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Domestic Currency (domestic + currency)

Distribution by Scientific Domains

Business, Economics, Finance and Accounting	100%

Selected Abstracts

U.S. Monetary Policy Surprises and Currency Futures Markets: A New Look

FINANCIAL REVIEW, Issue 4 2008
Tao Wang
G14 Abstract Intraday currency futures prices react to both surprises in the federal funds target rate (the target factor) and surprises in the anticipated future direction of Federal Reserve monetary policy (the path factor) in similar magnitude, and the reaction is short-lived. Dollar-denominated currency futures prices drop significantly in response to positive surprises (i.e., unexpected increases) in the target and path factors, but have generally little response to negative surprises. A monetary policy tightening during expansionary periods leads to an appreciation of the domestic currency, while a monetary policy loosening during recessionary periods tends to have no significant impact. [source]

Financial Dollarization and European Union Membership

INTERNATIONAL FINANCE, Issue 2 2010
Kyriakos C. Neanidis
We analyse the effect of European Union (EU) membership on financial dollarization for the Central and Eastern European countries. Using a unique monthly data set that spans about two decades, we find that both the accession process towards EU membership and EU entry have a direct impact on deposit dollarization (DD) and loan dollarization (LD). EU membership reduces DD while it increases LD. The negative effect on DD captures the increased confidence of the private sector in the domestic currency, as they consider the EU admission process a reflection of their government's commitment to promoting policies of long-run currency stability. The positive impact on credit dollarization is the outcome of a greater convergence of exchange rates to the euro and the subsequent anticipation of lower currency risk, which diminishes the cost of foreign currency borrowing. [source]

A Proposed Monetary Regime for Small Commodity Exporters: Peg the Export Price (,PEP')

INTERNATIONAL FINANCE, Issue 1 2003
Jeffrey Frankel
On the one hand, the big selling points of floating exchange rates , monetary independence and accommodation of terms of trade shocks , have not lived up to their promise. On the other hand, proposals for credible institutional monetary commitments to nominal anchors have each run aground on their own peculiar shoals. Rigid pegs to the dollar are dangerous when the dollar appreciates. Money targeting does not work when there is a velocity shock. CPI targeting is not viable when there is a large import price shock. And the gold standard fails when there are large fluctuations in the world gold market. This paper advances a new proposal called PEP: peg the export price. Most applicable for countries that are specialized in the production of a particular mineral or agricultural product, the proposal calls on them to commit to fix the price of that commodity in terms of domestic currency. A series of simulations shows how such a proposal would have worked for oil producers over the period 1970,2000. The paths of real oil prices, exports, and debt are simulated under alternative regimes. An illustrative finding is that countries that suffered a declining world market in oil or other export commodities in the late 1990s would under the PEP proposal have automatically experienced a depreciation and a boost to exports when it was most needed. The argument for PEP is that it simultaneously delivers automatic accommodation to terms of trade shocks, as floating exchange rates are supposed to do, while retaining the credibility-enhancing advantages of a nominal anchor, as dollar pegs are supposed to do. [source]

EXCHANGE RATE RISK AND EXPORT REVENUE IN TAIWAN

PACIFIC ECONOMIC REVIEW, Issue 2 2004
Wen Shwo Fang
Depreciation is found to stimulate export revenue in domestic currency, but the quantitative impact is small and any associated increase in exchange risk has a negative impact. Implications for economic policy are discussed. [source]

Foreign currency for long-term investors*

THE ECONOMIC JOURNAL, Issue 486 2003
John Y. Campbell
Conventional wisdom holds that conservative investors should avoid exposure to foreign currency risk. Even if they hold foreign equities, they should hedge the currency exposure of these positions and hold only domestic Treasury bills. This paper argues that the conventional wisdom may be wrong for long-term investors. Domestic bills are risky for long-term investors, because real interest rates vary over time and bills must be rolled over at uncertain future interest rates. This risk can be hedged by holding foreign currency if the domestic currency tends to depreciate when the domestic real interest rate falls. Empirically this effect is important. [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]