Macroeconomic Policy, Exchange Rate Regimes and Economic Growth

China has been keeping high economic growth rate since it carried out managed floating exchange rate regimes in 1994, while now begins to face retrenchment pressure brought by the depression of internal and external economy. The establishment of RMB exchange rate regime should take account of the validity of macroeconomic policy, macroeconomic growth and the regional internationalization of RMB.     

The Behavior of the Real Exchange Rate Under Fixed and Floating Exchange Rate Regimes

This article investigates the behavior of real exchange rates under fixed and flexible exchange rates. Using data from both the Bretton Woods and the modern floating periods, we decompose real exchange rate movements into components attributable to supply shocks, real demand shocks, monetary shocks, capital flows shocks, and real oil price shocks. Empirical results show that real demand shocks are an important source of real exchange rate movements under both fixed and flexible rates, while monetary shocks are negligible. Supply and oil price shocks seem to be more important under Bretton Woods, while capital flows shocks seem to explain a relatively higher proportion of real exchange rate movements under the modern floating period.     

Central Bank Intervention and Heterogeneous Exchange Rate Expectations: Evidence from the Daily DEM/US-Dollar Exchange Rate

In this paper we propose a generalisation of the noise trader transmission mechanism to examine the impact of central bank intervention on exchange rates. Within a heterogeneous expectation exchange rate model intervention operations are supposed to provide support for chartist or fundamentalist forecasts, which forces portfolio managers to adjust their foreign currency positions. The empirical examination of the hypothesis is done by applying a Markov regime-switching approach to daily DEM/US-dollar exchange rates and intervention data of the Deutsche Bundesbank and the Federal Reserve from 1979 to 1992. It is shown that chartists profits rose whenever these central banks intervened on the foreign exchange market. This is not true for those who follow a fundamentalist approach.JEL Classification Numbers: F31, C32, E58, G15     

Exchange Rate Forecasting: Results from a Threshold Autoregressive Model

Structural models of exchange rate determination rarely forecast the exchange rate more accurately than a naive random walk model. Recent innovations in exchange rate modeling indicate that changes in the exchange rate may follow a self-exciting threshold autoregressive model (SETAR). We estimate a SETAR model for various monthly US dollar exchange rates and generate forecasts for the estimated models. We find: (1) nonlinearities in the data not uncovered by the standard nonlinearity tests and (2) that the SETAR model produces better forecasts than the naive random walk model.     

The Importance of the Exchange Rate Regime in Limiting Misalignment

This paper explores how the choice of a country’s exchange rate regime may affect exchange rate misalignment for developing and developed countries. A measure of misalignment is obtained by using a panel cointegration vector estimator. This paper finds that for developing countries, an intermediate exchange rate regime (a regime falling somewhere between a pure float and a hard peg) is most effective in preventing exchange rate misalignment. Additionally, the choice of an exchange rate regime as a means to limit misalignment matters for developing countries, but does not seem to matter for developed countries.     

Disaggregate Real Exchange Rate Behaviour

In this paper, we re-examine the “PPP Puzzle” using sectoral disaggregated data. Specifically, we first analyse the mean reversion speeds of real exchange rates for a number of different sectors in 11 industrial economies and then focus on relating these rates to variables identified in the literature as key determinants of CPI-based real exchange rates, namely: the trade balance, productivity and the mark up. In particular, we seek to understand to what extent the relationships existing at the aggregate level are borne out at the disaggregate level. We believe that this analysis can help shed light on the PPP puzzle.

Exchange Rate Risk and Interest Rate: A Case Study for Turkey

This paper examines the effect of exchange rate risk on interest rates within the uncovered interest rate parity condition for Turkey. When the interest rate is measured with the Treasury auction interest rate and the exchange rate risk is measured with the conditional variance of the exchange rate, then we found that there is a positive relation between the exchange rate risk and interest rate with the data from December 1986 to January 2001.     

Chaotic Exchange Rate Dynamics Redux

This article generalizes the results shown in De Grauwe, Dewachter, and Embrechts (1993) in a more sophisticated framework. In their model, the speculative dynamics resulting from the interaction between chartists and fundamentalists are incorporated into a Dornbusch-style model to generate a chaotic nominal exchange rate. Here the model of Obstfeld and Rogoff (1995, 1996) replaces the Dornbusch model, and chaotic solutions are still shown to be possible for sensible parameter values.     

Exchange Rate Expectations,the Forward Exchange Rate Bias and Risk Premia in Target Zones

Expected rates of depreciation within the target zone for the exchange rates of four Nordic countries during 1979–1989 are estimated. Combining these with expected rates of devaluation estimated by Edin and Vredin (1993) we obtain time-series of the overall expected exchange rate change. We can thus construct time-series of foreign exchange risk premia and expectational errors, following which we decompose the forward exchange rate bias into portions attributable to expectational errors and/or risk premia. The conclusion is that time-varying risk premia appear to be the dominant cause of deviations from uncovered interest parity while the role of expectational errors is less clear.     

The Exchange Rate Macroeconomic Balance Approach: New Methodology and Results for the Euro,the Dollar,the Yen and the Pound Sterling

This paper presents an extension of the macroeconomic exchange rate balance approach. This extension comprises two new aspects. Firstly, it is based on a multinational framework which allows for macroeconomic linkages between countries. Secondly, it uses a procedure that does not require a full modeling of the world economy to derive a consistent set of equilibrium exchange rates. The findings reveal that, in 2001, the dollar was overvalued against the euro and the yen. The paper also shows that this result depends heavily on the chosen notion of current account sustainability.     

Central Bank Autonomy,the Exchange Rate Constraint and Inflation: The Case of Italy, 1970–1992

This paper analyzes the determinants of inflation in Italy over the period 1970–1992. Particular emphasis is placed on the role of central bank independence in influencing monetary growth, and on the role of monetary growth and of the Exchange rate Mechanism (ERM) in affecting inflation. In the 1970s and early 1980s, when the Bank of Italy lacked independence and the ERM was still not credible, monetary growth was highly unstable and was the main determinant of Italian inflation, although oil price and tax shocks also played a role. After the March 1983 general exchange rate realignment and the French U-turn, the ERM became more credible and monetary growth stopped being a significant determinant of inflation; instead, the German inflation became the main variable influencing Italian inflation.     

经济政策不确定性视角下宏观杠杆的调控效应及其策略选择

新常态下保证宏观杠杆稳步下降是供给侧结构性改革的重要任务之一。以中国经济政策不确定性为门限变量,构建了包括经济政策不确定性、宏观经济政策以及宏观杠杆在内的门限结构向量自回归(T-SVAR)模型,研究高低两种政策不确定性区制下我国需求端货币政策与财政政策以及供给端金融改革政策对宏观杠杆的调控效应。结果显示,三种政策均存在明显的门限效应且在中长期内均出现逆转,区别在于,虽然货币政策对宏观杠杆的短期作用效果最为显著,但当政策不确定性水平快速攀升时,其调控效果会略微降低,而此时财政政策和金融供给侧结构性改革能有效平抑过高的杠杆率增速,且在长期依旧保持一定的调控效果。因此,央行在对宏观杠杆进行调控时应依据各政策调控效应的阶段性特征进行搭配使用,同时通过推进资本市场基础性制度改革,优化融资结构,为实现宏观政策调控效果的最大化奠定基础。     

Asset Market and Balance of Payments Characteristics: An Eclectic Exchange Rate Model for the Dollar,Mark and Yen

In this paper we use an exchange rate model, which combines asset market characteristics with balance of payments interactions, to examine the nominal effective exchange rates of the German mark, Japanese yen and US dollar for the recent experience with floating exchange rates. Our approach may be interpreted as one which attempts to flesh out the missing links that arise in conditioning an exchange rate solely on relative prices, as occurs in a standard PPP analysis. Amongst the results reported in this paper are: significant, and sensible, long-run relationships for the currencies studied; complex short-run dynamics; a variance decomposition analysis which apportions nominal exchange rate error variances into real and nominal elements.     

Shocks and the Viability of a Fixed Exchange Rate Commitment

The incentive to renege on a commitment to a fixed exchange rate is shown to be state contingent. A fixed exchange rate policy is not viable under unusual circumstances, and the incentive to violate the commitment is larger in the case of contractionary shocks than in the case of expansionary shocks. The possibility that the exchange rate regime is changed in unusual circumstances has significant effects also under normal circumstances, implying systematic devaluation expectations, excessive real wages and (ex post) real rates of interest, lower output and loss of reserves, which in turn reduces the incentive to initiate a fixed exchange rate policy. Moreover, policyshifts may be contagious among countries.     

Foreign Transfers and Real Exchange Rate Adjustments in a Financially Constrained Dependent Economy

This paper investigates the role of the real exchange rate in determining the effects of foreign transfers. If capital is perfectly mobile between sectors, a pure transfer has no long-run impact on the real exchange rate. A decline in the traded sector occurs because the transfer, being denominated in traded output, substitutes for exports in financing imports. While a pure transfer causes short-run real exchange appreciation, this response is temporary and negligibly small. Transfers allocated to productivity enhancement do generate permanent real exchange rate adjustments in response to the sectoral reallocation of productive factors. The analysis, which employs extensive numerical simulations, emphasizes the tradeoffs between real exchange adjustments, long-run capital accumulation, and economic welfare, associated with alternative forms of transfers.

Exchange Rate Instability: Japan''''s Micro-Macro Experiences and Implications for China

I. Introduction Japan’s failure to adjust the undervalued yen in the late 1960s and early 1970s invited a highly unstable yen-dollar exchange rate. The result was the weakening of Japan’s industrial base and decade-long structural stagnation. Japanese industries had to struggle for survival. Based on my experience as financial officer of Itochu Corporation, this paper is organized as follows: Section II explains why and how the yen kept appreciating. Section III studies the responses of…     

Exchange Rate Pegs, Fiscal Policy and Credibility

In a fixed exchange rate regime, an exchange rate change can be a swift way to change the real exchange rate in the short run. Fiscal policy also affects relative prices, and fiscal policy response to various types of shocks can therefore be crucial for the credibility of an exchange rate peg. We develop a model within which fiscal policy plays a crucial role for ensuring the viability and thus credibility of an exchange rate peg. We use the insights of this model to take a closer look at Denmark, which has successfully pursued a fixed exchange rate policy since 1982.

Exchange Rate Economics

The paper summarizes the current theory of how a floating exchange rate is determined, dividing the subject into what determines the steady state and what determines the transition to steady state. The inadequacies of this model are examined, and an alternative “behavioral” model, which recognizes that the foreign exchange market is populated by both fundamentalists and chartists is presented. It is argued that the main importance of understanding the foreign exchange market for development strategy is to permit a correct appraisal of the dangers of Dutch disease. Empirically it seems that from the standpoint of promoting development it is preferable to have a mildly undervalued rate. The paper concludes by examining implications for exchange rate regimes.

Managing in the Middle: Characterizing Singapore's Exchange Rate Policy*

It is by now common knowledge that there can be a significant divergence in the de facto versus de jure exchange rate regimes operated by economies. Although much of the recent published literature in Asia has focused on the crisis-hit economies, Korea and Thailand in particular, scant attention has been paid to Singapore, which officially targets its nominal effective exchange rate (around a band). The present paper examines the degree of exchange rate intervention for Singapore using various methods of assessing de facto exchange rate regimes. In the main, we show that although the Singapore dollar is primarily influenced by the US dollar, in keeping with its de jure classification of a basket pegged regime, other major currencies, such as the yen and the euro, also impact the Singapore dollar. There is also evidence to indicate that Singapore uses the nominal effective exchange rate strategically as a policy instrument to satisfy domestic inflation objectives.