Home  About us  Contact
 

Exchange Rate Depreciation (exchange + rate_depreciation)

Distribution by Scientific Domains
Business, Economics, Finance and Accounting66%
Humanities and Social Sciences33%

Selected Abstracts

How Should Macroeconomic Policy Respond to Foreign Financial Crises?,

ECONOMIC PAPERS: A JOURNAL OF APPLIED ECONOMICS AND POLICY, Issue 2 2010
Anthony J. Makin
F31; F33; F41 This paper examines the impact of global financial crises on the Australian economy and how monetary and fiscal policy may be used to manage economic downturns that result. To do so, it presents a straightforward analytical framework incorporating financial wealth, exchange rate expectations, foreign demand and interest rate risk to analyse the key role played by the nominal exchange rate in insulating national income from the worst effects of foreign financial crises. In the event the economy is not fully insulated by exchange rate depreciation, it shows that, in principle, monetary policy is a superior instrument to fiscal stimulus for restoring aggregate demand to the full employment level. Since monetary policy is not handicapped by numerous problems that render fiscal stimulus less effective, it should normally be considered a sufficient instrument on its own. [source]

Fiscal policy and interest rates in Europe

ECONOMIC POLICY, Issue 47 2006
Riccardo Faini
SUMMARY Fiscal policy and interest rates in Europe The appetite for fiscal discipline has been steadily declining among most industrial countries. In the past, fiscal profligacy would have been punished by markets with higher interest rates and, in some cases, also exchange rate depreciation. However, in post-EMU Europe, exchange rate markets no longer discipline the fiscal behaviour of national governments. Perhaps more crucially, even the interest rate punishment to fiscal indiscipline is highly uncertain, with academic opinions being quite divided on this issue. This paper takes a close look at the link between fiscal policy and interest rates in the European context. The key finding is that an expansionary fiscal policy in one EMU member will have an effect both on its spreads and on the overall level of interest rates for the currency union as a whole, with the second effect, however, being quantitatively much more significant. This suggests that there are indeed substantial spillovers, through the interest rate channel, among fiscal policies of member countries. To limit countries' incentive to run expansionary fiscal policies, a set of rules, like those embedded in the Stability and Growth Pact, is then needed. Some (weak) evidence is also found that after EMU, interest rate spillovers seem to be more significant for high debt countries with unsustainable fiscal policies, reflecting perhaps market concerns about a possible sovereign bail out or the impact of financial distress. There may be a case then for imposing tighter rules on high debt countries. , Riccardo Faini [source]

DOLLARIZATION OF DEBT CONTRACTS: EVIDENCE FROM CHILEAN FIRMS

THE DEVELOPING ECONOMIES, Issue 4 2009
Miguel FUENTES
F31; F49 This paper uses a new data set to estimate the causes and consequences of foreign currency debt in firms' balance sheets. The evidence from this sample of Chilean firms indicates that dollar-denominated debt increases with firms' size and degree of exposure to foreign competition. We find evidence that dollar-denominated debt combines with exchange rate movements to produce a negative balance-sheet effect that reduces firms' investment in periods of strong exchange rate depreciation. This negative balance-sheet effect is associated with long-term debt and appears to be nonlinear in the amount of real exchange rate depreciation. [source]

COMPARATIVE ANALYSIS OF EXCHANGE RATE APPRECIATION AND AGGREGATE ECONOMIC ACTIVITY: THEORY AND EVIDENCE FROM MIDDLE EASTERN COUNTRIES

BULLETIN OF ECONOMIC RESEARCH, Issue 1 2008
Magda Kandil
F31; F40; F41; F43 ABSTRACT The paper examines the effects of exchange rate depreciation on real output and price in a sample of 11 developing countries in the Middle East. The theoretical model decomposes movements in the exchange rate into anticipated and unanticipated components. Unanticipated currency fluctuations determine aggregate demand through exports, imports, and the demand for domestic currency, and determine aggregate supply through the cost of imported intermediate goods. The evidence indicates that the supply channel attributed to anticipated exchange rate appreciation results in limited effects on output growth and price inflation. Consistent with theory's predictions, unanticipated appreciation of the exchange rate appears more significant with varying effects on output growth and price inflation across developing countries. [source]

Currency substitution, portfolio diversification, and money demand

CANADIAN JOURNAL OF ECONOMICS, Issue 3 2006
Miguel Lebre De Freitas
Abstract We extend the Thomas (1985) dynamic optimizing model of money demand and currency substitution to the case in which the individual has restricted or no access to foreign currency denominated bonds. In this case currency substitution decisions and asset substitution decisions are not separable. The results obtained suggest that the significance of an expected exchange rate depreciation term in the demand for domestic money provides a valid test for the presence of currency substitution. Applying this approach to six Latin-American countries, we find evidence of currency substitution in Colombia, Dominican Republic, and Venezuela, but not in Brazil and Chile. Les auteurs prolongent le modèle d'optimisation dynamique de demande de monnaie et de substitution de devises de Thomas (1985) au cas où l'individu a un accès restreint ou nul aux débentures en devises étrangères. Dans ce cas, les décisions de substitution de devises et de substitution d'actifs ne sont pas séparables. Les résultats obtenus suggèrent que la nature significative d'une variable enregistrant une dépréciation anticipée du taux de change dans l'équation de la demande de monnaie nationale fournit un test valide de la présence de substitution de devises. En appliquant cette approche à six pays d'Amérique latine, on découvre qu'il y a évidence de substitution de devises en Colombie, en République dominicaine, et au Vénézuéla, mais pas au Brésil et au Chili. [source]

Financial dollarization: evaluating the consequences

ECONOMIC POLICY, Issue 45 2006
Eduardo Levy Yeyati
SUMMARY Financial dollarization The presence in residents' portfolio of foreign-currency assets and liabilities (or ,financial dollarization') has been alleged to influence monetary policy in developing economies and, especially, to cause debtors' insolvency in the aftermath exchange rate depreciations (the ,balance sheet effect'). The abundant and influential literature on these implications, however, contrasts sharply with the scarcity of empirical work aimed at confirming or refuting them. Using a new database, this paper assesses the evidence on the determinants of financial dollarization and tests whether its empirical effects on monetary and financial stability and on economic performance are consistent with theoretical predictions. It finds that financially dollarized economies display a more unstable demand for money, a greater propensity to suffer banking crises after a depreciation of the local currency, and slower and more volatile output growth, without significant gains in terms of domestic financial depth. The results indicate that active de-dollarization policies may be advisable for the many economies, including Central and Eastern European ones, where foreign-currency denominated assets and liabilities are important in residents' financial portfolios. , Eduardo Levy Yeyati [source]