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Exchange Rate Regime (exchange + rate_regime)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	89%
Humanities and Social Sciences	10%

Kinds of Exchange Rate Regime

fixed exchange rate regime

flexible exchange rate regime

Selected Abstracts

EXCHANGE RATE REGIMES AND MONETARY COOPERATION: LESSONS FROM EAST ASIA AND LATIN AMERICA,

THE JAPANESE ECONOMIC REVIEW, Issue 3 2004
TAKATOSHI ITO
This paper analyses the mechanisms of, and draws lessons from, currency crises in Asian and Latin American countries in the 1990s and 2000s. In Asian countries fiscal deficits were insignificant in size, and were not part of a crisis trigger, while in Latin America they played a major role in the crisis story. Crisis management by international financial institutions has been evolving over the last 10 years, and private-sector involvement (PSI) has occupied centre-stage in efforts to reform the international financial architecture. Sovereign debts, a focus of PSI discussions, were neither a cause nor a propagation of the Asian crises. [source]

EXCHANGE RATE REGIMES AND TRADE

THE MANCHESTER SCHOOL, Issue 2007
CHRISTOPHER ADAM
A ,new version' of the gravity model is used to estimate the effect of a full range of de facto exchange rate regimes on bilateral trade. The results indicate that, while participation in a common currency union is typically strongly ,pro-trade', other exchange rate regimes which lower the exchange rate uncertainty and transactions costs associated with international trade are significantly more pro-trade than the default regime of a ,double float'. They suggest that the direct and indirect trade-creating effects of these regimes on uncertainty and transactions costs tend to outweigh the trade-diverting substitution effects. Tariff-equivalent monetary barriers associated with each exchange rate regime are also calculated. [source]

Austria's Demand for International Reserves and Monetary Disequilibrium: The Case of a Small Open Economy with a Fixed Exchange Rate Regime

ECONOMICA, Issue 281 2004
Harald Badinger
Using a vector error correction approach, I estimate Austria's demand for international reserves over the period 1985:1,1997:4 and test for short-run effects of the disequilibrium on the national monetary market. I find that Austria's long-run reserve demand can be described as a stable function of imports, uncertainty and the opportunity cost of holding reserves with strong economies of scale. The speed of adjustment takes a value of 38 per cent. The results confirm that an excess of money demand (supply) induces an inflow (outflow) of international reserves as postulated by the monetary approach to the balance of payments. [source]

Exchange Rate Regimes and Reforms: A Panel Analysis for the World versus OECD Countries,

INTERNATIONAL FINANCE, Issue 3 2006
Ansgar Belke
This paper examines the contemporaneous relationship between the exchange rate regime and structural economic reforms over a period of 30 years. Using panel data techniques, we look at both a broad ,world sample' and an OECD country sample. We investigate empirically whether structural reforms have complemented or substituted for monetary commitment in the attempt to improve macroeconomic performance. Our results suggest that, on average, an exchange rate rule positively correlates with the amount of overall structural reforms and of trade liberalization in particular. However, we do not find a significant and robust impact of exchange rate commitment on labour and product market reform. The results are similar for both the wider, more heterogeneous world sample and the panel of OECD economies. They contradict the hypothesis that exchange rate commitments may have slowed the pace of structural reform, but neither provides robust evidence that losing the possibility of an exchange rate adjustment promotes labour and product market reforms. [source]

Real Exchange Rate Behaviour under Fixed and Floating Exchange Rate Regimes

THE MANCHESTER SCHOOL, Issue 2 2002
James R. Lothian
In this paper we examine the stability of the real exchange rate and the macroeconomic effects of alternative exchange rate regimes, including currency union, on real exchange rate behaviour. We focus on the Irish punt in order to exploit its diversity of experience over different nominal exchange rate regimes. We make both temporal and cross-country comparisons of real exchange rate stability for the Irish punt with sterling, the US dollar and the German mark. We reach two conclusions on the basis of our results. The first is that for Ireland, as for most other countries, purchasing power parity provides a reasonably good description of actual exchange rate behaviour over the long run. Our second principal conclusion concerns regime effects. Currency union appears to matter. The real exchange rates we analyse are unambiguously less variable under currency union than under alternative exchange rate systems. Otherwise, however, we find no clear-cut differences in behaviour across regimes. [source]

THE HONG KONG CURRENCY BOARD'S DEFENSE AGAINST FINANCIAL MARKET PRESSURE: A BEHAVIORAL PERSPECTIVE

THE DEVELOPING ECONOMIES, Issue 2 2002
Miron MUSHKAT
Exchange rate regimes do not operate in an institutional vacuum, even when the scope for exercising policy discretion is distinctly limited. The Hong Kong linked exchange rate system is no exception. An interesting feature of the institutional environment in this case, not highlighted previously, is the apparent divergence in the assumptions of policymakers and market players regarding the merits of this mechanism in particular and currency boards in general. The corollary is that the Hong Kong monetary authorities need to intensify their efforts to disseminate relevant information, focusing especially on targets in the financial sector. [source]

One money, one market: the effect of common currencies on trade

ECONOMIC POLICY, Issue 30 2000
Andrew K. Rose
A gravity model is used to assess the separate effects of exchange rate volatility and currency unions on international trade. The panel data, bilateral observations for five years during 1970,90 covering 186 countries, includes 300+ observations in which both countries use the same currency. I find a large positive effect of a currency union on international trade, and a small negative effect of exchange rate volatility, even after controlling for a host of features, including the endogenous nature of the exchange rate regime. These effects, statistically significant, imply that two countries sharing the same currency trade three times as much as they would with different currencies. Currency unions like the European EMU may thus lead to a large increase in international trade, with all that that entails. [source]

Testing for Balance Sheet Effects in Emerging Markets: A Non-Crisis Setting,

INTERNATIONAL FINANCE, Issue 2 2010
Uluc Aysun
The literature has established that emerging market economies are better insulated from large external shocks during a financial crisis when they adopt a flexible exchange rate regime. Looking at the strength of firms' balance sheets, this paper shows that the opposite holds true in non-crisis periods. The reason is that balance sheets and thus spending decisions are less affected by external shocks under fixed regimes. This result is obtained through several theoretical and empirical methodologies that are useful for identifying balance sheet effects in a non-crisis setting. Simulations reveal a larger (smaller) output response under flexible regimes when these effects are included (excluded). Although the transmission of foreign interest rate shocks to domestic interest rates is stronger under fixed regimes, it appears the limited effects on balance sheets generate a more muted output response. [source]

Exchange Rate Regimes and Reforms: A Panel Analysis for the World versus OECD Countries,

Does Exchange Rate Policy Matter for Growth?

INTERNATIONAL FINANCE, Issue 3 2003
Jeannine Bailliu
Previous studies on whether the nature of the exchange rate regime influences a country's medium-term growth performance have been based on a tripartite classification scheme that distinguishes between pegged, intermediate and flexible exchange rate regimes. This classification scheme, however, leads to a situation where two of the categories (intermediate and flexible) characterize solely the exchange rate regime, whereas the third (pegged) characterizes both the exchange rate regime and the monetary policy framework. Our study refines this classification scheme by accounting for different monetary policy frameworks, classifying monetary arrangements based on the presence of an explicit monetary policy ,anchor', such as the exchange rate or other targeted nominal variable. We estimate the impact of exchange rate arrangements on growth in a panel-data set of 60 countries over the period 1973,1998. We find evidence that exchange rate regimes characterized by a monetary policy anchor, whether they are pegged, intermediate, or flexible, exert a positive influence on economic growth. We also find evidence that intermediate/flexible regimes without an anchor are detrimental for growth. Our results thus suggest that it is the presence of a monetary policy anchor, rather than the type of exchange rate regime per se, that is important for economic growth. Furthermore, our work emphasizes the importance of considering the monetary policy framework that accompanies the exchange rate arrangement when assessing the macroeconomic performance of alternative exchange rate regimes. [source]

Financial Globalization: Unequal Blessings

INTERNATIONAL FINANCE, Issue 3 2002
Augusto De La Torre
This paper presents a framework to analyse financial globalization. It argues that financial globalization needs to take into account the relation between money (particularly in its role as store of value), asset and factor price flexibility, and contractual and regulatory institutions. Countries that have the ,blessed trinity' (international currency, flexible exchange rate regime, and sound contractual and regulatory environment) can integrate successfully into the (imperfect) world financial markets. Developing countries, though, normally display the ,unblessed trinity' (weak currency, fear of floating, and weak institutional framework). The paper defines and discusses two alternative avenues (a ,dollar trinity' and a ,peso trinity') for developing countries to safely embrace international financial integration while the blessed trinity remains beyond reach. [source]

Lessons from the Russian Meltdown: The Economics of Soft Legal Constraints

INTERNATIONAL FINANCE, Issue 3 2002
Enrico Perotti
On 17 August 1998, Russia abandoned its exchange rate regime, defaulted on its domestic public debt and declared a moratorium on all private foreign liabilities, which was equivalent to an outright default. The depth and speed of the Russian meltdown shocked the international markets, and precipitated a period of serious financial instability. Important lessons on issues of bank supervision and international stability can be learned by understanding the roots of such a crisis. The visible reason of the crisis was an unsustainable fiscal deficit coupled with massive capital flight, but what were their underlying causes? We argue that the structure of individual incentives in a context of capture of state decisions by special interests, compounded by a rouble overvaluation driven by exceptional international support, helps to explain the build,up of non,payment, theft and capital flight that led to the crisis. We offer an explicit model of rational collective non,compliance, cash stripping and rational collective non,payment which led to the fiscal and banking crisis and, ultimately, to a complete meltdown. In our view, the banking sector was already insolvent prior to the crisis, and contributed directly and indirectly to it. We conclude with a radical policy proposal for a stable banking system for Russia, appropriate for its current capacity for legal and supervisory enforcement. It is based on a segmented, narrow banking sector, concentration in commercial banking and a cautious extension of deposit insurance. [source]

Financial Contagion in Five Small Open Economies: Does the Exchange Rate Regime Really Matter?

INTERNATIONAL FINANCE, Issue 1 2000
Zsolt Darvas
This paper examines the spillover effects of the global financial crises of 1997,9 on five small open economies with different types of exchange rate regimes: the Czech Republic, Greece, Hungary, Israel and Poland. We found empirical evidence that the regional aspect played a dominant role in the intensity of the spillover effects. We found no empirical evidence that the pressures on exchange rates, interest rates and stock markets were primarily influenced by the exchange rate regime in place. Our findings do not support the commonly held view that flexible regimes are the best choice for small open emerging market economies exposed to volatile capital flows. [source]

New estimates of exchange rate pass-through in Japanese exports,

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2008
Craig R. Parsons
Abstract Recently, the issue of a decline in exchange rate pass-through has gained much more attention. Taylor conjectures that a worldwide decline in exchange rate pass-through is related to the low and stable inflation in many industrialized countries since the early 1990s. Developments of ,new open-economy macroeconomics' also cast renewed attention on exchange rate pass-through. Theoretical research shows that the choice of an optimal exchange rate regime and the transmission of monetary policy impacts depend crucially on the exporter's price setting behaviour. There are many studies on the pass-through of Japanese exports, yet most studies simply use the industry-breakdown data on export price indices, which is insufficient to assess pass-through patterns in regional trade. Significantly, highly disaggregated (HS 9-digit level) commodity data are used here to evaluate the extent of pass-through by commodity and by destination. We investigate and compare the extent of pass-through to East Asia, Europe, and the US. We also examine whether there is any difference in the degree of pass-through in the pre- and post-Asian crisis era. Results suggest the most pricing-to-market (PTM) occurs in exports to the US market followed by significant, but less PTM in Europe. Virtually no PTM is found in Japanese exports to East Asia. Also, there is no clear evidence of either increasing or decreasing pass-through over time. Copyright © 2007 John Wiley & Sons, Ltd. [source]

The stabilization properties of fixed and floating exchange rate regimes

INTERNATIONAL JOURNAL OF FINANCE & ECONOMICS, Issue 2 2004
Keith Pilbeam
Abstract This paper investigates the price and output stabilization properties of fixed and floating exchange rates using a small open economy model. The performance of the two regimes is compared in the face of money demand, aggregate demand and aggregate supply shocks. It is shown that the ranking of the two regimes is extremely sensitive to the weighting of the objective function as between price and output stability, the type of shock impinging upon the economy, the values of structural parameters of the economy and institutional features such as the degree of wage indexation within the economy. The results obtained suggest that estimates of the income elasticity of money demand, the elasticity of aggregate demand to changes in both the real exchange rate and the real interest rate, and the degree of openness of the economy are likely to be important to policymakers when making the choice of exchange rate regime. Neither regime can be said to be dominant in all circumstances. Copyright © 2004 John Wiley & Sons, Ltd. [source]

External Constraints on Monetary Policy and the Financial Accelerator

JOURNAL OF MONEY, CREDIT AND BANKING, Issue 2-3 2007
MARK GERTLER
financial crises; exchange rate policy We develop a small open economy macroeconomic model where financial conditions influence aggregate behavior. Our goal is to explore the connection between the exchange rate regime and financial distress. We first show that a calibrated version of the model captures well the behavior of the Korean economy during its financial crisis period of 1997,98. In particular, the model accounts for the sharp increase in lending rates and the large drop in output, employment, investment, and measured productivity. The financial market frictions play an important role, further, explaining roughly half the decline in overall economic activity. We then perform some counterfactual exercises to illustrate how the fixed exchange rate regime likely exacerbated the crisis by tying the hands of monetary policy. [source]

Latin America and the Dollar Bloc in the Twenty-first Century: To Dollarize or Not?

LATIN AMERICAN POLITICS AND SOCIETY, Issue 4 2001
Kenneth P. Jameson
ABSTRACT The choice of exchange rate regime is a continuing challenge to Latin American policymakers, who currently face pressure to dollarize their economies. The constraints imposed by the "dollar bloc," the informal but powerful currency bloc that ties Latin America to the dominant currency, are central to that choice. Current weak economic performance has called the bloc's norms and principles into question and has made the exchange rate an open issue. Ecuador's full official dollarization is one possible strategy for countries with political stability but poor economic performance to gain access to needed dollar resources. Most of Latin America, however, will continue with variants of managed floating exchange rates, and the periodic foreign exchange crises will provide access to official dollar resources and facilitate renegotiation of the terms of outstanding debt. [source]

Modelling Currency Crises in Emerging Markets: A Dynamic Probit Model with Unobserved Heterogeneity and Autocorrelated Errors,

OXFORD BULLETIN OF ECONOMICS & STATISTICS, Issue 4 2006
Elisabetta Falcetti
Abstract The paper investigates the causes of currency crises in emerging markets. We estimate the probability of a currency crisis by applying maximum smoothly simulated likelihood to a dynamic LDV model. This approach allows us to take explicit account of the existence of intertemporal links between crises. The results show that currency crises are influenced by real, monetary, debt and global variables. Past banking crises are significant determinants of the probability of currency crises. Moreover, countries that sharply devalued in the past are less prone to experience another currency crisis. We find evidence of unobserved heterogeneity, which may reflect differences in the countries' institutional/historical background. Finally, the determinants of currency crises differ by type of exchange rate regime. [source]

FEAR OF FLOATING IN EAST ASIA?

PACIFIC ECONOMIC REVIEW, Issue 2 2009
Soyoung Kim
Abstract., We examine the de facto exchange rate arrangements in eight East Asian countries during the post-Asian crisis period. The empirical results suggest that three countries adopted a hard peg or a peg with capital account restrictions, whereas five countries moved toward a more flexible exchange rate arrangement in the post-crisis period. Three of these five countries (Korea, Indonesia and Thailand) achieved a level of exchange rate flexibility close to the level accomplished in a free floater such as Australia. These results suggest that ,fear of floating' in East Asia is not prevalent in the post-crisis period, supporting the bipolar view of the optimal exchange rate regime. [source]

CAN TUNISIA MOVE TO INFLATION TARGETING?

THE DEVELOPING ECONOMIES, Issue 1 2007
Adel BOUGHRARA
E47; E52; E58 Inflation targeting has become an alternative monetary strategy that has been followed by many industrial and emerging countries. This study considers whether the adoption of inflation targeting would be relevant for Tunisia. More specifically, this paper aims at checking whether the necessary conditions for the successful implementation of such a strategy are fulfilled or not. It is found that fiscal dominance does not constitute the main hindrance to the adoption of inflation targeting. Other impediments have been identified, especially a weak financial system in general, the unsound and fragile banking system in particular, and the glaring lack of knowledge about the monetary transmission mechanism. Furthermore, it has been pointed out that if Tunisian monetary authorities continue to carry out the present exchange rate regime, namely, the constant real exchange rate rule, an inflation targeting regime will not be sufficient to properly contain the inflation pressures caused by demand shocks. [source]

Investigating the Balassa-Samuelson hypothesis in the transition: Do we understand what we see?

THE ECONOMICS OF TRANSITION, Issue 2 2002
A panel study
This paper studies the Balassa-Samuelson (B-S) effect in the Czech Republic, Hungary, Poland, Slovakia and Slovenia. We use time series and panel cointegration techniques and show that the B-S effect works reasonably well in the transition economies under study during the period from 1991:Q1 to 2001:Q2. However, we find, that productivity growth does not fully translate into price increases because of the construction of the CPI indexes. We therefore argue that productivity growth will not hinder meeting the Maastricht criterion on inflation in the medium term. In addition, the observed appreciation of the CPI-deflated real exchange rate is found to be systematically higher compared with the real appreciation the B-S effect could justify, especially in the cases of the Czech Republic and Slovakia. This can be partly explained by the trend appreciation of the tradable price-based real exchange rate, increases in non-tradable prices due to price liberalization and demand-side pressures and the evolution of the nominal exchange rate determined by the nature of the exchange rate regime and the magnitude of capital inflows. JEL classification: E31, F31, O11, P17, [source]

EXCHANGE RATE REGIMES AND TRADE

Why are realignments postponed?

THE MANCHESTER SCHOOL, Issue 3 2004
A model of exchange rate revisions with opportunistic governments
In this paper we investigate the consequences of elections on the willingness of office-motivated governments to defend a pre-announced parity in the presence of output shocks in a fixed exchange rate regime with an escape clause. Knowing that voters rationally interpret realignments as a sign of incompetence, incumbents refrain from realigning before elections. They can do so either when they are competent or when shocks are small enough. Realignments are therefore more likely and output is less volatile on the morrow than on the eve of elections. The welfare impact of elections is ambiguous. [source]

Real and Nominal Shocks to Exchange Rates: Does the Regime Matter?

THE MANCHESTER SCHOOL, Issue 5 2002
Liam A. Gallagher
In this paper we investigate the source of Irish real and nominal exchange rate movements during the Exchange Rate Mechanism period. A restricted vector autoregression is employed to decompose Irish pound exchange rate movements into changes due to real and nominal factors, for three bilateral exchange rates,sterling,Irish pound, mark,Irish pound and dollar,Irish pound. The pattern of nominal exchange rate overshooting in response to nominal shocks and the relative importance of nominal shocks as drivers of nominal exchange rates differ between the flexible regime (sterling,Irish pound and dollar,Irish pound) and the target zone arrangement (mark,Irish pound). In contrast real shocks predominantly explain variations in real exchange rates and are independent of the exchange rate regime. [source]

Risk Sensitivity of Bank Stocks in Malaysia: Empirical Evidence Across the Asian Financial Crisis

ASIAN ECONOMIC JOURNAL, Issue 3 2004
Chee Wooi Hooy
The present study examines the sensitivity of commercial banks' stock excess returns to their volatility and financial risk factors, measured by interest rates and exchange rates, across the recent Asian financial crisis. In general, we found that there were no significant differences among Malaysian commercial banks in their risk exposure prior to and during the Asian financial crisis. The introduction of selective capital controls, a fixed exchange rate regime and a forced banking consolidation program, however, had increased the risk exposure of both large and small domestic banks. The effects of these risk factors were significantly detected in both large and small banks. [source]

RE-EXAMINING THE EFFECTIVENESS OF STABILISATION POLICY

AUSTRALIAN ECONOMIC PAPERS, Issue 4 2007
ANTHONY J. MAKIN
This paper develops an alternative international macroeconomic model for evaluating the effectiveness of fiscal and monetary policy in stabilising national income under fixed and floating exchange rates. It encompasses national output and income, saving, investment, money and capital flows and linkages between the exchange rate, price levels and real interest rates consistent with international parity conditions. It demonstrates that the nature of government spending is pivotal to the effectiveness of fiscal policy, revealing that, ceteris paribus, higher public consumption expenditure contracts national income and depreciates the exchange rate, whereas higher productive public investment spending has opposite effects. The framework also shows that the effectiveness of fiscal and monetary policy as macroeconomic policy instruments is not ultimately dependent on the exchange rate regime. [source]

China's Exchange Rate Movements and Corporate Currency Invoicing Strategies

CHINA AND WORLD ECONOMY, Issue 5 2009
Jingtao Yi
F31; F41; L11 Abstract Since China introduced a new managed floating exchange rate regime in 2005, the persistent appreciation of the renminbi against the US dollar has led Chinese firms to reassess their choice of invoice currency among the dollar and other international alternatives to price their exports. The present paper performs a systematic invoice currency analysis by surveying the published literature, summarizing criteria for decision-making, and evaluating the choices available to Chinese exporters implementing currency invoicing strategies to maximize expected profits. This study finds that the euro could play an increasing role as the invoice currency of Chinese firms, although the US dollar will still play a dominant role. Chinese exporters might shift gradually from the dollar to the euro in the face of the falling dollar, balancing between the two by necessity. [source]

Robust Monetary Framework for China

CHINA AND WORLD ECONOMY, Issue 5 2006
Takatoshi Ito
E52; E58; F31; F32 Abstract China faces rising current account surpluses and foreign reserves. Maintaining the fixed exchange rate runs the risk of overheating of the economy. It is desirable to pursue greater flexibility of the exchange rate regime in the short run, and gradual liberalization of capital account transactions in the medium run. Proper sequencing of various steps is recommended to prevent financial crises. Japan's transition from the dollar peg to a more flexible exchange rate system in 1971,1973 is considered to be a mistake, whereas the gradual capital account opening from the mid-1970s to mid-1990s is considered a success. The present study also analyzes Korea's mistake in opening its capital markets too far ahead of exchange rate flexibility, and liberalizing short-term capital rather than long-term capital. The challenge before China is similar to Japan's of 1969,1970, in the sense that the transition from the dollar peg is inevitable and desirable for the country, but decisive actions with proper sequencing are important. (Edited by Xiaoming Feng) [source]

Exchange Rate Instability: Japan's Micro,Macro Experiences and Implications for China

CHINA AND WORLD ECONOMY, Issue 2 2006
Mamoru Ishida
E65; F23; F31 Abstract Since 1985, the yen-dollar exchange rates repeatedly fluctuated and climbed to a level that could not be justified by economic fundamentals. The impacts on the Japanese economy were serious and far-reaching. Since 21 July 2005, China has been moving toward a more flexible exchange rate regime. Keeping RMB exchange rates basically stable and providing Chinese industries with means to hedge exchange rate risks are essential for China's sound economic development. Edited by Zhinan Zhang [source]

China's Economic Prospects and Sino,US Economic Relations

CHINA AND WORLD ECONOMY, Issue 2 2006
Pingfan Hong
F00; P21 Abstract A better comprehension of the mixed sentiment in the rest of world towards the rapid rise of the Chinese economy will depend on the understanding of some key features of the Chinese economy, such as those associated with its size, structure and institution. To further sustain its high growth, China is facing more challenges than it has encountered in the past 2 decades, including a gamut of material constraints. Although polices and technological progress might alleviate many of these constraints, the ultimate solution will still lie in continued institutional reform. China's recent move towards a more flexible exchange rate regime is in line with its broad reform and in accordance with the progress of its development. However, such a move will have limited immediate effects on the prodigious US trade deficit, which itself is a problem rooted in the flawed international reserve system, far beyond a Sino-US trade issue. Edited by Xiaoming Feng [source]