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.     

Exchange rate regimes, globalisation, and the cost of capital in emerging markets

This paper presents a multifactor asset pricing model for currency, bond, and stock returns for ten emerging markets to investigate the effect of the exchange rate regime on the cost of capital and the integration of emerging financial markets. Our results suggest that a fixed exchange rate regime system can help reduce the cost of capital in emerging markets by reducing the currency risk premia demanded by foreign investors.     

Asymmetry in quasi-fixed exchange-rate systems

A stochastic model of an international payments system is formulated with the assumptions that: (1) international reserves are held in the form of a key currency; (2) fixed exchange rates are subject to infrequent change; (3) deficit countries depreciate more readily than surplus countries appreciate. The model is implemented with historical data. Time paths for international reserves and prices under alternative assumptions are secured through Monte-Carlo simulation. The paths show that anti-inflationary policy by the key-currency country — viz, the United States — is easily multiplied by exchange-rate changes by other countries.     

Financial crises and contagion vulnerability of MENA stock markets

This paper examines contagion vulnerability and the international and regional financial linkages of the MENA stock markets. The degree of vulnerability of those markets to global and regional financial crises will have important bearings on the respective economies' growth rate, and on their ability to diversify international and regional portfolios. Granger causality tests and impulse response functions reveal that while the GCC equity markets still offer international investors portfolio diversification potentials, those markets are relatively less vulnerable to global and regional financial crises. Moreover, even though the remaining MENA stock markets of Egypt, Morocco, and Tunisia have matured and are now financially integrated with the world stock markets, they tend to exhibit more vulnerability to regional and international financial crises. Their vulnerability to international financial crises is due, on the one hand, to weak regional integration, and to greater economic and financial integration with the more advanced economies on the other.     

EMU: from Talk to Action

Welcoming the British government's recent decision to join the EMU, the Chairman of one of Europe's biggest and most international companies here discusses the opportunities and problems that European Monetary Union presents.     

Financial markets at the crossroads: Fears of a great crash

Not so long ago the international financial markets were being acclaimed as the cure-all for debt crises and interest rate and exchange rate risks, but new developments are giving increasing cause for concern, as the Deutsche Bundesbank¹ noted recently. Pessimists are spreading a mood of disaster and are already predicting the collapse of the world financial system.² What is the basis for such fears? How serious is the danger of a crash?     

Contagion,herding and exchange-rate instability — A survey

Despite the considerable body of literature on the subject of currency crises there is still very little agreement on the true drivers of these, crises and their transmission across countries. This article focuses in particular on the role of herd behaviour and financial contagion, and the high exchange-rate. volatility which is a direct consequence of these. It also looks at the adverse macroeconomic consequences of episodes with high exchange-rate volatility, especially in terms of labour market performance.     

The neglected need for strategic renewal in emerging markets: Lessons from Vietnam in transition

Research on strategy in emerging markets is based on overly static representations, paying insufficient attention to the impact of contextual change on the value of firms’ resources. This article examines how a sample of the most successful Vietnamese private companies during the first decade of their country's transition from central planning was affected by the shifting rules of the game in their business environment. I suggest the primary takeaway is that sustained superior performance in an environment with changing keys to success requires dedicated and ongoing strategic renewal. I also suggest the need for both scholars and managers to immerse themselves in emerging markets if they care to fully understand the granular ways in which these settings differ from more familiar advanced economies.     

Organising new business in a turbulent context: Opportunity discovery and effectuation for IJV development in transition markets

Research on entrepreneurship has suggested entrepreneurial phenomena to take place in a wide variety of contexts that deal with new venture emergence. Opportunity discovery and effectuation are seen as the essence of entrepreneurship. The present study examines entrepreneurial behaviour in the organising of an international joint venture (IJV) in Polish transition markets. The paper aims to answer the following question: How is an international joint venture organised in turbulent context through opportunity-discovery and effectuation behaviours? Based on theoretical analysis and a longitudinal case study, we illustrate the organising of an international joint venture in transition markets through specific behaviours of opportunity discovery and effectuation. We show especially the relationship-based nature of all the behaviours. The study advances international entrepreneurship research by emphasising the intertwinedness of the entrepreneurial behaviours with the drastic developments in the transition markets and the evolution of the IJV partnership.     

EMU: Experiences to date and challenges for the future

Have the first two years of European Monetary Union fulfilled the expectations of its supporters? Or have the fears of the critics been confirmed? What challenges will EMU have to face in the years ahead?     

Unionized labor markets and globalized capital markets

This paper studies the effects of international integration of capital markets in a world where countries differ in their labor market institutions: one country has a perfectly competitive labor market while the other is unionized. We show that workers should favor autarky in the unionized country, but oppose it in the non unionized country and vice versa for owners of capital. Aggregate gains from integration, however, are negative. We also show that, under capital mobility, an increase in relative bargaining power of unions does not always improve workers' welfare.     

Marked economic recovery in the EMU

With its internal value stable, the euro's inaugural year proved to be a thoroughly sccessful one for the common currency, even though there was a marked decline in its external value against the dollar and the yen. As far as the economy is concerned, the first year of currency union was less favourable, as its start coincided with a considerable weakness in exports. A clear recovery set in during the course of the year, however, and will continue this year. It will be accompanied by a further marked improvement in the labour market situation while price levels remain stable.     

The return to value in Asian stock markets

This paper investigates the returns to value strategies in four Asian stock markets: Hong Kong, Korea, Singapore and Taiwan. Hong Kong, Korea and Singapore exhibit value premia while Taiwan shows value discounts. The impact of firm characteristics on value premia differs across the four markets. The robustness tests indicate that the value premia are time-varying. They become greater in the post-crisis period across all four countries, indicating that high volatility during the crisis period did understate the value premia. The value strategy's excess return is sensitive to the sample selection rule and the firm size and liquidity effects. With tighter sample selection criteria, value premia tend to decline, which indicates that both the firm size effect and the liquidity effect are important sources of value premia. Unequal weighting assigned to financial variables in constructing the Average Price Rank (APR) based on the overall performance of single-variable approach does not necessarily improve the results.     

Real exchange-rate changes in the European community: A new approach to the determination of optimum currency areas

Deviations from relative purchasing power parity (real exchange-rate changes) are suggested as a comprehensive and operational criterion of the desirability of currency unification. Using consumer price indices, the criterion is applied to the European Community in 1959–1976 and in various subperiods. It is shown, inter alia, that the Community is probably a less desirable currency area than comparable existing currency unions like Germany, Italy and the U.S., that its failure to implement its 1971 plans for monetary union can hardly be attributed to unusually unfavourable external disturbances and that it is possible to identify the member countries which are the most suitable candidates for a pioneer venture in currency unification.