The choice of exchange rate regime: An empirical analysis for transition economies*

We analyze the choice of exchange rate regimes of the 25 transition economies in Europe and the CIS after 1990. The empirical results show that the traditional Optimum Currency Area considerations provide relevant guidance for the regime choices in these countries. Moreover, regime choices are influenced by inflation rates, cumulative inflation differentials, and international reserves sufficiency. That is, macroeconomic stabilization and the ability to commit to exchange rate pegs also play important roles. Large government deficits have ambiguous effects; they increase the likelihood of moving from flexible to intermediate regimes as well as that of moving from fixed to intermediate ones.     

Buying Influence: Aid Fungibility in a Strategic Perspective

I study equilibria of non‐cooperative games between an aid donor and a recipient when there is conflict over the allocation of their combined budgets. The general conclusion is that a donor's influence over outcomes is increasing in the share of the available resources it controls; if this share is large enough, aid fungibility is not important as the donor achieves its most preferred allocation. The game‐theoretic approach to fungibility is contrasted with the traditional non‐strategic approach. I argue that the former is superior as it derives final allocations instead of assuming them, making analysis of the sources of influence over outcomes possible.     

Central Bank Policy in a More Perfect Financial System

Financial innovation increases markets' liquidity and provides economic agents with new instruments to better handle risks, but it reduces the efficacy of monetary policy while strengthening the logic and force of the “unholy trinity”. Increased liquidity of financial markets and increased leverage of financial positions imply that speculators can attack unsustainable fixed exchange rates faster and more powerfully than ever. The rapid innovation of new financial instruments in these markets also implies the futility to “throw sand in the wheels” through regulation or the introduction of transaction taxes. The higher asset substitutability generated by the emergence of derivatives makes the definition of “money,” particularly of broad monetary aggregates, increasingly difficult. In a more complete financial market system central banks find it harder to predict the effect of a given monetary impulse on real output and employment with any reasonable precision. Discretionary monetary policies aimed at output and employment become more uncertain. Consequently, central banks should focus on the long-run goal of price stability.     

Relative price risk in an open economy with fixed and flexible exchange rates

We analyze the choice between fixed and flexible exchange rates in the context of an open economy version of a multimarkets equilibrium model. In contrast to previous analysis, we separate the information and the shock-absorbing aspects of the two regimes. Under a relative price risk criterion, flexible exchange rates are preferable for a relatively open economy, the more so the less stable are domestic output demand and supply conditions. Fixed exchange rates are preferable for a relatively closed economy, especially so if domestic output demand and supply functions are relatively stable, and if the real balance effect in domestic output demand functions is strong.     

German dominance in the EMS: evidence from interest rates

The paper presents an empirical analysis of German dominance and asymmetries in the EMS based on a dynamic system of equations explaining national money market interest rates. The hypothesis of strict German dominance of the EMS is rejected. However, there are some noticeable asymmetries in the EMS. Germany is a relatively strong player and has been the least dependent country in the early phase of the system. Since 1983, German independence has diminished. In contrast, France throughout and Italy in the early phase of the EMS have been relatively weak players in the system.     

Operating targets and information variables in money multiplier forecasting

Zusammenfassung Zwischenziele der Zentralbank und Informationsvariable bei der Voraussch?tzung des Geldmultiplikators. — Die Prognose des Geldmultiplikators ist ein Zentralproblem beim Einsatz von Verfahren zur Erreichung geldpolitischer Ziele. Die Güte einer solchen Prognose entscheidet über die Genauigkeit der Geldmengenkontrolle durch die Zentralbank. Der Autor entwickelt und bewertet ein empirisches Verfahren zur Multiplikatorvoraussch?tzung, indem er monatliche Beobachtungen des Geldangebots mit w?chentlichen Beobachtungen der Zinss?tze kombiniert. Die daraus resultierende Prognose ergibt eine effektivere Leitlinie für Zentralbankoperationen als die früher empfohlenen Verfahren. Die empirischen Ergebnisse, die auf US-Daten für die Periode 1975—86 basieren, zeigen, da? die hier benutzten Prognosemodelle gegenüber den Ver?nderungen im geldpolitischen Regime der Vereinigten Staaten robust sind.

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Résumé Buts intermédiaires de la banque centrale et les variables d’information concernant les prévisions du multiplicateur monétaire. — Les prévisions du multiplicateur monétaire sont un problème central en utilisant des procédés du ?targeting? de la masse monétaire. La qualité de ces prévisions détermine la précision du contr?le de la masse monétaire par la banque centrale. Cette étude développe et évalue un procédé empirique pour les prévisions du multiplicateur en combinant les observations mensuelles de l’offre de monnaie aux observations hebdomadaires de taux d’intérêt. Les prévisions résultant offrent une directive plus effective pour les opérations de la banque centrale que les procédés proposés autrefois. Les résultats empiriques qui se réfèrent aux données des Etats Unis pendant les années 1975–86, indiquent la robustesse des modèles de prévision utilisés dans l’article en ce qui concerne les changements dans le régime de la politique monétaire aux Etats Unis pendant cette période.

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Resumen Objetivos operacionales y variables de información en pronósticos del multiplicador monetario. — Pronosticar el multiplicador monetario es un problema central en la implementation de esquemas con metas monetarias. La calidad de este pronóstico détermina la precision del control de la oferta de dinero por parte del banco central. En este trabajo se desarrolla y evalúa un procedimiento empirico para pronosticar el multiplicador, combinando observaciones mensuales de la oferta monetaria con observaciones semanales de la tasa de interés. El pronóstico résultante ofrece una regla más efíciente para las operaciones del banco central que los procedimientos propuestos anteriormente. Los resultados empiricos, basados en datos de los EE UU para el periodo 1975–86, indican que los modelos usados son robustos con respecto a los cambios en los regimenes de politica monetaria en los EE UU durante ese periodo.

     

The interaction between capital controls and exchange rate regimes: evidence from developing countries

Abstract

This paper provides an empirical analysis of the interaction between capital controls and exchange rate policies in developing countries in the 1980s and 1990s. We estimate a simultaneous-equations panel mixed logit model for the joint determination of two decisions. We find strong influences from de jure exchange rate regimes on capital account policies but somewhat weaker feedback impacts. With de facto exchange rate regimes the influences in both directions are similar to each other.     

Industrial relations in Central and Eastern Europe

This article analyses industrial relations in the new Central and Eastern European EU member states and the candidate countries Bulgaria and Romania. Focusing on the private sector, it describes the major organisational attributes of the social partners and the structural features of the collective bargaining systems in these countries. The extent of strikes and industrial disputes is discussed, and some indications of future developments are presented.