Debt and currency value during COVID-19 in the Global South

The aim of this article is to examine debt and currency vulnerability during economic turbulence in the Global South. A panel data analysis is performed on a panel of 25 economies consisting of nine developed and 16 developing countries with a focus on public and private debt. The empirical findings reveal that only public debt build-up has an adverse effect on currency value. There is no evidence of a significant impact of recession periods on currency value for both private and public debt estimations. I also found that private debt build-up can be more harmful than public debt in developing countries. In addition, both public and private debt have increased as percentages of GDP during COVID-19.     

Early warning systems for currency crises: The Turkish case

Different severe financial crises episodes occurred in the Turkish economy in the last two decades. These crises led to severe economic and social consequences for Turkey in terms of increasing interest rates, large reserves losses, considerable currency depreciations, high output losses and high unemployment rates. This paper aims to illustrate the essential determinants of these crises by developing a multivariate logit model which estimates the predictive ability of sixteen economic and financial indicators in a sample that covers the period from January 1990 to December 2008. The empirical findings show that the Turkish crises are mainly due to excessive fiscal deficits, high money supply growths, sharp rises in short-term external debt, growing riskiness of the banking system (in particular currency and liquidity mismatches), and external adverse shocks.     

Government bailouts and monetary disequilibrium: common fundamentals in the Mexican and East Asian currency crises

Monetary disequilibrium seems to be a common thread that connects the Mexican and East Asian crises. Both crises have been characterized by governments attempting to minimize the adverse impacts of capital reversals on their domestic financial systems. This backstopping function of the monetary authority is modeled within an escape clause-based currency crisis framework which emphasizes the “nonmechanical” behavior of governments as they trade off various economic policy objectives.     

An Exegesis on Currency and Banking Crises

Abstract.  This paper reviews the literature on currency and banking crises. Currency and banking crises are characterized according to some standards in the literature and their historical record summarized. The development of the literature from first through fourth‐generation, or so‐called 'institutional' models is reviewed. A digression on institutions is provided along with some sidebars on the development of the literature on institutions as it relates to economic growth. The empirical research on third‐generation (or twin crises) models and on institutional models of currency and banking crises, which are so far scarce, is covered too. A summary of the main policy issues for dealing with financial crises is presented. The paper closes with an emphasis on institutions and a call for more research directed at institutions and their role in the financial system.     

On the relation between currency and banking crises in developing countries, 1980–2010

This paper investigates the relationship between the occurrence of currency and banking crises using high-frequency data for a sample of 94 countries during 1980–2010. The two types of crises are proxied by continuous, multi-categorical and dummy variables based on market pressure indexes, and a dummy variable from the Laeven–Valencia banking crises database. Results suggest that a bidirectional leading relationship exists between the two types of crises. However, banking crises do not lead currency crises robustly when banking crises are proxied by dummies based on market pressure indexes. Finally, currency crises have robust state dependence, but this is not the case for banking crises.     

虚拟货币问题研究

文章没有将虚拟货币与虚拟币等同起来,而是首先区分几种主要的虚拟币,再进一步分析其中两种可能成为虚拟货币的虚拟币,然后阐述了虚拟货币与虚拟币的关系,以及虚拟货币在货币发展中的地位。     

A model of currency crises with heterogeneous market beliefs

This paper shows that the approach followed by Tamborini (2015) in analyzing and interpreting the euro area public debt crisis, based on the role played by agents characterized by heterogeneous market beliefs, can be applied also to the case of currency crises. By doing so, rather than considering the private sector as an atomistic player endowed with perfect information, and by considering a central bank that optimizes the amount of unsterilized inflow of foreign reserves in a Mundell-Fleming type speculative attack model, allows to explain the interest rates convex non-linearity that characterized, for example, a country like Italy during the 1992–93 EMS crisis.     

Interpreting Currency Crises: How Much Do We Know?

ABSTRACT

The main objective of this paper is to understand the causes and symptoms of currency crises by reviewing the seminal literature and noting some of its significant features. The paper revises the so-called first- and second-generation models and accounts for six different features. Based on this revision and account, the paper suggests the need to view currency crises beyond the traditional line of thought. In effect, to comprehend the process, which may lead to the inconsistency of the exchange-rate-maintenance policies and result in a currency crash.     

Time as symbolic currency in knowledge work

The paper discusses the issue of time slips in software development. Increasing time sacrifices toward work constitutes an important part of modern organizational environment. In fact, the reign over time is a crucial element in controlling the labor process. Yet a lack of cultural studies covering different approaches to this issue remains—particularly those focusing on high-skilled salaried workers.This article is a small attempt to fill this gap, based on an analysis of unstructured qualitative interviews with high-tech professionals from a B2B software company. It focuses on the issue of timing in IT projects, as perceived by software engineers. The findings indicate that managerial interruptions in work play an important part in the social construction of delays. However, interruptions from peer software engineers are not perceived as disruptive. This leads to the conclusion that time is used in a symbolic way, both for organizational domination and solidarity rituals. The use of time as a symbolic currency in knowledge-work rites is presented as often influencing the very process of labor and schedules. It is revealed to be the dominant evaluation factor, replacing the officially used measures, such as efficiency, or quality.     

Volatility spillovers among the U.S. and Asian stock markets: A comparison between the periods of Asian currency crisis and subprime credit crisis

This paper examines the changing nature of volatility spillovers among the U.S. and eight East Asian stock markets between two financial crises: the Asian currency crisis and the U.S. subprime credit crisis. Our empirical results suggest that volatility is not always spilled over from the directly affected markets to surrounding markets in crisis periods. The East Asian markets who directly suffered from the Asian currency crisis are the ones to which volatility is spilled over from other markets during the Asian currency crisis period, whereas uni-directional volatility spillovers from the U.S. market to other markets are observed during both crisis periods. This difference can be explained by a pre-determined hierarchy in which volatility spillovers tend to start from the U.S. market regardless of the geographical origin of the crisis. Furthermore, our results reveal that the markets in three major Asian financial hubs, i.e., Japan, Hong Kong and Singapore, are the markets to which volatility is spilled over uni-directionally from several other countries during the subprime credit crisis period, but not during the Asian currency crisis period. We attribute this difference to crisis-specific (currency or credit crisis), market-specific (credit derivatives market participation and foreign currency reserves), and time-specific (more integrated global market) factors.     

Evidence of information transmission across currency futures markets using frequency domain tests

In this article, I examine the returns and volatility spillovers in the currency futures market incorporating the recently developed frequency domain tests. Such analysis allows differentiating between permanent (long-run) and transitory (short-run) linkages among the currency futures markets by investigating the causality dynamics at low and high frequencies respectively. I detect significant informational linkages between USD, EUR, GBP and JPY futures contracts in the Indian currency futures market. Evidence of innovations from USD futures market to other markets is the most significant for returns spillover and for volatility spillover, EUR is found to be the most significant compared to other currency futures contracts. The results would have implications for the market participants and policymakers.     

Is there a long run demand for currency in China?

The record of Chinese monetary authorities at targeting MO in the late eighties early nineties is rather poor. This paper thus first aims at determining whether the instability of currency demand is responsible for this. By so doing we show, using adequate econometric techniques, that a long-run demand for currency did exist over the 1988–1993 period, with quarterly data.Most previous studies concluded that the income elasticity of currency demand in China is very high. The second objective of the paper is to test for the robustness of this result. We show that this income elasticity is unity when proper account is taken of institutional variables representative of the transition process.Abbreviations ADF Augmented Dickey Fuller - ARCH Auto Regressive Conditional Heteroskedasticity - IMF International Monetary Fund - LDCs Less Developed Countries - M0 currency - M1 narrow money - M2 broad money - PBC People's Bank of China - VAR Vector Auto Regressive Model Comments on an earlier version by my colleagues Christian Bordes and Dominique Lacoue-Labarthe and by an anonymous referee were very useful in improving the present paper. It also benefited from comments by participants at the annual conference of the (UK) Chinese Economic Society in December 1995. However, I remain solely responsible for all remaining errors.     

Second Generation Models of Currency Crises

Until the beginning of the 1990s, currency crises were typically analyzed within the framework of a generation of models that assumed that the foreign exchange reserves of a country that was running a fixed exchange rate policy were falling (because the government was running a deficit on its budget that was financed by printing money). When the foreign exchange reserves reached a lower bound, a speculative attack on the fixed exchange rate was launched. Today, this theory is no longer the benchmark when explaining the occurrence of a currency crisis. Actually, a new generation of models that seeks to take explicitly into account the costs and benefits associated with the maintenance of a fixed exchange rate has emerged. This paper surveys these 'second generation models of currency crises'. This generation of models emphasizes that it is an endogenous decision if a government chooses to abandon a policy of fixed exchange rates. The survey pays special attention to the fact that the second generation of currency crises models often generates multiple equilibria for the rate of devaluation given one state of the economic fundamentals. A currency crisis can thus occur even if no secular trend in economic fundamentals can be identified, as in recent currency crises.     

Exchange rate regime choice and currency crises

Exchange rate regime choice is not exogenous, but it depends on the structural, political and financial features of countries. However, it is often the case that the regime actually pursued and the one that is imposed by country features do not match one to one. The existing empirical crisis models do not take fully into account the regime in which the crisis unfolded. The aim of this paper is to incorporate the appropriateness of the regime choice into the standard currency crisis model. The results show that the odds of crisis increase significantly in countries which have chosen regimes inconsistently.     

Perpetual currency options

This paper explores the properties of perpetual currency options and their uses. Perpetual currency options could be highly useful in controlling the uncertainties of foreign currency flows of unknown timing. Yet they are not traded in any market at the time of the present writing. Nonetheless, they have several interesting uses in both theoretical and trading environments. As American-style options, perpetual options provide boundary conditions as the limiting cases of short-lived traded options. They possess the theoretical advantage that valuation equations, hedge ratios, and related quantities may be written down, in contrast to their shorter-term American currency option counterparts. Due to their relative simplicity, there is also a nomogram which graphically depicts their exercise boundaries. By replication techniques, perpetual currency options may be produced even in the absence of actual markets in the instrument.     

Britain at the crossroads: the single currency

The concept of the single currency, to be adopted by the majority of the members of the European Union, is difficult for the general public to understand because of the lack of coherence of the objectives of its advocates (bureaucrats, ex-bureaucrats, academics, labour leaders, multinational business, and politicians). The general economic arguments for the single currency do not add up. Europe is not an 'optimal currency area.' A one-size-fits-all monetary policy will impose great strains. It is not necessary for Britain to participate in this enterprise. Britain does not need the euro, any more than Canada needs the US dollar. The ideal role for Britain is to be at the margin of Europe as the interface between Europe and North America     

Forecasting leadership transitions around the world

We use popular non-parametric (CART, TreeNet) and parametric (logit) techniques to identify robust economic, demographic and political conditions that lead to shifts in control in the executive branch of government in 162 countries during the period 1960–2004. We find that institutional aspects of the political system, executive characteristics, demographic variables, economic growth, and economic trade variables are all very important for predicting leadership turnover in the following year. Financial crises are not robustly useful for this purpose, but a vulnerability to currency crises in times of low economic growth implies very high conditional probabilities of job losses for democratic leaders in non-election years. In-sample, TreeNet predicts 78% of leadership transition events correctly, compared to CART’s 70%, and TreeNet also generally achieves higher overall prediction accuracies than either CART or the logit model out-of-sample.     

A filtered currency carry trade

In this paper, we document that the predictive capacity of forward discounts on future currency returns not only differs across currencies but also persists. We then propose a new currency carry trade strategy that relies on the differential predictive capacity of forward discounts. We find that the new strategy offers a significant amount of profit improvement over the conventional currency carry trade strategy. We also find that emerging market currencies provide relatively large profit opportunities. While both strategies show decreasing carry trade profits as FX markets get volatile, the relative outperformance of the new carry trade strategy tends to be found in stable periods but disappears in volatile periods. The superiority of the new carry trade relative to the conventional carry trade is robust to various specification changes.     

Currency depreciation effects on ADR returns: evidence from Latin America

We use seemingly unrelated regressions (SUR) and multivariate regression models (MVRM) in a panel sample of 74 American depository receipts (ADR) programs from Argentina, Brazil, Chile, and Mexico during the period May 1994 to May 2009 to analyze the behavior of ADR returns during the 300-day period surrounding the currency crises breakdown in the originator??s country. Controlling for the underlying stock and local and host country equity indices, we find that ADRs generate significant negative abnormal returns during currency crises, due to translation exposure. Abnormal returns remain statistically significant even in crises triggered by currency depreciations as small as 3.6%. The results persist after including exchange rate returns as a control variable and after an orthogonalization procedure of exchange rate against local country indices. In agreement with ADR literature, our results show that ADR prices are determined primarily by the underlying stock, exchange rates, and host country index, in that order. Moreover, we observe how market integration has become evident in more recent times as the coefficients for the U.S. stock market have increased its contribution to ADR price discovery.     

Demand and supply drivers of foreign currency loans in CEECs: A meta-analysis

We present a meta-analysis of the determinants of foreign currency loans in Central and Eastern Europe. We base our inferences on the results of 21 studies that provide around 800 estimated coefficients for seven determinants of foreign currency loan demand. Our results indicate that, on average, supply factors (foreign currency deposits and the minimum variance portfolio ratio) appear to play a more significant role than demand factors (interest rate differentials) of foreign currency loans. Moreover, we show that the estimates reported in the literature tend to be influenced by selected study characteristics such as the econometric methodology and their regional focus.