Author:
Publisher: World Bank Publications
ISBN:
Category :
Languages : en
Pages : 36

View

Book Description

Author: Norbert M. Fiess
Publisher: World Bank Publications
ISBN:
Category : Devaluation of currency
Languages : en
Pages : 44

View

Book Description

Author: Norbert Fiess
Publisher:
ISBN:
Category :
Languages : en
Pages :

View

Book Description
The authors apply regime-switching methods to a monetarist model of exchange rates and identify well-defined intervention policy cycles. The policy response indices include a standard exchange market pressure-based index and a model-based volatility ratio that is endogenized relative to Japan, assumed to be a "benchmark" floater. The authors find strong evidence that balance sheet effects, proxied by the stock ratio of external liabilities to assets, and economic performance, as measured by GDP and stock market indices, determine the cost of the regime shift. They use a panel of quarterly data from 1985 to 2004 for a sample of 15 countries, mostly in East Asia and Latin America.

Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 36

View

Book Description

Author: Mr.Yan Carriere-Swallow
Publisher: International Monetary Fund
ISBN: 1484378237
Category : Business & Economics
Languages : en
Pages : 30

View

Book Description
Theoretical models on the relationship between prices and exchange rates predict that the magnitude of expenditure switching affects the optimal choice of exchange rate regime. Focusing on the transmission of terms-of-trade shocks to domestic real variables we document that the magnitude of the expenditure switching effect is positively associated to the degree of exchange rate flexibility. Moreover, results show that flexible exchange rates allow for significant adjustment in relative prices, which in turn lowers the burden of adjustment on demand for domestic goods and, in some cases, facilitates a faster and more durable external adjustment process. These results, which are robust to accounting for possible non-linearities due to balance sheet effects or currency mismatches, shed new light on the shock absorbing properties of flexible exchange rates.

Author: Pascal Towbin
Publisher: International Monetary Fund
ISBN: 145522197X
Category : Business & Economics
Languages : en
Pages : 54

View

Book Description
A traditional argument in favor of flexible exchange rates is that they insulate output better from real shocks, because the exchange rate can adjust and stabilize demand for domestic goods through expenditure switching. This argument is weakened in models with high foreign currency debt and low exchange rate pass-through to import prices. The present study evaluates the empirical relevance of these two factors. We analyze the transmission of real external shocks to the domestic economy under fixed and flexible exchange rate regimes for a broad sample of countries in a Panel VAR and let the responses vary with foreign currency indebtedness and import structure. We find that flexible exchange rates do not insulate output better from external shocks if the country imports mainly low pass-through goods and can even amplify the output response if foreign indebtedness is high.

Author: Patrick Georges
Publisher:
ISBN:
Category :
Languages : en
Pages : 0

View

Book Description
The objective of this thesis is to study the operation of exchange rate regimes in the context of possible regime switches. An intuitive survey of the regime switching literature is given in Chapter 1, and three independent essays are presented in Chapters 2, 3, and 4. Using the theory of regulated Brownian motion, Chapter 2 derives the nonlinear relationship between the nominal exchange rate and its fundamentals during the transition period from the current free-float to a specified target zone (TZ), triggered at an announced state-dependent switch. It is shown that the derived nonlinear relationship is in general different from the relationship corresponding to a return to a fixed exchange rate regime. This is due to a "reflecting effect", the mirror image of the well known "honeymoon effect" of a target zone. and a "bandwidth effect". Also derived is a locus of "benchmark cases" demarcating the factors that lead to an immediate appreciation or depreciation of the domestic currency at the announcement of the future TZ. The target zone model developed in Chapter 3 incorporates the possibility of a future change in the trend in the fundamentals of the exchange rate as policy reaction to specific events (e.g., impending speculative attacks and nominal anchor debates). The market has subjective expectations about this possible trend revision, which can affect the exchange rate level even if the change in trend is not implemented. These expectations are treated, first, as entirely exogenous and, second, as state-varying. In both cases various correlation patterns between the exchange rate and interest rate differentials are possible. This result is consistent with the observed behaviour of the exchange rate and interest rate differentials within the European Monetary System. Chapter 4 studies an announced (state-dependent) regime shift from a free-floating to a permanently fixed exchange rate regime and introduces specific welfare considerations. The welfare issues introduced here try to explain why a specific exchange rate target level would be chosen instead of another one, if a return to a fixed exchange rate were on the public policy agenda and a given range for its pegged value had already been proposed. While this model does not provide a theory of choice between free-float and fixed rate regimes, it proposes a criterion to choose between fixed exchange rate regimes, taking into account the transition period from the free-float to the implementation of the fixed regime.

Author: Mr.Marco Airaudo
Publisher: International Monetary Fund
ISBN: 1475523165
Category : Business & Economics
Languages : en
Pages : 65

View

Book Description
We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.

Author: Martin Feldstein
Publisher: University of Chicago Press
ISBN: 0226241807
Category : Business & Economics
Languages : en
Pages : 500

View

Book Description
Recent changes in technology, along with the opening up of many regions previously closed to investment, have led to explosive growth in the international movement of capital. Flows from foreign direct investment and debt and equity financing can bring countries substantial gains by augmenting local savings and by improving technology and incentives. Investing companies acquire market access, lower cost inputs, and opportunities for profitable introductions of production methods in the countries where they invest. But, as was underscored recently by the economic and financial crises in several Asian countries, capital flows can also bring risks. Although there is no simple explanation of the currency crisis in Asia, it is clear that fixed exchange rates and chronic deficits increased the likelihood of a breakdown. Similarly, during the 1970s, the United States and other industrial countries loaned OPEC surpluses to borrowers in Latin America. But when the U.S. Federal Reserve raised interest rates to control soaring inflation, the result was a widespread debt moratorium in Latin America as many countries throughout the region struggled to pay the high interest on their foreign loans. International Capital Flows contains recent work by eminent scholars and practitioners on the experience of capital flows to Latin America, Asia, and eastern Europe. These papers discuss the role of banks, equity markets, and foreign direct investment in international capital flows, and the risks that investors and others face with these transactions. By focusing on capital flows' productivity and determinants, and the policy issues they raise, this collection is a valuable resource for economists, policymakers, and financial market participants.

Author: Mr.Luis Brandao-Marques
Publisher: International Monetary Fund
ISBN: 1513529730
Category : Business & Economics
Languages : en
Pages : 54

View

Book Description
Central banks in emerging and developing economies (EMDEs) have been modernizing their monetary policy frameworks, often moving toward inflation targeting (IT). However, questions regarding the strength of monetary policy transmission from interest rates to inflation and output have often stalled progress. We conduct a novel empirical analysis using Jordà’s (2005) approach for 40 EMDEs to shed a light on monetary transmission in these countries. We find that interest rate hikes reduce output growth and inflation, once we explicitly account for the behavior of the exchange rate. Having a modern monetary policy framework—adopting IT and independent and transparent central banks—matters more for monetary transmission than financial development.