Twin dollarization and exchange rate policy

This paper develops a small open economy general equilibrium model with nominal rigidities to study twin dollarization in East Asian economies, a phenomenon where firms borrow in US dollars and also set export prices in US dollars. In this model, we endogenize both the currency of liability denomination and the currency of export pricing. We show that a key factor that affects firms' dollarization decisions is exchange rate policy. Twin dollarization is an optimal strategy for all firms when exchange rate flexibility is limited, which implies that a fixed exchange rate regime may lead to an equilibrium with twin dollarization. Furthermore, we find that twin dollarization can reduce the welfare loss caused by the fixed exchange rate regime, as it helps to cushion the economy against domestic nominal risk.     

An analysis of forward exchange rate biasedness across developed and developing country currencies: Do observed patterns persist out of sample?

Forward exchange rate unbiasedness hypothesis (FRUH) has been a widely researched subject for decades. Recently, the sample populations of these studies have expanded to include developing country currencies. The majority of these findings have been that forward rate biasedness is more pronounced for developed country currencies than it is for developing country currencies. One such paper (Frankel and Poonawala, 2010) has further suggested that this phenomenon may contradict Risk Premium Theory since developing country currencies are relatively more volatile. Our analysis first replicates the results of Frankel and Poonawala and then extends the study out of sample using an updated composition of currency classifications. The results of this extended period of analysis show that forward rate biasedness is less pronounced for developed country currencies than for developing country currencies and consequently does not establish grounds to challenge Risk Premium Theory. Furthermore, our results are consistent with another branch of literature which suggests that conflicting FRUH test results may be particular to the time period examined. It is therefore possible to speculate that period-specific factors were responsible for the results found in previous research.     

Competitive Exchange Rate and Public Infrastructure in a Macrodynamic of Economic Growth

We develop a dual open‐economy model which incorporates a flow of public infrastructure as a factor of production to investigate effects of a competitive exchange rate policy under different levels of provision of public infrastructure. It is suggested that an exchange rate policy coordinated with a public infrastructure policy should produce better results. By increasing productivity in the tradable sector and reducing inflationary pressures, this supply‐side public policy contributes to the success of an economic growth strategy led by a competitive currency.     

Exchange rate policies in Asia in an era of financial globalisation: An empirical assessment

Ebbs and flows of capital have complicated macroeconomic policy management for all emerging market and developing economies (EMDEs) regardless of whether they have adopted flexible or managed exchange rate regimes. In the light of the renewed interest in the trilemma versus dilemma debate, we contribute to the related literature by presenting an empirical analysis of exchange rate flexibility and intervention for selected Asian EMDEs over the time period 2001–2016. In addition to estimating augmented Frankel–Wei regressions, we employ a generalised auto‐regressive conditional heteroscedasticity (GARCH) model to assess the extent of foreign exchange (FX) intervention and whether there exist any asymmetries in the way countries intervene. Our results show that although there is greater flexibility in exchange rates, there is evidence of some countries potentially using FX intervention to manage currency movements. We also find evidence of asymmetry in intervention where exchange rate volatility responds more emphatically to FX sales than purchases.     

引入价格因素的蒙代尔-弗莱明模型及其在中国的适用性

文章利用汇率理论的“超调”和行为金融学的“过度反应”等概念,引入价格和真实汇率等因素对固定汇率、资本完全不流动条件下的蒙代尔-弗莱明模型进行讨论,说明在其它条件不变时,扩张的货币政策导致紧缩经济的结果,反之反是;文章还讨论了中国货币政策的有效性和蒙代尔-弗莱明模型在中国的适用性等问题。     

量化宽松货币政策对汇率的影响——基于2001-2006年日本实证分析

2001-2006年日本量化宽松货币政策对日元汇率的影响实践对于目前采用量化宽松货币政策的国家具有较强的借鉴意义。以Frankel模型为理论基础,运用VEC模型分两阶段进行实证分析,结果表明:与零利率宽松货币政策相比,日元汇率对量化宽松货币政策的独立性很强,量化宽松货币政策对汇率的即期波动和长期变动影响均不明显,对汇率的短期波动影响程度也较弱。实证结果还显示,量化宽松货币政策下,短期内存在汇率传导机制,汇率变动具有财富效应。     

Liability dollarization and the bank balance sheet channel

Emerging markets' financial institutions often face a mismatch in the currency denominations of their liabilities (foreign currency-denominated debt raised from foreign lenders) and their assets (domestic currency loans to domestic borrowers). We study the effect of this mismatch on monetary policy in a sticky-price, dynamic general-equilibrium small open economy model in which the country default-risk premium depends on domestic banks' balance sheets due to asymmetric information. A fixed exchange rate rule that stabilizes bank balance sheets offers greater stability than does an interest rate rule that targets inflation to offset the real effects of sticky-prices.     

Export Performance,Invoice Currency and Heterogeneous Exchange Rate Pass‐through

Using comprehensive, shipment‐level merchandise trade data for a small, open economy, we examine heterogeneity in exporters' exchange rate pass‐through (ERPT) behaviour. We draw together two recent studies of ERPT, linking invoice currency decisions and firm performance to heterogeneity in ERPT. Like these studies, we find that the short‐run reaction of export unit values to exchange rate fluctuations is significantly related to both invoice currency choice and exporter characteristics when these are analysed separately. However, we then show that when the two factors are jointly accounted for, the role of exporter characteristics largely disappears. That is, some firm types are more inclined to invoice in the producer currency, while others use either the local or a vehicle currency. In the short run, this translates into differences in exchange rate pass‐through because of price rigidity in the invoice currency. Firm characteristics do not have an independent impact on pass‐through beyond their effect on currency composition. Differences across invoice currencies diminish over time, but do not disappear, as prices adjust to reflect bilateral exchange rate movements.     

Argentina's Currency Board Collapse: Weak Policy or Bad Luck?

Two basic views can be discerned in post‐mortems of Argentina's currency board: (1) that weak fiscal policy was fundamentally to blame, and (2) that the peso had become too severely overvalued for the peg to survive. This paper evaluates the evidence for these rival interpretations. The real effective exchange rate index did not indicate massive overvaluation, but this index does not capture the effects on the equilibrium rate of the ‘sudden stop’ in capital flows to emerging markets after 1998. It also understates the amount of adjustment required for Argentina to reach the equilibrium rate, because neighbour countries’ dollar exchange rates were held up by Argentina's overvaluation, as is indicated by their depreciation in 2002. Argentina was particularly vulnerable to the sudden stop because of the extreme volatility of its portfolio inflows. Fiscal policy simulations suggest that, even with a substantially improved primary balance from 1994 onwards, loss of investor confidence would still have triggered unsustainable debt dynamics once the recession began to bite after 1998. The stagnation of output and prices in Argentina created a yawning gap between the interest rate on debt and the rate of growth of nominal GDP. Had the currency been floated in, say, 1995, the real devaluation of the peso would still have pushed up the debt/GDP ratio, but higher output would have left greater scope for addressing this by running a sizeable primary surplus. Moreover, the more gradual depreciation under floating might have allowed the economy to adjust to higher debt service payments without resort to default. The IMF has criticised itself for not pressing for tighter fiscal policy in the 1990s. A more fundamental criticism would be that it was seduced by the bipolar model into complacency about adjustment to real shocks and forgetting the teachings of optimum currency area theory.     

The role of elasticity optimism in choosing an optimal currency basket with applications to Israel

In a world in which exchange rates are floating each country must have some device for measuring the average exchange rate change, whatever exchange rate policy it chooses. The weight for each currency in computing such an average depends on the objective which exchange rate stabilization, or change, is expected to achieve. If balance of trade stability is the desideratum, the optimum weights (optimum currency basket) are shown to be a function of demand elasticities, GNP, trade shares, etc. We derive a loss function measuring the cost of using a ‘wrong’ basket, and compute the value of this function for our ‘optimal’ Israeli basket as a case study.     

Monetary policy spillovers and currency crisis in comparative perspective: East Asia before the 1997 crisis and Eastern Europe after tapering

This paper estimates the possibility of currency crisis in Eastern Europe that can be triggered by monetary policy change in the key currency countries, such as tapering measure. We examine the crisis possibility in the five Eastern European nations—the Czech Republic, Poland, Hungary, Bulgaria and Romania—by performing a comparative analysis with East Asian countries before the 1997 currency crisis. For the analysis, we estimate how much the exchange rate deviates from the estimated equilibrium exchange rate, as well as the synchronicity of currency value towards some of the key currencies by creating market pressure index. The results can be explained in two ways. First, the market pressure in the Eastern Europe after 2012 is smaller than they were in East Asia before 1997. The crisis possibility especially intensifies when more the exchange rate deviates from the equilibrium value. Second, the monetary policy change in the key currency countries does not greatly affect the crisis possibility in Eastern Europe when their local currencies have the strong synchronisation with euro. Therefore, Eastern European countries show strong synchronicity towards the euro, so the crisis possibility may be alleviated if the Eurozone continues its expansionary monetary policy.     

Endogenous exchange rate pass-through when nominal prices are set in advance

This paper develops a model of endogenous exchange rate pass-through within an open economy macroeconomic framework, where both pass-through and the exchange rate are simultaneously determined, and interact with one another. Pass-through is endogenous because firms choose the currency in which they set their export prices. There is a unique equilibrium rate of pass-through under the condition that exchange rate volatility rises as the degree of pass-through falls. We show that the relationship between exchange rate volatility and economic structure may be substantially affected by the presence of endogenous pass-through. Our key results show that pass-through is related to the relative stability of monetary policy. Countries with relatively low volatility of money growth will have relatively low rates of exchange rate pass-through, while countries with relatively high volatility of money growth will have relatively high pass-through rates.     

澜湄次区域货币兑换障碍问题研究

澜沧江—湄公河次区域内具有丰富的自然资源,各国在资源、产业、技术和市场等方面具有较强的互补性。近年来,日趋稳定的政治环境以及次区域内各国发展经济的强烈需求使得各国政府认识到成功的合作将有力推动其经济快速发展。然而,货币兑换障碍问题已经成为制约其发展的重要因素。因此提出相应建议,力图缓解货币兑换障碍所产生的消极影响。     

EXCHANGE-RATE ARRANGEMENTS FOR NAFTA: Should We Mimic the EU?

Following on from the successful launch of the euro in the European Union, a vigorous debate has erupted in both Canada and Mexico as to whether NAFTA should also adopt a common currency. Several other types of exchange rate arrangements are also possible for the North American bloc, and the aim of this paper is to evaluate all of these alternatives. The paper evaluates the full range of possible exchange-rate arrangements for the NAFTA bloc of countries from economic, political and institutional perspectives. The paper identifies ten different exchange rate regimes and evaluates these regimes with regard to economic growth, international trade, economic integration, credibility of the arrangements, institution-building and political acceptability.     

Evaluating China's Exchange Rate Regime

The U.S.in the last couple of years has been up in arms about China's exchange rate regime. In 1994 China established a de facto currency peg.The dollar-RMB ex- change rate was fixed at 8.28.The People's Bank of China(PBC)al- lowed the rate a narrow band of around .01 to.02 percent in which it could shift daily.The exchange rate program did not become newsworthy until U.S.Treasury Secretary John Snow's visit in 2003.In fact as a study by Frankel and Wei(2007) showed,the RMB's forward was actually selling at a discount against the dollar prior to Secretary Snow's visit to China     

A Political Economic Critique on the Theory of Optimum Currency Areas,and the Implications for East Asia

In recent years, dynamic debate has arisen as to the desirability and feasibility of creating a monetary union in East Asia. While the debate has relied heavily on the theory of optimum currency areas, this theory has weaknesses in explaining the actual formation of monetary unions. At this point, political economy analysis appears to demonstrate stronger explanatory power. This paper provides a systematic review of the main developments in the literature on optimum currency area theory and in the political economy literature on monetary union. In addition, it addresses the feasibility of an East Asian monetary union, by applying the findings in these two academic strands to the region. It finds that even though formation of an East Asian monetary union may be to some extent feasible from an economic perspective, the region’s political situation does not appear favourable for the creation of one.     

巨额贸易逆差下美国经济增长模式及对中国经济的影响

自20世纪90年代以来,美国在巨额贸易逆差下实行了经济持续增长。本文从金融角度详细分析了美国依据美元特殊的国际货币地位和外汇储备特征实行对全球的金融剥削;从产业角度探讨了新一轮全球产业分工重组背景下制造产业的国际转移、跨国公司内部贸易、美国独特的进口商品结构、油价上涨和美国能源产业政策对“悖论”解释的合理性;从宏观政策角度解析了美国“双赤字”并存的必然原因。本文认为,美元地位的不断下降使美国经济增长模式存在潜在危机,而美国对内外经济失衡的调整,势必对中美贸易、人民币汇率、中国外汇储备及内外经济平衡产生深远的影响。     

Dynamic stability of portfolio balance models of the exchange rate

The conditions for stability of a portfolio balance model of exchange rate determination with an endogenous current account are examined for various expectational assumptions. It is shown that unless strongly stabilizing expectational assumptions are made, if the economy is a net debtor in foreign currency assets there is the possibility that its exchange rate will exhibit instability.     

中国崛起背景下的涉外金融安全问题与对策

中国崛起背景下的涉外金融安全问题,主要表现在三个方面,即资本账户开放的安全问题、外汇储备资产或外汇资产的安全问题、国际支付结算体系的安全问题。导致中国涉外金融安全问题的外部原因是本币不具备储备货币的国际地位,需要从外部获得储备货币,必然缺乏安全;人民币汇率的信用依靠美元等储备货币背书,中国经济崛起也曾经依赖美元顺差;美国可以利用美元账户对资金、资产交易、跨境支付结算等,实施行政处罚、限制、冻结等制裁,乃至剔除出账户系统。内部原因是中国经济崛起,美国要打压和制裁;金融开放如果在汇率制度选择、外汇管制和管控上处理不当,允许储备货币资金完全自由进出而无约束,则必然存在金融危机的可能;国际收支失衡导致涉外金融缺乏安全。解决涉外金融安全问题应从四个方面着手:一是通过货币互换和多元化投资等方式保障外汇(储备)资产安全;二是通过提倡主权货币计价、支付、结算、融资,以及开展相关制度设计等方式建设好交易和支付结算系统;三是把握好资本账户开放;四是做好人民币国际化的基础工作。