Write a brief review of the attached piece of literature on the relevant issue "Persistent volatility in the exchange rate market affects price stability and the consistency of business planning in Jamaica"

\fhave floating exchange rates and stock markets: Jamaica and Trinidad for Jamaica in particular is more obvious given that exchange rates and Tobago. We also study the same four Latin American countries are higher and appear to be less stable than the other countries s in Diamandis and Drakes (2011): Argentina, Brazil, Chile and (Figure 3), We therefore expect a stronger relationship between Mexico. We follow Lin (2012) by analyzing the relationships the exchange rate market and the stock market in Jamaica. Even retween the exchange rate market and the equity market during though Caribbean and Latin American countries have floating the tranquil (2002-20:08) and during crisis (2008-2012) periods exchange rates, their central banks can intervene the market to and we also use the autoregressive distributed lag (ARDL) model curtail rapid depreciations, In the event of a sudden decline in the pounds test approach proposed by Pesaran et al. (2001). Diamandis value of the domestic currency, the central bank might increase and Drakes (2011) claim that the type of exchange rate regime interest rates to attract foreign investors thereby increasing the being operated in the particular country will influence the long run supply of foreign currency or sell reserves to maintain currency relationship between both variables. All the countries in this study stability. If interest rates are already high (such is the case in perate a float or managed float exchange rate regime Jamaica), further increases will reduce economic activity thereby reducing productivity of firms and therefore the value of their The relationship between exchange rate and stock prices have a tendency to be greater during crisis periods as returns in asset stock. Jamaica level of reserves has not been enough to keep the markets are lower and volatility are higher (Lin, 2012; Guo et al., currency stable. To account for this in our analysis, we follow Lin (2012) by including net international reserves (NIR) and interest 1011). Therefore, we extend Diamandis and Drakes (201 1) and Lin (2012) studies to incorporate a generalized autocorrelation rate variables in our model. This will improve our results and conditional heteroskedasticity (GARCHM1,1) component as correct for omitted variable biases. The following section provides a brief overview of the current literature. n Bollerslev (1986) in the ARDL framework to take account of the impact of risk in the model. Note that the importance of volatility is made clear in many contexts nowadays also in the 2. LITERATURE REVIEW Caribbean countries (see for example Mapp and Wiston (2015) who analyze the impact of the informal economy on the volatility Research on the interrelationship between exchange rates and stock in the Caribbean countries). Our objective in this paper is to show prices has been carried out for a variety of countries using various hat volatility must be modeled explicitly also when analyzing the techniques which have produced varying results, In Latin America, relationship between stock prices and exchange rates. Gordon Diamandis and Drakes (2011 ) analyze the long run relationship and and Pettiford (2016) have also demonstrated how accounting for short run dynamics between exchange rates and stock prices as well as ARCH effects can be a crucial factor to establish relationships the impact of exogenous shocks on four countries Argentina, Brazil, among macroeconomic variables Chile, and Mexico using cointegration techniques and Granger causality tests. They found no significant long run relationship ike in Asia, North America and Europe, the Global Financial between stock prices and exchange rates for each country. However, Crisis in 2008 resulted in an immediate decline in the stock prices after incorporating the US stock market, their results show that sp in Figure 1) in the Caribbean and Latin American Countries stock prices and exchange rates are positively related, with the US (Figure 1). Notice the behavior is similar for the countries in each stock market facilitating the transmission between the two in these group, and also stock prices in Latin America tend to be higher countries. The interaction is independent of the sample choice but (corresponding to larger coonomies) than the Caribbean. Hansen and Johansen (1993) instability tests show that some of their cointegrating coefficients are stable overtime. Exchange rates in our Caribbean and Latin America countries depreciated as a result of the financial crisis (Figure 2) The shift Empirically, the research is largely concentrated on more developed countries. Early research by Neih and Lee (2001) examine the Figure 1: Stock prices in Jamaica, Trinidad and Tobago, Argentina, dynamic relationship between stock prices and exchange rates for Brazil, Chile and Mexico the G7 countries using basic cointegration tests and vector error correction models (VECM) from 1993 to 1996. This research Stock Prices in the Caribbean & Latin America did not account for dual causality between the variables and their findings suggest that there is no long run relationship between stock prices and exchange rate in the G7 counties. Muller and Verschoor (2006) examine how multinational firms in the US are 100 200 300 400 600 affected by exchange rate fluctuations. They believe that currency movements are a major source of macroeconomic instability which affects a firm's value; a situation they refer to as exchange rate exposure, Theoretically, they outline several reasons why the exchange rate stock price interaction might be asymmetric. These include the asymmetric impact of hedging on cash flow, firms 2004m1 2010m1 201an pricing to market strategies, asymmetry due to hysteric behavior, investors over reaction and mispricing errors and nonlinear TJTip Arsp Chip currency risk exposure. For more in-depth analysis see Midler and Verschool (2005) International Journal of Economies and Francial Issees | Vol 7 + banc 2 + 1017Houghton and Iglesias: Exchange Rate Mavenicals, Stock Prices and Volatility in the Car thein and Latin Amaica Figure 2: Exchange rates Trinidad and Tobago, Argentina, Brazil and Yau and Nich (2006) empirically investigate the new Taiwan Mexico dollar exchange rate against the Japanese yen on stock prices Exchange rate Caribbean and Latin America in Japan from 1991 to 2005. Granger causality test showed that no short run causal relationships existed between the variables for both countries. Also, the findings suggest there is no relationship between the exchange rate and the respective stock prices in the long run. Yau and Neih (2009) also examined the relationship between Japanese exchange rate and Taiwan stock market using a threshold error correction model proposed by Enders and Siklos (2001). Their findings suggest that there is a long run equilibrium relationship between the Taiwan dollar, the Japanese Yen and the stock prices of Japan and Taiwan, but asymmetry only exist for Taiwan as the effects of the Japanese 2004ml 2010ml exchange rate is symmetric. Art Zhan (2010) used monthly data from 1991 to 2009 to examine the dynamic effects between exchange rate and stock prices in China by employing a vector autoregressive approach (VAR) and a multivariate GARCH. Their results show that there is no Figure 3: Exchange rates and stock prices in Jamaica definite long run relationship between the Chinese Renminbi Exchange rates and Stock Prices in Jamaica real effective exchange rate and stock prices in China. They also found no spill over effects between the two variables. The paper goes a step further to examine the cross volatility effects between stock market and the exchange rate using likelihood ratio tests. The results show that there is volatility spill over effects from stock prices to exchange rate and from the exchange rate in stock prices. More recently, Tsai (2012) uses quantile regression to investigate the relationship between stock price index and exchange rate in six Asian countries: Singapore Thailand, Malaysia, Philippines, South Korea and Taiwan. The results supported a priori 301amt information that the two variables are negatively related. More time specifically, the negative relationship observed is more pronounced - imFX - jmsg when exchange rates are extremely low or extremely high, This result is supported by the portfolio balancing effect in these two markets which outlines that an increase (decrease) in the returns Also on the US, Vygodina (20:06) uses a Granger causality test to on stock price index will result in an appreciation (depreciation) investigate the relationship between stock prices and exchange of the domestic currency via a decrease (increase) in the exchange rates controlling for the size of the firm from 1987 to 2005. The rate. Tsai (2012) findings also suggest that the relationship is not results found causality from large stock prices to US exchange homogeneous across countries and across market situations and rate but no causality from small stock prices. The results from the the coefficients may vary since the portfolio balancing effect is not subsamples show that there might be evidence to support the claim present all the time in every market. They explain that a significant that causality between the two variables is changing overtime impact of stock prices on exchange rates exist in time where large sums of capital enter or exit the market. Some have also explored the issue in Asia. Pan et al (2007) used Granger causality tests and vector autoregressions to examine Our research in this paper follows the method of Lin (2012) the dynamic linkages between exchange rate and stock prices who examines the relationship between the exchange rate and in seven Asian countries; Hong Kong, Japan, Korea, Malaysia stock prices in Asia's emerging markets from 1986 to 2010. Singapore, Taiwan and Thailand from 1988 to 1998. Their results Using monthly data, the ARDI. model proposed by Pesaran et al. showed significant causal relationships for Hong Kong, Japan, (2001) was employed. This method is designed to account for Malaysia and Thailand before the financial crisis. They also found structural breaks and data that are integrated of different orders. evidence of causal relationships between the equity market to the The results from the cointegration tests as well as the short run foreign exchange market for Hong, Korea and Singapore They causality tests indicate that the co-movement between exchange also found causality from exchange rate to the stock market for all rate and stock prices increases during times of economic crisis countries except Malaysia, while there is no causality from stock and it reduces when the economies are stable. These results prices to exchange rates. They claim their results are robust to a correspond with the general literature on exchange rate spill variety a testing procedures including causality tests and variance over effects on the stock market. The results also show that decomposition, most spill overs are in the channel from stock price shocks Intemanocul Journal of Economics and Financial Issues ] Yl 7 - bout 2 - 2017