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Author: Selim Elekdag Publisher: International Monetary Fund ISBN: Category : Business & Economics Languages : en Pages : 38
Book Description
This paper assesses the stabilization properties of fixed versus flexible exchange rate regimes and aims to answer this research question: Does greater exchange rate flexibility help an economy’s adjustment to weather shocks? To address this question, the impact of weather shocks on real per capita GDP growth is quantified under the two alternative exchange rate regimes. We find that although weather shocks are generally detrimental to per capita income growth, the impact is less severe under flexible exchange rate regimes. Moreover, the medium-term adverse growth impact of a 1 degree Celsius increase in temperature under a pegged regime is about –1.4 percentage points on average, while under a flexible regime, the impact is less than one half that amount (–0.6 percentage point). This finding bolsters the idea that exchange rate flexibility not only helps mitigate the initial impact of the shock but also promotes a faster recovery. In terms of mechanisms, our findings suggest that the depreciation of the nominal exchange rate under a flexible regime supports real export growth. In contrast to standard theoretical predictions, we find that countercyclical fiscal policy may not be effective under pegged regimes amid high debt, highlighting the importance of the policy mix and precautionary (fiscal) buffers.
Author: Selim Elekdag Publisher: International Monetary Fund ISBN: Category : Business & Economics Languages : en Pages : 38
Book Description
This paper assesses the stabilization properties of fixed versus flexible exchange rate regimes and aims to answer this research question: Does greater exchange rate flexibility help an economy’s adjustment to weather shocks? To address this question, the impact of weather shocks on real per capita GDP growth is quantified under the two alternative exchange rate regimes. We find that although weather shocks are generally detrimental to per capita income growth, the impact is less severe under flexible exchange rate regimes. Moreover, the medium-term adverse growth impact of a 1 degree Celsius increase in temperature under a pegged regime is about –1.4 percentage points on average, while under a flexible regime, the impact is less than one half that amount (–0.6 percentage point). This finding bolsters the idea that exchange rate flexibility not only helps mitigate the initial impact of the shock but also promotes a faster recovery. In terms of mechanisms, our findings suggest that the depreciation of the nominal exchange rate under a flexible regime supports real export growth. In contrast to standard theoretical predictions, we find that countercyclical fiscal policy may not be effective under pegged regimes amid high debt, highlighting the importance of the policy mix and precautionary (fiscal) buffers.
Author: Mrs.Gilda Fernandez Publisher: International Monetary Fund ISBN: 1589064763 Category : Business & Economics Languages : en Pages : 29
Book Description
A growing number of countries are adopting flexible exchange rate regimes because flexibility offers more protection against external shocks and greater monetary independence. Other countries have made the transition under disorderly conditions, with the sharp depreciation of their currency during a crisis. Regardless of the reason for adopting a flexible exchange rate, a successful transition depends on the effective management of a number of institutional and operational issues. The authors of this Economic Issue describe the necessary ingredients for moving to a flexible regime, as well as the optimal pace and sequencing under different conditions.
Author: Ms.Inci Ötker Publisher: International Monetary Fund ISBN: 1589066243 Category : Business & Economics Languages : en Pages : 94
Book Description
Many countries have moved towards more flexible exchange rate regimes over the last decade to take advantage of greater monetary policy autonomy and flexibility in responding to external shocks. Some reluctance to let go of pegged exchange rates persists, however, despite the benefits of flexibility. The institutional and operational requirements needed to support a floating exchange rate, as well as difficulties in assessing the right time and manner to exit, tend to be additional factors in this reluctance. This volume presents the concrete steps taken by a number of countries in transition to greater exchange rate flexibility and elaborates on the operational ingredients that proved helpful in promoting successful and durable transitions. It attempts to provide a better understanding (and hence a "road map") of how these various operational ingredients were established and coordinated, how their implementation interacted with macro and other conditions, and how they contributed to the smoothness of each transition.
Author: Mr.Yan Carriere-Swallow Publisher: International Monetary Fund ISBN: 1484379373 Category : Business & Economics Languages : en Pages : 30
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: Mr.Robert P. Flood Publisher: International Monetary Fund ISBN: 1451851324 Category : Business & Economics Languages : en Pages : 9
Book Description
Traditionally the choice of exchange rate regime has been seen as a second-best policy choice, which can be directed toward mitigating the distortionary effects of price or information rigidities. In this paradigm the optimal degree of exchange rate flexibility is found to depend of the source and nature of shocks hitting an economy. More recent literature views the exchange rate as a widely and frequently seen manifestation of government policy with careful exchange-rate management emerging as a tool that can enhance shaky policy credibility.
Author: Gilda Fernandez Publisher: International Monetary Fund ISBN: 9781589065420 Category : Business & Economics Languages : zh-CN Pages : 21
Book Description
A growing number of countries are adopting flexible exchange rate regimes because flexibility offers more protection against external shocks and greater monetary independence. Other countries have made the transition under disorderly conditions, with the sharp depreciation of their currency during a crisis. Regardless of the reason for adopting a flexible exchange rate, a successful transition depends on the effective management of a number of institutional and operational issues. The authors of this Economic Issue describe the necessary ingredients for moving to a flexible regime, as well as the optimal pace and sequencing under different conditions.
Author: Sebastian Edwards Publisher: ISBN: Category : Foreign exchange Languages : en Pages : 48
Book Description
In this paper we analyze empirically the effect of terms of trade shocks on economic performance under alternative exchange rate regimes. We are particularly interested in investigating whether terms of trade disturbances have a smaller effect on growth in countries with a flexible exchange rate regime, than in countries with a more rigid exchange rate arrangement. We also analyze whether negative and positive terms of trade shocks have asymmetric effects on growth, and whether the magnitude of these asymmetries depends on the exchange rate regime. We find evidence suggesting that terms of trade shocks get amplified in countries that have more rigid exchange rate regimes. We also find evidence of an asymmetric response to terms of trade shocks: the output response is larger for negative than for positive shocks. Finally, we find evidence supporting the view that, after controlling for other factors, countries with more flexible exchange rate regimes grow faster than countries with fixed exchange rates.
Author: Mr.Sebastian Acevedo Mejia Publisher: International Monetary Fund ISBN: 1484363027 Category : Business & Economics Languages : en Pages : 40
Book Description
Global temperatures have increased at an unprecedented pace in the past 40 years. This paper finds that increases in temperature have uneven macroeconomic effects, with adverse consequences concentrated in countries with hot climates, such as most low-income countries. In these countries, a rise in temperature lowers per capita output, in both the short and medium term, through a wide array of channels: reduced agricultural output, suppressed productivity of workers exposed to heat, slower investment, and poorer health. In an unmitigated climate change scenario, and under very conservative assumptions, model simulations suggest the projected rise in temperature would imply a loss of around 9 percent of output for a representative low-income country by 2100.
Author: International Monetary Fund Publisher: International Monetary Fund ISBN: 1498344062 Category : Business & Economics Languages : en Pages : 74
Book Description
Over the past two decades, many low- and lower-middle income countries (LLMICs) have improved control over fiscal policy, liberalized and deepened financial markets, and stabilized inflation at moderate levels. Monetary policy frameworks that have helped achieve these ends are being challenged by continued financial development and increased exposure to global capital markets. Many policymakers aspire to move beyond the basics of stability to implement monetary policy frameworks that better anchor inflation and promote macroeconomic stability and growth. Many of these LLMICs are thus considering and implementing improvements to their monetary policy frameworks. The recent successes of some LLMICs and the experiences of emerging and advanced economies, both early in their policy modernization process and following the global financial crisis, are valuable in identifying desirable features of such frameworks. This paper draws on those lessons to provide guidance on key elements of effective monetary policy frameworks for LLMICs.
Author: Jongrim Ha Publisher: World Bank Publications ISBN: 1464813760 Category : Business & Economics Languages : en Pages : 513
Book Description
This is the first comprehensive study in the context of EMDEs that covers, in one consistent framework, the evolution and global and domestic drivers of inflation, the role of expectations, exchange rate pass-through and policy implications. In addition, the report analyzes inflation and monetary policy related challenges in LICs. The report documents three major findings: In First, EMDE disinflation over the past four decades was to a significant degree a result of favorable external developments, pointing to the risk of rising EMDE inflation if global inflation were to increase. In particular, the decline in EMDE inflation has been supported by broad-based global disinflation amid rapid international trade and financial integration and the disruption caused by the global financial crisis. While domestic factors continue to be the main drivers of short-term movements in EMDE inflation, the role of global factors has risen by one-half between the 1970s and the 2000s. On average, global shocks, especially oil price swings and global demand shocks have accounted for more than one-quarter of domestic inflation variatio--and more in countries with stronger global linkages and greater reliance on commodity imports. In LICs, global food and energy price shocks accounted for another 12 percent of core inflation variatio--half more than in advanced economies and one-fifth more than in non-LIC EMDEs. Second, inflation expectations continue to be less well-anchored in EMDEs than in advanced economies, although a move to inflation targeting and better fiscal frameworks has helped strengthen monetary policy credibility. Lower monetary policy credibility and exchange rate flexibility have also been associated with higher pass-through of exchange rate shocks into domestic inflation in the event of global shocks, which have accounted for half of EMDE exchange rate variation. Third, in part because of poorly anchored inflation expectations, the transmission of global commodity price shocks to domestic LIC inflation (combined with unintended consequences of other government policies) can have material implications for poverty: the global food price spikes in 2010-11 tipped roughly 8 million people into poverty.
Author: Selim Elekdag
Author: Selim Elekdag
Author: Mrs.Gilda Fernandez
Author: Ms.Inci Ötker
Author: Mr.Yan Carriere-Swallow
Author: Mr.Robert P. Flood
Author: Gilda Fernandez
Author: Sebastian Edwards
Author: Mr.Sebastian Acevedo Mejia
Author: International Monetary Fund
Author: Jongrim Ha