Managed floating as a strategy to achieve selected monetary policy objectives

The paper considers the connection between exchange rate regimes and economic performance as measured by inflation, output growth, and their volatility. It is argued first that the choice of an intermediate exchange rate regime is complicated by potential conflicts with the requirements of central bank transparency and accountability. These are considered to be longer run questions. Next, three types of managed floating regimes are defined. A variety of counterfactual experiments are shown to illustrate that a managed float, such that the objective of monetary policy is expressed in terms of an inflation target, will produce the most desirable macroeconomic outcome. The counterfactuals are supplemented with estimates of forward-looking Taylor rules to ascertain whether such rules are informative under a managed floating scenario. In general, the answer is that central bank reaction functions become less useful when the exchange rate regime is an intermediate one.     

On the Link Between Exchange‐rate Regimes,Capital Controls and Monetary Policy Autonomy in Small European Countries, 1979–2000

We investigate international monetary‐policy transmission under different exchange‐rate and capital‐account regimes in eleven small, open economies during the 1980s and 1990s. We find no systematic link between ex‐post monetary‐policy autonomy and exchange‐rate regimes. Capital controls appear to have provided a degree of temporal insulation from foreign monetary policy shocks, though not strict autonomy. The results are consistent both with short‐term autonomy for small countries even under fixed exchange rates and an open capital account, and with long‐term dependence under flexible exchange rates and an independent stability target. Results also indicate that euro‐area market interest rates are significantly more responsive to the development of the corresponding US rate than were the previous national rates.     

中国货币政策对美国货币政策独立性的实证分析

在外汇储备快速增加和汇率制度面临选择的背景下,中国货币政策的独立性备受关注。本文运用Ordered Probit模型,对中国货币政策相对美国货币政策的独立性进行了实证分析。结果表明:1998年1月至2011年6月,中国基本保持了货币政策的独立性;从1998年1月至2005年6月和2005年7月至2011年6月汇率浮动幅度有明显差异的两个时段分析我国货币政策的独立性的差异,发现人民币汇率浮动幅度的放宽并未导致中国货币政策独立性的增强,放宽汇率管制并不能增强中国货币政策的独立性。     

Central Bank Intervention,Exchange Rate Regime and the Purchasing Power Parity

Motivated by the argument that central bank intervention leads to non‐linear exchange rate adjustment processes, we examine purchase power parity (PPP) by applying quantile unit root tests to the exchange rates of the New Taiwan Dollar (NTD) vis‐à‐vis seven Asian currencies. We show that exchange rate regime matters in determining whether PPP holds. While PPP holds overwhelmingly during the period when the NTD is under the fixed exchange rate regime, it is present only for some exchange rates during the managed floating rate regime. For exchange rates exhibiting mean reversion, the reversion occurs mainly when the shocks are large. In contrast to conclusion in the literature, our test results show little evidence of asymmetric mean reversion between positive and negative shocks.     

小型开放经济环境下的最优货币政策设计

在经典的小型开放经济框架内,植入一个现金预留(CIA)模型,研究多重冲击下小型开放经济的最优货币政策设计问题,结果显示:汇率波动、货币流通速度冲击、财政冲击以及家庭消费冲击等通过成本渠道对物价和产出产生了直接影响。因此,在为小型开放经济体制定货币政策时,货币当局应充分考虑这些因素,使货币政策调控不仅对产出和通货膨胀的波动做出反应,而且对汇率波动和上述冲击也应做出适当的调整。此外,为营造有利的货币政策实施环境,外汇市场应实行有管理的浮动汇率制度。     

ADRs as leading indicators of exchange rates

We study the pricing of Argentine ADRs during and after the transition of the Argentine economy from a pegged exchange rate to a freely floating exchange rate regime. We document a discount of 30% between the dollar denominated price of the ADR and the peso denominated price of its local counterpart (price ratio) during the transition period. The discount reflected the market's expectation of the ‘true’ exchange rate between the dollar and peso. Relative prices of the most heavily traded ADR and of its local counterpart continued to be informative about the exchange rate even after the peso was allowed to float freely against the dollar. The robustness of the Argentine evidence is confirmed by finding that prices of Thai ADRs have similar predictive power for exchange rates during a period when the Thai market underwent a similar change in exchange rate policy as Argentina. Finally, we rely on evidence from Malaysia, which switched from a managed float to a fixed exchange rate policy, to confirm that the Argentine and Thai ADRs derive their informational advantage from greater liquidity in the ADR market.     

股票市场开放条件下的货币政策效应分析

本文探讨了在股票市场开放条件下,股票市场的国际资本流动对货币政策的影响。在开放经济条件下,对在东道国投资的国际投资者来说,如果股票投资比债券投资更重要,那么货币政策比财政政策相对有效的观点难以成立。扩张性货币政策使国内利率下降,但利率下降会增加股票投资的预期收益,这会吸引国际资本流入,从而导致本币升值,因而扩张性货币政策对产出的净影响是不确定的。浮动汇率体制有利于减缓外部冲击。     

Segmented asset markets and optimal exchange rate regimes

This paper revisits the issue of the optimal exchange rate regime in a flexible price environment. The key innovation is that we analyze this question in the context of environments where only a fraction of agents participate in asset market transactions (i.e., asset markets are segmented). Under this friction alternative exchange rate regimes have different implications for real allocations in the economy. In the context of this environment we show that flexible exchange rates are optimal under monetary shocks and fixed exchange rates are optimal under real shocks.     

Speculative behavior of foreign exchange rates during the current float

The current regime of floating exchange rates has been characterized by a number of informed observers as economically unsatisfactory. Use of terms such as “overshooting”, “bandwagon effects”, “destabilizing”, and “insufficient speculation” reflects serious misgivings on the part of many toward the long-run viability of a floating, rather than a fixed or semi-fixed, rate regime. Using fairly standard procedures, the authors have attempted to determine the extent to which the foreign exchange market exhibits the adverse features noted above. The authors conclude that by and large foreign exchange markets have not performed particularly poorly. The foreign exchange markets seem to be efficient at least in the weak form sense. Past exchange rate changes are not useful in predicting future exchange rate changes. This empirical finding contrasts sharply with the view that the markets “overshoot”, or that there are “bandwagon effects”, or that the amount of price stabilizing speculation is inadequate.     

Is there an optimal crawl?

This paper shows that optimal exchange rate policy can be defined in terms of either a long-run secular policy or a short-run stabilization policy. The rate of crawl which maximizes real per capita consumption is shown to often differ from the exchange rate movements produced under fixed or floating exchange rates. And the optimal program for dealing with short-run speculative capital flows will involve both discrete and gradual exchange rate changes. It is also argued that domestic monetary policy and exchange rate policy are not independent instruments.     

“三元悖论”与中国汇率制度选择

＂三元悖论＂的基本原理是指在货币政策独立、资本自由流动和固定汇率这三个经济目标中最多只能同时实现两个,而该理论本身也存在理论假设过于绝对化,组合难以有效实现,政策组合难以执行的局限性。基于对中国资本流动现状和货币政策有效性分析和＂三元悖论＂的基本原理分析,得出我国的汇率制度选择终级目标是实现＂货币政策独立＋资本自由流动＋自由浮动汇率＂的政策组合。     

Why the Middle is Unstable: The Political Economy of Exchange Rate Regimes and Currency Crises

The contribution of sticky exchange rates to the rash of currency crises over the past decade has become a major topic of international monetary analysis and policy discussion. While there is widespread agreement among economists that the middle of the exchange rate spectrum, adjustable pegs, is highly crisis‐prone in a world of substantial capital mobility, Jeffrey Frankel has recently argued that, surprisingly, we lack a clear theoretical rationale for why this is so. This paper attempts to fill that void. It argues that Frankel is correct in terms of economic analysis alone, but that when political economy considerations are introduced then a satisfactory explanation is at hand. Key aspects of this political economy perspective are laid out and implications for exchange rate policy are considered. The analysis suggests that for promoting currency stability the traditionally debated distinctions between crawling bands and managed floats are likely less important than the political environments in which they are operated.     

The short run efficacy of monetary policy under floating exchange rates reconsidered

This paper disputes the argument that the short-run effectiveness of monetary policy in stabilizing domestic output under floating rates is necessarily reduced if elasticities of demand for imports and exports with respect to the current exchange rate are low and capital flows depend on the exchange rate. It is shown that the relative efficacy of monetary changes is determined by the interest rate elasticity of international interest payments and receipts and the effect of exchange rate variations on the demand for money in addition to the exchange rate elasticities of trade and capital flows.     

China's exports,export tax rebates and exchange rate policy

This paper examines the relationship between China's exports, export tax rebates and exchange rate policy. It offers an explanation for why China's exports continued to rise under RMB real appreciations during the Asian financial crisis. Based on a traditional export demand model, we test our hypothesis that the counteracting effects of China's export tax rebate policy have diminished the effectiveness of real exchange rates in facilitating the resolution of trade imbalances under the current pegged exchange rate regime. We find evidence that RMB real appreciations during the crisis negatively affected China's exports, but the negative effects were mitigated by the positive effects of export tax rebates. We also find evidence of a long‐run relationship between China's exports and the other explanatory variables. The empirical evidence suggests that under the pegged exchange rate regime with limited adjustments, real exchange rate movements alone cannot resolve China's external imbalances. The policy implication of this study is that China needs to redirect its decades‐long export‐oriented development strategy to one that emphasises domestic demand‐oriented development and to replace the current pegged exchange rate regime with a market‐oriented more flexible exchange rate regime.     

RMB Exchange Rate Reform：Past and future

With the deepening of China＇s financial reform, economic development and the enforcement of market roles, the RMB exchange rate needs to become more flexible and become a more sensitive reflection of the changes in market supply and demand. Under such circumstances, on July 21, the People＇s Bank of China announced that the previous system where China＇s RMB was pegged to the U.S. Dollar would be changed to include a basket of foreign currencies, shifting China＇s exchange rate system into a managed floating exchange rate regime based on market supply and demand.     

Into the Mussa puzzle: monetary policy regimes and the real exchange rate in a small open economy

Industrial countries moving from fixed to floating exchange rate regimes experience dramatic rises in the variability of the real exchange rate. This evidence, forcefully documented by Mussa [Nominal exchange regimes and the behavior of real exchange rates: evidence and implications. Carnegie-Rochester Conference Series on Public Policy 25 (1986) 117], is a puzzle because it is hard to reconcile with the assumption of flexible prices. This paper lays out a dynamic general equilibrium model of a small open economy that combines nominal price rigidity with a systematic behavior of monetary policy able to approximate a continuum of exchange rate regimes. A version of the model with complete exchange rate pass-through is broadly consistent with Mussa’s findings. Most importantly, this holds independently of the underlying source of fluctuations in the economy, stressing the role of the nominal exchange rate regime per se in affecting the variability of the real exchange rate. However, only a model featuring incomplete exchange rate pass-through can account for a broader range of exchange rate statistics. Finally there exist ranges of values for either the degree of openness or the elasticity of substitution between domestic and foreign goods for which the baseline model is also consistent with the empirical insensitivity of output volatility to the type of exchange rate regime, as documented by Baxter and Stockman [Journal of Monetary Economics 23 (1989) 377].     

Is exchange rate stability beneficial for stabilizing consumer prices in China?

This study examines the relationship between real effective exchange rates (REERs) and the consumer price index (CPI) in China, utilizing a bootstrap Granger full-sample causality test and a sub-sample rolling-window estimation. Considering structural changes, we assess the stability of the parameters and find that both the short-run and long-run relationships between the two estimated variables are unstable. This result suggests that full-sample causality tests cannot be relied upon. We instead employ a time-varying (bootstrap) rolling-window approach to revisit the dynamic causal relationship, and we find that the CPI is affected by the REER for several sub-samples due to the role of exchange rate pass-through (ERPT) under the managed floating exchange rate regime in China. These findings provide further proof of the impact of stable exchange rates on the maintenance of relatively steady price levels especially during the economic crisis and economic reform in China. The policy implication of these findings is that maintaining exchange rate stability is beneficial for controlling inflation during the economic crisis and economic reform.     

美联储量化宽松货币政策正常化与人民币汇率变动——基于时变参数向量自相关模型的研究

2015年后，随着量化宽松货币政策正常化和人民币汇率进入双向波动新常态，美国货币政策对人民币汇率的外溢效应日益显著。通过构建时变参数向量自相关模型对2008-2018年美联储量化宽松货币政策的实施和退出对人民币汇率的溢出效应进行研究，结果表明：美联储加息在滞后一季度作用人民币兑美元先升值后贬值，加息通过中美利差、产出差、货币供给之差分别作用于人民币兑美元贬值、升值和升值，利差渠道是主要作用渠道；美联储资产负债表扩张和缩减分别带来人民币汇率的升值和贬值，且扩张的升值影响大于缩减的贬值影响；美联储资产负债表和利率政策有一定替代性，替代关系存在明显的结构效应；美联储资产负债表的扩张和缩减分别带来中国银行间市场利率的下降和回升，两国利率表现出一定联动性。     

Methods of assessing the long-run equilibrium value of an exchange rate

The many industrial countries which have in recent years opted for a managed floating exchange rate regime are now in need of methods for assessing the appropriateness of their exchange rates and for guiding their exchange rate management policies. Three methods are considered here: the purchasing power parity (PPP) method, the underlying payments disequilibria (UPD) approach, and the asset-market disturbances (AMD) method. All three methods are found to have serious weaknesses, but, if used with care, provide rough yardsticks that would help the authorities in preventing their exchange rates from becoming widely undervalued or overvalued.