Currency Boards in the Baltic Countries: What Have We Learned?

Straightforward exchange rate arrangements known as currency boards have gained popularity during the past decade. Among transition economies, Estonia first introduced a currency board in 1992, followed by Lithuania in 1994 and Bulgaria in 1997. Currency boards have been useful in achieving macroeconomic stabilisation, and they may have helped the Baltics become the first countries of the former Soviet Union (FSU) to achieve economic growth after the slump in production of the early 1990s. Moreover, Baltic inflation performance has been substantially better than in other FSU countries. Both in Estonia and Lithuania the present exchange rate system has been accompanied by strong real appreciation of the currency, although it is widely accepted that the currencies were very much undervalued when they were initially pegged. However, if rapid real appreciation is accompanied by increases in labour productivity, the present pegs can be maintained. Banking crises in Estonia and Lithuania have not been particularly severe, so apparently rigid currency pegs have not been accompanied by excessive financial sector instability. The tight fiscal policies pursued in both countries, especially Estonia, have been instrumental to the success of these currency board arrangements.     

The Case for Adopting the Convertible Reserves System in Hong Kong

The East Asian currency crisis spread to Hong Kong in October 1997, touching off worldwide repercussions. Weaknesses were revealed in the operational mechanism of Hong Kong's linked exchange rate system (the link). This paper casts the link as a peculiar currency board system in the proper historical and comparative contexts. After examining the conflict between the classical currency board (which relies on the two "automatic" stabilizers of specie-flow and cash arbitrage) and modern financial developments, it is pointed out that Hong Kong should move forward to the convertible reserves system of Argentina, Estonia and Lithuania (the AEL model), and adopt its cashless/electronic arbitrage arrangement to defend the link. Moreover, it is necessary to balance the need for short-term stability and the consideration of long-term flexibility. Any measure that increases the ultimate exit cost from the link must be assessed carefully.     

Should Estonia euroize?

Estonia has been operating a currency board arrangement tied to the deutschemark, now the euro, since 1992. Optimal currency area considerations, policy orientation and the flexibility of prices and wages in Estonia support a case for monetary union with the eurozone. But the European Union requires Estonia to wait until EU accession and subsequent Eurosystem accession before it can adopt the euro. In the meanwhile, gains expected from euroization — lower and more stable interest rates, lower transactions costs in trade and increased transparency, all of which would promote trade, investments and economic growth — would be forgone. In this context, the paper raises the question, should Estonia go ahead and euroize now? JEL classification: E42, E58, F33.     

The Devil you Know: Pegs vs Floats with Uncertain Outcomes

Theory predicts that a fixed exchange rate regime will be abandoned after a sizable economic shock as currency devaluation could stimulate exports and output. However, devaluation is risky as the new level of the exchange rate and the rate of inflation cannot be predicted. We show that this uncertainty creates resistance to devaluation. Policymakers prefer to maintain the fixed exchange rate and to undergo internal adjustment. We illustrate the point theoretically and provide supporting evidence from Bulgaria's currency board.     

Exchange Rate Volatility and Macroeconomic Performance in Hong Kong

The paper presents evidence on whether Hong Kong’s currency board arrangement, in place since 1983, has affected the volatility of real macroeconomic variables. Simple evidence on the relative volatilities of relevant macroeconomic variables before and after 1983 is presented, before a more formal econometric framework is utilized to examine the linkages between the exchange rate and the real economy. It is found that the currency board period has been one of relative stability in Hong Kong, though it has also been a period where external factors have been relatively benign. Even after controlling for the external environment, it is found that the currency board period is one of low macroeconomic volatility.     

Monetary stabilization in countries in transition

The best way to prevent hyperinflation when domestic prices are liberalized is to initiate the transition from a planned economy to a market economy with a currency reform. In the following period, moderate inflation and flexible exchange rates are suitable to facilitate relative price adjustments. Only after the bulk of alignments has been accomplished can a switch in the exchange rate regime be convenient. The nominal peg of a stable reference currency lowers the level and the variance of domestic inflation rates. The credibility of an exchange rate target may best be achieved by combining a currency board (objective sustainability) with a crawling peg (political sustainability). Price stability can be realized in the long run by reducing the annual depreciation rate in regular, preannounced steps.     

The New Member States and the Process towards EMU

The authors apply two complementary empirical criteria to eight new member states (NMSs) of the European Union to assess how ready they are to adopt the euro. As a first step, they recover demand and supply shocks and calculate the social losses implied by the two relevant exchange rate regimes: flexible rates and currency board. As a second step, the authors calculate the real exchange rates variability that these countries are currently experiencing and compare it to that of three Mediterranean countries during a similar period before they joined the EMU. The combination of the results of both tests shows that Estonia and Slovenia are the only countries that seem ready to adopt the euro within the shortest period of time foreseen by the Maastricht criteria; that is, after the two mandatory years in the ERM2. The rest of the countries will probably still need some exchange rate flexibility to absorb external shocks in the coming years.     

香港联系汇率制度的现实启示及未来挑战

本文针对香港联系汇率制度的形成历史以及原因,总结出香港的联系汇率制度形成的偶然性申的必然性,分析香港联系汇率割度的优势和弊端,以及此项制度对于香港金融市场的重大意义。针对日新月异的国际资本市场,香港也面临着挑战,香港也必须与时俱进,加强和人民币之间的联系,进而形成合理的汇率机制。本文最后勾画了香港汇率制度未来的发展前景。     

货币危机预警理论及实证比较研究——兼对中国的模拟分析及启示

随着我国汇率制度改革的不断深入,人民币汇率浮动的幅度扩大,汇率对经济的调节功能日益显现。这同时也增大了我国的货币风险。文章在论述东南亚金融危机后货币危机理论最新发展的基础上,从理论和实证角度比较了五种货币危机预警模型的预警效果、优缺点,并对预警模型在我国的模拟应用作了探讨。     

Technology transfer: economic factors that influence transferor and transferee’s choice*

ABSTRACT

This research presents itself as one of the earliest studies to consider economic factors that influence decision making in an international technology transfer while considering the perspectives of the transferor and transferee individually. Unlike previous studies, this study takes a multi-variable analysis approach in considering these factors through the development of a common analytical framework that can be applied to similar studies. The methodology used herein is quantitative and involves a multiple regression analysis, which combines variables examined unilaterally in earlier studies. The results show that economic factors that influence a transferor’s choice of a transferee include inflation rate, currency exchange rate, and foreign direct investment while in the converse relationship, the results prove that in addition to inflation rate, currency exchange rate, and foreign direct investment, official development assistance was also relevant.     

Does the exchange rate pass-through into prices change when inflation targeting is adopted? The Peruvian case study between 1994 and 2007

This paper analyzes whether the exchange rate pass-through into prices changed when the inflation targeting scheme was adopted in Peru. First, a simple dynamic stochastic general equilibrium model is simulated, which shows that adopting this scheme induces an increase in exchange rate volatility. Furthermore, applying the theory of the currency denomination of international trade, it is demonstrated that increased exchange rate volatility reduces the share of firms that set their prices in foreign currency. Given that the pass-though has a direct relationship with this share, it is shown that adopting inflation targeting generates a pass-through contraction. Second, we empirically test whether the Peruvian Central Bank’s decision to adopt inflation targeting in January 2002 actually had an effect on the pass-through estimating a time-varying vector autoregressive model which allows for an asymmetrical estimation of the pass-through. It provides parameters for both the pre and post inflation targeting regimes based on the assumption that the transition from one regime to the other is smooth. An analysis of the generalized impulse response functions reveals that the decision to adopt inflation targeting significantly decreased the exchange rate pass-throughs into import, producer, and consumer prices. The results are consistent with economic theory and are robust to the specification of parameters of the model.     

Explaining the Transition between Exchange Rate Regimes*

This paper studies the transition between exchange rate regimes using a Markov chain model with time‐varying transition probabilities. The probabilities are parameterized as nonlinear functions of variables suggested by the currency crisis and optimal currency area literature. Results using annual data indicate that inflation and, to a lesser extent, output growth and trade openness help explain the exchange rate regime transition dynamics.     

On dollarization and currency boards: Error and deception

A diagnosis of the laws and balance sheets of the monetary authorities in Argentina, Bosnia, Bulgaria, Estonia, Hong Kong and Lithuania is presented. With the exception of Bosnia, all employ active monetary policies and engage in sterilization. Accordingly, they are not currency boards. The methods used to dismantle the Argentine system in 2001, prior to its eventual abandonment, are presented. An evaluation of the Hong Kong system (1997-1998) suggests that its so-called currency board was not a party to counter-speculation in the stock market. Evidence is presented to show how deception was employed by the US and the IMF during the Indonesian currency board debate (1998) as a means to engineer a political regime change.     

人民币升值能改变中国的贸易顺差吗

本文使用非线性平滑转换模型研究了人民币升值对我国贸易顺差的动态影响,研究发现在样本时期内非线性模型能更好地拟合两者的动态关系,在非线性条件下,当期人民币升值将会使贸易顺差增加,前两期人民币升值将会导致当期贸易顺差减少,人民币升值对贸易顺差的影响表现出很强的非线性门限特征。人民币汇率对贸易差额影响的时间路径像是一个"倒J-曲线"。2000年以来人民币汇率虽然一直在发挥着降低贸易顺差的作用,但是,人民币汇率不是贸易顺差形成的主要原因。     

China as Number One: How about the Renminbi?

Using simulations projecting Chinese economic growth into the future, this paper first examines when China will overtake the USA to become the largest economy. Demographic changes that affect economic growth are taken into consideration in these projections. China is expected to become number one sometime in the mid-2020s, unless its growth rate of gross domestic product per worker declines dramatically, à la the lost decade of Japan. Next, the paper examines whether China becoming the number one economy will mean its currency, the renminbi (RMB), will become the international key currency. According to the basket currency regressions during the period that Chinese currency was gradually appreciating against the US dollar from July 2005 to August 2008, it is shown that the RMB has already acquired a strong influence on the Asian currencies. This shows that the RMB is fast gaining the status of a regional anchor currency for a possible regional joint float. As the Chinese government proceeds with internationalization of its currency, the RMB is expected to gain in the ranking of other aspects of international currency, such as the store of value and the medium of exchange.     

An investigation into the credibility of currency board arrangements in Bosnia and Herzegovina and Bulgaria

Currency Boards are usually argued to increase the credibility of the monetary authority, although this effect ultimately depends on the economic, political and institutional circumstances in the specific country. Few studies have previously been able to address this issue empirically. Using a novel database, the analysis conducted in this paper finds that, other things being equal, the credibility of the monetary authority is likely to be higher in those European transition countries with currency board arrangements, namely Bosnia and Herzegovina and Bulgaria. The results also suggest that currency board arrangements are more likely to increase the credibility of the monetary authority in countries with a low level of trust in government and a weak economy. These findings imply that the maintenance of currency board arrangements in recent years in Bosnia and Herzegovina and Bulgaria may have been advantageous.     

汇率决定中的货币替代——以中国相关数据验证

在考虑汇率的影响因素时,传统的汇率决定理论主要是从一国的宏观基本因素进行分析.随着经济全球化的出现,货币的跨国流动规模越来越大,货币替代现象日益严重,对汇率的干扰也越来越强.本文在货币分析法的基础上加入货币替代因素,建立了一个简单的分析框架,并运用我国的相关数据对此进行检验,证实货币替代确实对汇率产生了很大的影响.     

国际贸易结算币种内生选择机制研究——兼论人民币国际结算前景

本文从出口商期望利润最大化视角出发,梳理出一个国际贸易结算币种选择的微观分析框架。研究结果表明,在满足政治经济稳定性、货币的可兑换性、外汇市场的发达程度等前提条件下,需求价格弹性大小、汇率的波动性是影响结算币种选择的关键因素。     

Does the currency board matter? US news and Argentine financial market reaction

Using a Generalized Autoregressive Conditional Heteroscedasticity (GARCH) model, we study the effects of the US monetary policy and macroeconomic announcements on Argentine money, stock and foreign exchange markets over the period January 1998 to July 2007. We show, first, that both types of news have a significant impact on all markets. Second, there are noticeable differences in reaction for different subsamples: Argentine money markets were more dependent on US news under the currency board than after it was abandoned as the floating exchange rate partly absorbs spillover effects from the US. Finally, we find that the US-dollar-denominated assets react less to US news than peso-denominated assets, which suggests that the currency board was not completely credible during its final years.     

参考一篮子货币的人民币汇率形成机制研究——基于人民币有效汇率目标的分析

文章主要研究如何建立参考一篮子货币的汇率制度,首先分析了人民币对美元汇率、人民币对非美元货币和人民币有效汇率之间的关系。其次研究了从人民币钉住美元货币汇率向参考一篮子货币汇率制度(人民币有效汇率目标)的过渡,以及建立一篮子货币汇率机制的方法和实证模拟研究,并考察了人民币汇率的波动幅度。最后文章认为人民币汇率制度的市场化改革是我国汇率体制改革的最终目标,并给出了本文的主要结论。