable.
ARDL Models and Labor Share
Snooky presented on restricted and unrestricted ARDL models, explaining that the restricted version focuses on robustness and highlights error correction terms, while the general ARDL includes all variables. Jen asked about model restrictions and stability tests, which Snooky confirmed were conducted. Efrelaine then presented on labor share as an automatic stabilizer, discussing how it affects income inequality and tax systems. She explained the study's methodology and findings, including how labor share can reduce disposable income inequality and strengthen redistribution. The presentation concluded with policy recommendations and suggestions for future research.
Labor Share and Inequality Discussion
The meeting focused on discussing labor share and its relationship with income inequality, with Efrelaine presenting research on how digital labor and automation affect labor share and inequality. Jen led a discussion on the definition and calculation of labor share, clarifying that it is the percentage of GDP accounted for by compensation of employees. The class then prepared for an upcoming quiz, with Jen explaining that students without internet access could use their phones to participate via Messenger. The quiz would cover topics from the first unit, with questions to be answered on paper and submitted via photo.
Financial Transactions Quiz Overview
The meeting focused on a quiz about financial transactions and balance of payments concepts. Jen led the discussion through multiple parts, covering topics such as portfolio investments, net inflows, and international investment positions. Participants answered questions about debits and credits in various transactions involving exports, imports, and investments. The session concluded with a problem set requiring participants to analyze current accounts and financial accounts based on sample transactions.
Financial Transactions and Exam Procedures
The meeting focused on explaining financial and current account transactions, particularly capital inflows and outflows. Jen provided detailed instructions on how to identify and categorize transactions in financial accounts, emphasizing the importance of balancing debit and credit entries. She clarified that while current accounts deal with exports and imports, financial accounts require transactions to be grouped as either capital inflows or outflows. Jen also addressed questions about exam procedures, explaining that students should finalize and upload their answers by 5 PM, and confirmed that the exam would be based on a 50-point scale.
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