Third-country effects on the formation of free trade agreements

The recent proliferation of free trade agreements (FTAs) has resulted in an increasingly complex network of preferential trading relationships. The economics literature has generally examined the formation of FTAs as a function of the participating countries' economic characteristics alone. In this paper, we show both theoretically and empirically that the decision to enter into an FTA is also crucially dependent on the participating countries' existing FTA relationships with third countries. Accounting for the interdependence of FTAs helps to explain a significant fraction of FTA formations that would not otherwise be predicted by countries' economic characteristics.     

Third-country effects on the formation of free trade agreements

The recent proliferation of free trade agreements (FTAs) has resulted in an increasingly complex network of preferential trading relationships. The economics literature has generally examined the formation of FTAs as a function of the participating countries' economic characteristics alone. In this paper, we show both theoretically and empirically that the decision to enter into an FTA is also crucially dependent on the participating countries' existing FTA relationships with third countries. Accounting for the interdependence of FTAs helps to explain a significant fraction of FTA formations that would not otherwise be predicted by countries' economic characteristics.     

Incomplete pass-through and the welfare effects of exchange rate variability

This paper considers the implications of incomplete exchange rate pass-through for optimal monetary and exchange rate policy. A two-country model is presented, which allows an explicit derivation of welfare functions in terms of a weighted sum of the second moments of producer prices and the nominal exchange rate. From a single country perspective, the optimal exchange rate variance depends on the degree of pass-through, the size and openness of the economy, the elasticity of labour supply and the volatility of foreign producer prices. Welfare may be decreasing or increasing in the volatility of the exchange rate.     

Nonlinear effects of exchange rate changes on the South African bilateral trade balance

In testing for the J-curve, previous studies have shown that the trade balance model is better fitted using cointegration and error correction mechanisms. These mechanisms are able to incorporate the short-term deterioration and the long-term improvement of the trade balance – the definition of the J-curve. However, the drawback of the established cointegration and error correction frameworks is that they assume symmetry in the equilibrium adjustment process. Incidentally, studies which have used the linear frameworks have found little support for the J-curve. Since the adjustment process could be nonlinear, a fresh investigation of the J-curve using nonlinear approaches could provide competing evidence. This paper retested the J-curve by using quarterly data for South Africa and her key trade partners (China, Germany, India, Japan, the UK and the USA) and found the linear specification to support the J-curve phenomenon in only two cases (India and the USA) under relaxed conditions. In contrast, the nonlinear specification supported the J-curve phenomenon in all cases at no cost of serial correlation and functional misspecification. We also found the real exchange rate changes to have significant nonlinear effects on the South African trade balance.     

谈人民币汇率制度改革对周边国家汇率的影响

本文采用时间序列分析方法对人民币汇改前后美元兑日元、美元兑港币两种货币汇率收益率序列进行建模,研究它们的风险变化规律。研究结果表明,美元兑日元,美元兑港币汇率变化的风险评估中,所建模型很好的体现了人民币汇改这一事件的影响,通过对比分析其条件方差序列,进行两种汇率的风险评估。风险评估结果显示人民币升值这一事件对美元/日元、美元/港币汇率的影响较小,风险水平变化不大。     

Chaos and the exchange rate

Chaotic exchange rate models are structural models built in discrete time (difference equations), and show that with orthodox assumptions (PPP, interest parity, etc) and introducing plausible nonlinearities in the dynamic equations, it is possible to obtain a model capable of giving rise to chaotic motion. However, none of these models is estimated, and the conclusions are based on simulations: the empirical validity of these models is not tested. In this paper, a continuous time (the exchange rate is obviously a continuous variable) exchange rate model is built as a non-linear set of three differential equations and its theoretical properties (steady state, stability, etc,) analysed. The model is then econometrically estimated in continuous time with Italian data and examined for the possible presence of chaotic motion. This paper also shows that the continuous time estimation of economic models built as systems of nonlinear differential equations is a very powerful tool in the hands of the profession.     

人民币汇率决定因素研究

本文首先对"金砖四国"的汇率制度改革情况进行研究和比较,回顾我国人民币汇率制度改革历程,按照经济规律的一般要求,在充分考虑我国实际经济条件和市场运行的情况之下,分析西方经典汇率理论对人民币汇率决定的适用性,同时探索具有中国特色的汇率决定理论,为人民币汇率决定因素的研究提供了理论依据;然后重点从研究人民币汇率决定因素入手,探讨其深层次的内在规律,并提出完善人民币汇率形成机制改革的政策建议。     

Balance sheet effects and the choice of exchange rate regime in developing countries

We investigate the choice of regime amongst hard pegs, soft pegs, managed floats and independent floats for a panel of developing countries. There is evidence of a matched ordering of regimes and country characteristics. We find some evidence for the ‘balance sheet' hypothesis that foreign liabilities in the banking system and foreign debt are associated with less exchange rate flexibility, particularly when a ‘de facto’ regime classification is used. Easily the best predictor of a country's current regime is its regime in the previous year.     

Aid and the real exchange rate: Dutch disease effects in African countries

There is little evidence to show that official development assistance to sub-Saharan African countries has led to significant improvements of macroeconomic indicators such as export performance. Using four CFA zone countries (Burkina Faso, Côte d'lvoire, Senegal and Togo) as case studies, this article analyses the relationship between aid inflows and the real exchange rate with a view to identifying symptoms of “Dutch disease” in these economies.     

The effects of changes in the exchange rate on output,prices and the balance of payments

A general equilibrium model shows how the government, by using aggregate demand policies, temporarily influences economic activity. In the long run, however, aggregate supply determines output and employment levels. International reserves are lost (gained) during the adjustment process due to policies which keep aggregate demand above (below) its long-run sustainable level. Such policies, if maintained, induce expectations of exchange rate changes. The self-fulfilling character of these expectations will force the government to devalue or revalue, thus neutralizing its previous demand policies.     

The effects of exchange rate fluctuations on exports: A sectoral analysis for Turkey

This paper examines the effects of exchange rate fluctuations on disaggregated data comprising 21 exporting sectors (BEC classification) in Turkey. Building on a theoretical model that decomposes movements in the exchange rate into anticipated and unanticipated components, the empirical investigation traces the effects through demand and supply channels. Anticipated exchange rate appreciation, in line with movements in underlying fundamentals, has significant adverse effects, contracting export growth across many sectors. Random fluctuations in the exchange rate, deviations around steady-state equilibrium, have asymmetric effects on sectoral export growth. The evidence indicates increased contraction of export demand to currency appreciation over time. In contrast, the effect of depreciation in stimulating export growth has lost momentum over time. While exchange rate fluctuations had a positive net effect on export growth before 2003, the net effect is negative for the post-2002 period. The implications are anticipated movement in the exchange rate guides export plans, signaling the importance of managing fundamentals to anchor rational forecasts. Moreover, less variability of the exchange rate is likely to improve sectoral export growth in Turkey over time.     

Debt deleveraging and the exchange rate

Deleveraging from high debt can provoke deep recession with significant international side effects. Swings in the nominal exchange rate and large variations in consumption, output, and terms of trade can happen during the adjustment. All these movements are inefficient and interesting trade-offs emerge from the perspective of global welfare. The optimal adjustment to global imbalances should not necessarily require large movements in the nominal exchange rate. A global liquidity trap can be desirable when countries are more open to trade.     

人民币汇率变动趋势的简要分析

2005年7月21日人民银行宣布对中国的人民币汇率形成机制进行改革,并一次性地将人民币汇率水平提升2.1％,此后,中国人民币汇率将参照一篮子货币进行调节,实行有管理的浮动汇率制度。应该说,我国此次人民币汇率调整远远低于国际社会的预期。就在人民币汇改政策刚刚出台之后不久,一些国际金融机构纷纷预测：这次人民币汇率调整只不过是人民币未来升值的第一步,自此之后,人民币可能象当年的日元一样从此踏上漫漫升值之路。那么,未来人民币汇率的长期走势到底如何？是否真的会象国际机构的预测那样在今后一路升值上去？还是会在未来相当长的一段时期保持相对稳定呢？     

Predicting exchange rate returns

We test whether forward premiums predict spot exchange rate returns for 16 currencies. We apply a recently developed time series predictability test that allows us to model data features including heteroskedasticity in forward premium. We discover return predictability for 75% (12/16) of currencies in our sample. Trading strategies show that investors can make more profits from our proposed forward premium model compared to a random walk model and foreign exchange carry trade model.     

Real effects of collapsing exchange rate regimes: an application to Mexico

This paper examines the impact of collapsing fixed, permanently fixed, and flexible exchange rate regimes on real output. Much of the recent discussion of the causes of exchange rate regime collapses has focused on capital flows and export demands. In an environment in which such external shocks predominate, a flexible exchange rate is shown theoretically to produce lower output variability for a range of parameter values. A counterfactual exercise is performed using Mexican data. We find that had Mexico been on a flexible rate for the past two decades, the variance of real output would have been reduced by half.     

The exchange rate and the price level

The US-Dollar has inflated the world. Its vehicle is the present international monetary system of pegged exchange rates. This system which was introduced to stimulate International trade and division of labour between the different countries became an important promoter of world wide inflation.     

Effects of the flexible exchange rate system on developing countries

The Bretton Woods system of fixed exchange rates was abandoned by the industrialised countries in March 1973. They switched to a system of flexible exchange rates. Representatives of the developing countries were particularly critical of the industrialised countries’ exchange rate flexibility. They saw themselves not only bearing the brunt of the costs associated with balance of payments readjustments but also faced with greater fluctuations both in prices and terms of trade and with other negative effects due to the general increase in uncertainty regarding exchange rates. Are such fears justified?