Currency restrictions,government transaction policies and currency exchange

Summary. We study how currency restrictions and government transaction policies affect the values of fiat currencies in a two country, divisible good, search model. We show that these policies can generate equilibria where both currencies circulate as medium of exchange and where currency exchange occurs between citizens of different countries. Restrictions on the internal use of foreign currency can cause the domestic currency to be relatively more valuable to domestic agents while taxes on domestic currency create an incentive for home agents to hold foreign currency. We demonstrate that some policies increase prices and lower welfare while others do the reverse. Received: September 5, 2001; revised version: March 1, 2002     

Exchange rates change,asset-denominated currency difference and stock price fluctuation

This paper examines differences in the connectedness between exchange rates and stock prices for companies with different asset currencies on the Hong Kong stock market, and it seeks to explain those differences by proposing a hypothesis on asset-denominated currency difference. Under a framework of investor heterogeneity, we establish a dynamic, discrete theoretical model to analyse the connectedness between exchange rates, the stocks of local Hong Kong companies, the stocks of companies from the mainland and foreign exchange interventions. Using monthly data from January 2000 to August 2018, we adopt the time-varying parameter vector auto-regression (TVP-VAR) model to empirically study the dynamic relationships between exchange rates and the prices of both Hong Kong-based and mainland-based stocks. The results show significant differences in the ways that exchange rates and prices for the two types of stocks are linked. The exchange rates are positively correlated with mainland stocks and negatively correlated with Hong Kong stocks. Moreover, foreign exchange intervention is found to be an effective means for stabilising exchange rates, although such intervention tends to increase stock volatility.

Abbreviations: TVP-VAR - time-varying parameter vector auto-regression model; MCMC - Monte Carlo-Markov Chain method.     

Extremes,return level and identification of currency crises

Recent literature has attempted to apply Extreme Value Theory (EVT) in the identification of currency crises. However, these approaches seem to have confused the thresholds in extreme modeling with the cutoffs of currency crises. Our paper proposes a Return Level Identification Approach, also based on EVT but overcoming this pitfall. Besides, it includes the conventional identification approach in the most literature as a special case, but relaxes the embedded normality assumption. A detailed procedure is outlined to demonstrate the implementation of the new approach, further illustrated by an empirical study on identifying the currency crises of China. Results are compared and evaluated by different approaches, and reveal remarkable improvement of our approach. We further combine our method with Early Warning Systems and the second-generation crisis models. Results demonstrate better performance of models with crises identified by our approach than those by conventional approach and also the necessity to include market-expectation variables in the prediction.     

Currency devaluations,aggregate demand,and debt dynamics in economies with foreign currency liabilities

The article uses a post Kaleckian model to analyze how currency devaluations affect aggregate demand and capital accumulation in an economy with foreign currency liabilities in the short-run. In benchmark post Kaleckian open economy models, currency devaluations have two effects. First, they change international price competitiveness and thus affect net exports. Second, devaluations change income distribution and thereby affect consumption and investment demand. The overall effect on aggregate demand and investment is ambiguous and depends on parameter values. Existing models, however, disregard balance sheet effects that arise from foreign currency-denominated external debt. The article develops a novel post Kaleckian open economy model that introduces foreign currency-denominated external debt and balance sheet effects to examine the demand-effects of devaluations. Furthermore, the article models the dynamics of external and domestic corporate debt. It discusses how an economy may end up in a vicious cycle of foreign-currency indebtedness and derives the conditions under which indebtedness becomes stable or unstable. It shows that the existence of foreign currency-denominated debt means that contractionary devaluations are more likely, and that foreign interest rate hikes, and high illiquidity and risk premia compromise debt sustainability. Devaluations only stabilize debt ratios if they succeed in boosting domestic capital accumulation.     

Government deficits, consumption, and the price level

This paper investigates the dynamics of the price level in a continuous time monetary version of the Yaari-Blanchard overlapping generations model with capital accumulation. It is shown that there is an interaction between fiscal discipline and price stability when the government budget is intertemporally balanced. Relevant implications are that high debt and slow adjustment adversely affect both prices and capital accumulation. Received: April 2005, Accepted: November 2005 We are very grateful to Paulo Brito, the editor, and to an anonymous referee for helpful comments. We also thank seminar participants at the University of Rome for useful discussions. Financial support from MIUR is gratefully acknowledged. The usual disclaimer applies.     

Central Bank Digital Currency: optimization of the currency system and its issuance design

Central Bank Digital Currency (CBDC) contributes to optimizing payment functions of fiat money, reducing reliance on payment services provided by the private sector, alleviating regulatory burdens and pressure on the central bank, and strengthening the authority of fiat money. Moreover, issuance of CBDC helps to address dilemmas of modern monetary policies, including inefficiencies in policy transmission, difficulties in countercyclical control, flow of currency away from the real economy to the virtual economy and inadequate management of policy expectations. This paper proposes a CBDC issuance framework based on forward contingencies. The incorporation of time, sector, and loan rate contingencies in the activation of CBDC will realize real-time transmission of monetary policy, enable targeted supply of money and prevent the currency from circulating beyond the real economy. The economic state contingency makes it possible to exercise countercyclical control of currency. The embedment of these contingencies also enables currency to perform the function of forward guidance.     

通货紧缩时期的货币政策目标:关于稳定币值的分析

基于对中国经济金融形势分析后认为，在转轨经济时期，特别是通货紧缩时期，应执行稳定币值的货币政策，中央银行应根据经济金融形势的变化，设置物价指数预警区间，灵活调控货币供应量；并在货币政策目标转换时，注意把握货币政策的力度和节奏。     

Monetary union or currency competition? Currency arrangements for monetary stability in East and West

Recent events in the European Monetary System on the one hand and monetary disintegration in the former Soviet Union on the other hand have revived interest in the question of how to design and choose a monetary regime for both parts of Europe that ensures monetary stability. The objective of monetary stability can be achieved either by complete monetary union or by currency competition. Building on Hayek's ideas, I argue that both regimes are viable solutions depending on the circumstances. The paper first focuses on the misperceived benefits of flexible exchange rates, making the case for monetary union in Western Europe. However, monetary union is no alternative for Eastern Europe and the former Soviet Union. Instead currency competition could be used to retain the benefits of flexible exchange rates and to foster monetary stability at the same time.     

货币错配与银行危机和货币危机

货币错配是新兴市场在经济全球化过程中所无法避免的问题,它具有净外币负债和净外币资产两种表现形式.在新兴市场中,只要其银行体系存在大规模的货币错配,不管表现为哪一种形式,都会增加其金融体系的脆弱性;而且在宏观或微观经济基本面恶化的情况下,可能引发银行危机甚至是货币危机.此外,当出现不利冲击时,银行体系中存在货币错配将会导致其资产和负债的期限错配进一步恶化.     

The minority ethic: Rethinking religious denominations,minority status,and educational achievement across the globe

We test whether major religious denominations correlate with education in a uniform way across the world and the extent to which minority status contributes to the correlation. Using individual data from the World Values Survey for 77 countries, we first find that no denomination is consistently associated with education and, in fact, for each denomination we study there are countries where its correlation with education is significantly positive, significantly negative, or statistically insignificant. To explain this unexpected result, we relate our first finding to minority status and find that denominations that are a minority in a given country positively correlate with the level of education of their followers in that country. Both findings uphold a series of robustness checks, including changing the definition of minority religions, excluding outliers, and changing the measure of education.     

Optimal price setting during a currency changeover: theory and evidence from french restaurants

This article studies firms’ price-setting decision during a currency changeover. Buyers’ difficulties with the new nominal price level may create incentives to raise prices temporarily but doing so comes at the risk of damaging a seller’s standing as a fair retailer. We model firms’ trade-off and study conditions under which increasing or decreasing prices is optimal. A difference-in-differences analysis based on micro-data of French restaurants strongly supports the model’s predictions. Prices during the 2002 changeover in the European Monetary Union were less likely to rise in larger restaurants, nontourist restaurants and when prices were advertised.     

Money growth rules and price level determinacy

Do exogenous money growth rules produce price level determinacy? This is a classic topic in monetary theory. This paper contributes to this literature by examining the effect of money demand timing. The paper demonstrates how conditions for determinacy vary depending upon whether the theoretical model uses “cash-in-advance” timing or “cash-when-I'm-done” timing. This issue is addressed in an endowment economy and a standard production economy.     

论劳动生产率与价格总水平的关系

作者认为，虽然各国政府都力图保持价格总水平的稳定，而且随着劳动生产率的提高，商品价值量也不断降低，但商品价格总水平并没有降低，而且还有不断上升的趋势。这是因为纸币流通为价格总水平上涨提供了可能，同时，普遍降低价格总水平不利于经济的发展。如果各国政府都把稳定价格总水平作为价格管理目标，能否实现以及在多大程度上实现这一目标．主要取决于该国的经济实力。价格总水平的上涨是国家为实现其职能所付出的代价。     

The response of aggregate demand to income,money supply,and price level

The response elasticities of (nominal) aggregate demand to the price level and to other nominal variables (e.g., money supply) are both positive but smaller than one. Aggregate demand is less/as responsive to real income than/as to the price level in the short/long run. Real aggregate demand is less/as responsive to real income than/as nominal aggregate demand is to the price level in the short/long run. Some uses of these results are indicated.     

A high-frequency analysis of price resolution and pricing barriers in equities on the adoption of a new currency

We use ultra high frequency (trade by trade) data to demonstrate that equity price clustering and pricing predictability around psychologically important prices in Greece switches away from drachma-focused with the introduction of the euro, but does not immediately switch to euro-clustering. The change in trader price focus around the euro introduction addresses an open debate in the clustering literature on whether the presence of clustering is a bias related to the current prices or anchoring to past prices. Our findings of a decline in drachma clustering, but lack of switch to euro effects supports the case for clustering being a trading feature that is slow to transfer to new pricing regimes. A key advantage of the ultra high frequency dataset is we are also able to demonstrate the presence of psychological pricing barriers related to each currency that are not detectable in daily data.     

The fiscal theory of the price level and initial government debt

It is widely believed that the Fiscal Theory of the Price Level (FTPL) does not work in an environment in which initial government debt is zero. This paper demonstrates that this view is incorrect when the government issues a set of financial assets restricted to standard nominal debt contracts and money. In particular, it is possible to define a non-Ricardian fiscal policy for which the set of equilibrium price sequences under non-Ricardian fiscal policy is a proper subset of the set of equilibrium price sequences under Ricardian fiscal policy.     

Discipline, Signaling, and Currency Boards

The paper models the choice between currency boards (CBs) and adjustable pegs (or managed floating). Countries adopting CBs have grown faster and inflated less on average than countries adopting other regimes. The explanation hinges on key features of CBs: policy discipline and inflation credibility. The authors find separating equilibria in which a weak government chooses a CB as a discipline device while a tough government chooses a standard peg for its policy flexibility. Paradoxically, the weak government can then outperform the tough government on average. In simulations performed, CBs welfare can exceed peg welfare even when unemployment persistence is strong.     

Currency substitution,inflation, and welfare

Currency substitution affects the mapping between social welfare and inflation by altering the underlying money demand function and influencing interest rates. In order to explore the essence of this effect, I build a model with working capital under which foreign currency is substituted with the less liquid components of domestic money. The framework closely mimics the actual pattern of currency substitution across varying rates of inflation and enables the study of an additional channel that works through the impact of currency substitution on interest rates. It is found that there is a threshold inflation rate, which turns out to be 44% under baseline calibration, below which currency substitution decreases welfare and vice versa. A practical implication is that, at inflation rates lower (greater) than the threshold, the potential welfare gains from disinflation to a near-zero inflation rate are higher (lower) if there is currency substitution than otherwise.     

General price level instability and the variability of relative prices in Switzerland

The relationship between inflation and relative price change variability is studied in the context of a stochastic, rational expectation, multigood equilibrium model. The model implies a stable regression function which characterizes the relationship between the relative price change variance and the squared unexpected inflation rate. The main theoretical implications of the model are empirically tested using monthly Swiss data.