Dr.DEBESH BHOWMIK

Dr.DEBESH BHOWMIK

Monday, 3 October 2011

Exchange rate behavior of Great Britain during 1960-2010


The official exchange rate of U.K. with respect to US dollar during last 40 years behaves more or less like other countries of EU and Asia because it shows volatility. If we use co-efficient of variation as the very simple measure of volatility , then we got the value of 22.16% which is too high. In the Fig-1, the volatility of the exchange rate is given.
                                             Fig-1, Official exchange rate of UK per US dollar

In contrast to the behavior of the official exchange rate of UK per US dollar, the nature of the REER of UK during 1975-2009 is plotted below.
                                           Fig-2, REER of UK


This REER (2005=100) is found as cyclical having co-efficient of variation is 9.6572% ie less volatile than the level series data. It is linearly estimated as,
REER = 80.8878+0.4293 T+U
               (31.994)*(3.539)*
R2=0.275 , F= 12.53 (significant) and   * = significant at 10% level.
On the other hand, the linear estimated equation of the level series of exchange rate is given below.
EX.RATE =0.38009+0.005913t +u
                   (16.69)*(7.759)*
R2=0.551 , F=60.21(sig) , where * = significant at 10% level.      
The REER  is positively skewed (value = 0.13007) but the level series is negatively skewed(value = -0.0843).
The long run trend of the curve is estimated in the linear form is shown in the figure-3, and the nature of the actual exchange rate curve is also shown and it is cyclically upward.
                       Fig-3 , Estimated series of exchange rate 

The exchange rate shows auto-correlation and partial auto-correlation problems.In the Table-1,the correlogram of auto-correlation and partial auto-correlation are given along with the values of auto-correlation and partial auto-correlation along showing Q statistic and probabilities for significance.

Table-1
Correlogram of exchange rate series
Sample: 1960 2010
Included observations: 51
Autocorrelation
Partial Correlation

AC
 PAC
 Q-Stat
 Prob
      . |*******|
      . |*******|
 1
 0.892
 0.892
 43.055
 0.000
      . |****** |
     ***| .     |
 2
 0.730
-0.327
 72.446
 0.000
      . |*****  |
      . |*.     |
 3
 0.593
 0.112
 92.250
 0.000
      . |****   |
      . |*.     |
 4
 0.512
 0.133
 107.35
 0.000
      . |****   |
      . | .     |
 5
 0.470
 0.036
 120.33
 0.000
      . |****   |
      . |*.     |
 6
 0.472
 0.195
 133.69
 0.000
      . |****   |
      . |*.     |
 7
 0.494
 0.068
 148.66
 0.000
      . |****   |
      .*| .     |
 8
 0.484
-0.120
 163.40
 0.000
      . |***    |
      .*| .     |
 9
 0.417
-0.142
 174.58
 0.000
      . |**     |
      .*| .     |
 10
 0.311
-0.104
 180.95
 0.000
      . |**     |
      . | .     |
 11
 0.216
 0.018
 184.11
 0.000
      . |*.     |
      . | .     |
 12
 0.149
-0.036
 185.65
 0.000
      . |*.     |
      .*| .     |
 13
 0.091
-0.138
 186.24
 0.000
      . | .     |
      . | .     |
 14
 0.050
-0.020
 186.42
 0.000
      . | .     |
      . | .     |
 15
 0.036
 0.047
 186.52
 0.000
      . | .     |
      . | .     |
 16
 0.025
-0.039
 186.57
 0.000
      . | .     |
      . | .     |
 17
-0.009
-0.036
 186.58
 0.000
      .*| .     |
      **| .     |
 18
-0.088
-0.196
 187.21
 0.000
      .*| .     |
      . | .     |
 19
-0.168
 0.003
 189.60
 0.000
      **| .     |
      .*| .     |
 20
-0.250
-0.149
 195.06
 0.000
     ***| .     |
      .*| .     |
 21
-0.329
-0.111
 204.79
 0.000
     ***| .     |
      . |*.     |
 22
-0.367
 0.114
 217.34
 0.000
     ***| .     |
      . |*.     |
 23
-0.338
 0.124
 228.38
 0.000
      **| .     |
      . | .     |
 24
-0.276
 0.044
 235.99
 0.000

The exchange rate of UK from 1960 to 2010 does not face unit root because from the unit root test we found the value of Augmented Dicky Fuller (ADF)which is -3.2857 and found  significant at 10% level.
The estimated unit root test is,
X t-1 = 0.1006 – 0.2489 + 0.4794 X t-1+u
              (3.24)*  (-3.2857)*   (3.665)*
  R2= 0.2969, ( moderately  low), F= 6.334(insignificant),   where * = significant at 10% level.
But, the exchange rate series has no common variance and therefore, the Auto Regressive Common homoscedasticity test appeared to be significant where  Observed R2= 24.041(low but significant) ,F=44.456(sig) in which the estimated values are:
Constant              0.001929 (t= 1.41 , insignificant)
Residual               0.6932 (t= 6.66,significant)
Moreover, the series contains  heteroskedasticity  where the value of log likelihood ratio was found as 24.53(significant) from the Ramsey Reset Test.
So, we have to face numerous exchange  rate  policies for stabilization. The falling REER is the condition for net gain in terms of trade and positive current account balance. The stability of exchange rate with inflation targeting policy is crucial and to be adjusted with LIBOR and interest rate of EU for good behavior of exchange rate of the economy. Any interest rate differential is to managed by monetary policy.

Tuesday, 27 September 2011

TWO DECADES OF ECONOMIC REFORMS IN INDIA



Bengal Economic Association has organized the Mid-Year Seminar on 24th September in 2011 at Michael Madhusudan Mahavidyalaya,Adra,Purulia,WestBengal on the theme “ Two Decades of Economic Reforms in India”. 27 paper presenters attended the seminar so far.
The key note Paper entitled “Two decades of economic reforms in India” was presented by Prof.Raj Kumar Sen,former President of BEA. He highlighted on jobless growth,neglect of investment in agriculture,adverse impact of green revolution,corporate-led MNC dominated process like SEZ,contract farming,etc, and the accumulation black money and rising inequality.
The theme paper entitled “Two decades of Economic Reforms-The Indian Economy” was presented by Dr.Asim Kumar Karmakar-the Assistant Prof. of Economics of Jadavpur University. He focused on several issues like BOPs crisis,debt problem,trade policies,non-competitiveness etc.
Prof.Dhirendranath Konar of Kalyani University expressed the declining agricultural contribution ,rural poverty and inter-state disparity on his paper “Economic Reforms:Its impact on rural poverty in India during the last twenty years”
Dr.Purba Chattopadhyaya of Gobardanga Hindu College examined the basic health indicators like nutritional indicators,anemia,reason for Indian children’s sufferings and infant mortality rate etc. which predict a gloomy future.
Anath Bandhu Mukhopadyaya of SRF College,Beldanga(retd) spoke about multidimentional implications  of Indian Economic Reform which was originated through Washington Consensus.
Dr.Debesh Bhowmik of International Institute for Development Studies(Kolkata) on his paper , “India’s Renewable Energy:Achievements and Targets” emphasized on different sources of renewable energy in India during last two decades and showed long term projection up to 2040.He showed that India ranks 5th in wind power and also ranks 5th in world renewable energy.He clarified the importance of India’s trade in renewable energy.But he did not forget to show the gloomy picture of solar energy and nuclear energy in India.He hopes that India will improve its status in the world in renewable energy by implementing new climate policy ,new energy policy and long term perspective plan where a great potentiality of green jobs may emerge.
Debes Mukhopadhyaya of St.Pauls CMCollege,Kolkata(retd) emphasized on inequality, organized employment potentiality,governance deficit and development deficit etc and said that economic democracy and political democracy is far wide off the mark.
Rajat Sarker –a PG student of Jadavpur University analysed on India’s foreign direct investment.
The same was emphasized by Dr Swapan Kr Roy and Suhas Roy of Bethuadahari College,Nadia.
The prospect of service-led growth in India was studied by Ankita Das of Kolkata.The globalization and non-agricultural economic reform at last decades in urban India was narrated by Samarjit Das –the urban planner,Dumdum municipality.Hiranya Lahiri –a PhD scholar of Jadavpur University analysed the reform in 4 phases,eg 1993-95,1996-98,1999-2003and 2004 onwords .Under 1st phase,tight peg with dollar,high inflation,loose monetary condition were found.High rupee volatility,lower inflation and tight credit were foundin the 2nd phase.In the 3rd phase,inflows of fdi, sterilized intervention,rupee depreciation,fuel price inflation were visited.4th phase showed fuel and food inflation,currency flexibility and mixed monetary stance.Debalina Chakraborty –a research scholar of Jadavpur University focused on demand side management policy and examined how electricity reform in India managed to control huge unmet demand for electricity of end users.Shyamasree Dasgupta of the same capacity,showed that the pathways of development of both industrial and environmental policies directed towards iron and steel sector in India during last 50 years and found that composition and policy of the sector changed significantly.Chandreyee Gupta and Sanchita De –PG students of Jadavpur University, concentrated on the direction of change in exports and imports of India.Abhishek Das-a PhD scholar of JU, verified that inflation and interstate income disparity are positively related and there exist a bi-directional causality between them during 1980-81-2007-08.Dr.Biswajit Guha of Netajinagar Day College emphasized on problem of exclusion in India’s economic reform.    Dr.Dhiraj Kumar Bandopadhyaya of Calcutta University investigated the two way link between economic growth and human capabalities and explored possibilities of vicious cycle,virtuous cycle,lopsidedEG and lopsided HC and then classified the states into these categories.Bratati Dasgupta of Jogesh Chandra College ,Kolkata emphasized on urban co-operative banks in India.
Prof Debdas Ganguli of HIT,Haldia and Dr.Pankaj Basu of Naihati, studied over the process of corporate restructuring and along with this tries to identify if reforms in Indian money market and Indian capital market are basic forces to have any role in this process of corporate restructuring. Dr.Debashish Mukhopadhyaya of BNMahavidyalaya,studied on economic reforms in acreage response function of selected vegetables in WestBengal.Dr.Madhumita Sengupta of Malda College analysed the reforms in financial systems in two decades and found integration with the world.Anusuya Kar –Assistant prof. of Netaji Nagar College,showed declining agricultural growth and employment.Dr.Jayanta Hazra of JKCollege of Purulia,said about the declining economic status of Purulia and emphasized on industrialization in Purulia to revive the district.Dr.Suvranshu Pan-Assistant prof. of MMMahavidyalaya highlighted on the composition and trends of various types of capital flows during last twenty years in India.Dr.Saroj Upadhyaya and Dr.Niladri De of EIILM,Kolkata examined the changes in banking sector especially in capital adequacy norms,prudential regulations,asset classifications,stricter regulations on NPA management etc.Dr.Anil Kumar Thakur-the Secretary and Treasurer of the Indian Economic Association was the chief guest and gave his good wishes to all.