Speculative behavior of foreign exchange rates during the current float (original) (raw)

Floating Exchange Rates: Experience and Prospects

Brookings Papers on Economic Activity, 1985

Floating Exchange Rates: Experience and Prospects WITH THE ABANDONMENT of fixed dollar exchange rates in March 1973, the world's industrialized countries adopted temporarily a system of floating exchange rates that many economists had advocated to permit individual nations to reconcile the often conflicting requirements of internal and external balance. In spite of a surprising short-run volatility in exchange markets under the interim system, the consensus among policymakers at the end of 1975 was that floating rates had worked reasonably well. This consensus found expression in thejoint declaration following the November 1975 Rambouillet economic summit, which committed participating monetary authorities to "counter disorderly market conditions, or erratic fluctuations, in exchange rates," but made no provision for a return to fixed parities. Agreements at Rambouillet led directly to the formalization of the floating rate system through amendment of the Articles of Agreement of the International Monetary Fund (IMF) at Kingston, Jamaica, in January 1976. A new Article IV dealing with exchange rate arrangements implicitly sanctioned floating, subject only to broad prohibitions against actions detrimental to "financial and economic stability. " I The sharp real depreciation of the dollar between 1976 and 1979 and the even larger real appreciation between 1979 and 1985 have led many During the preparation of this paper I received helpful suggestions from Robert Cumby,

Historical experiences with flexible exchange rates

Journal of International Economics, 1985

This paper develops an analytical model of price and exchange rate determination which formalizes the evolution of the money supply expectations process. Calibration and simulation of the model demonstrates its ability to replicate certain 'stylized facts' that characterize 17 historical experiences with flexible currency prices under inflationary conditions. Furthermore, the model proves capable of tracing actual prices and exchange rates in a number of selected historical cases. Rather than treating each experience as a singular historical event, the paper thus constitutes a step towards a general account of the rich experience with flexible exchange rates during the last two centuries. *The authors would like to thank Terry Anderson and two unknown referees of this Journal for helpful comments on an earlier draft, and John Noorlander for research assistance. We also had the benefit of presenting this material to the 1984 meeting of the Ausschuss f~r Aussenwirtschaftstheorie und-politik of the Verein for Soeialpolitik in. Regensburg. Further thanks go to the BIS foundation, Basel, and the Stiftung Volkswagenwerk, Hannover for partly financing the collection of the historical data. Financial support from the Deutsche Forschungsgemeinschaft for the second author is also gratefully acknowledged.

The Random Behavior of Flexible Exchange Rates: Implications for Forecasting

Journal of International Business Studies, 1975

This article explores the forecasting accuracy of the "random walk" and other models of exchange rate behavior. Under present conditions of floating exchange rates, it is argued, anticipations of future demand and supply determine fluctuations in exchange rates. The authors present results consistent with the notion that, for the world's major currencies, the foreign exchange market is an "efficient market" and exchange rate forecasting is not profitable. I Palgrave Macmillan Journals is collaborating with JSTOR to digitize, preserve, and extend access to Journal of International Business Studies www.jstor.org ® the International Money Market in Chicago, where private individuals of reasonable means now can buy and sell standardized future contracts in major currencies. Formerly, pressure from the Federal Reserve Board and occasional operational problems effectively prevented U.S. banks from accommodating individuals who wished to "take a view" on the future of a currency. These developments, plus the string of spectacular losses incurred by the foreign exchange trading operations of major banks which came to light during 1974, in combination with the fundamental changes in the international monetary environment that have occurred since the late 1960s, revive interest in the possibility of successfully predicting exchange rates. In general, forecasting economic data requires the presumption of a set of relationships among variables, one of which is the variable to be forecast.1 Economic forecasting, in other words, requires a model. Such a model may be in unspecified form in the back of the mind of a person who has been a long-term observer of the processes which generate these data. In many forecasting methods the relationships comprising the model are stated in explicit mathematical terms, as in the case of econometric models. Forecasting techniques based on formal models may rely on an assumed sequence of causal relationships (e.g.,

A survey of market practitioners’ views on exchange rate dynamics

Journal of International Economics, 2000

We report some findings from a survey of practitioners in the interbank foreign exchange markets in Hong Kong, Tokyo, and Singapore. The respondents contend that liquidity and market uncertainty are two important reasons for deviating from the conventional interbank bid-ask spread. A strong customer base is perceived as a source of competitive advantage for large participants. Most respondents agree that non-fundamental factors have pervasive impacts on short-run exchange rates. Speculation is believed to increase volatility but also improve market liquidity and efficiency. Despite their claim that intervention exacerbates volatility, more than one-half of the respondents suggest official intervention helps restore equilibrium.

To Float or to Trail: Evidence on the Impact of Exchange Rate Regimes

SSRN Electronic Journal, 2000

implications of these channels in terms of long-run growth performance are not obvious, there is some evidence of a negative link between output volatility and growth. 4 On the other hand, by reducing relative price volatility, a peg is likely to stimulate investment and trade, thus increasing growth. 5 Lower price uncertainty, usually associated with fixed exchange rate regimes, should also lead to lower real interest rates, adding to the same effect. Moreover, (credible) fixed exchange rate regimes are usually assumed to contribute to monetary policy discipline and predictability, and to reduce a country's vulnerability to speculative exchange rate fluctuations, all factors that are conducive to stronger growth performance. 6

Harry Johnson’s “Case for Flexible Exchange Rates” – 50 Years Later

RePEc: Research Papers in Economics, 2020

and the 22nd Central Bank Macroeconomic Workshop held at the Central Bank of Armenia in September 2019. Support from the Class of 1958 chair at UC Berkeley is acknowledged with thanks. The views expressed herein are those of the author and do not necessarily reflect the views of the National Bureau of Economic Research. The author has disclosed a financial relationship of potential relevance for this research. Further information is available online at http://www.nber.org/papers/w26874.ack NBER working papers are circulated for discussion and comment purposes. They have not been peerreviewed or been subject to the review by the NBER Board of Directors that accompanies official NBER publications.

How tight should one's hands be tied? Fear of floating and credibility of exchange rate regimes

2003

This paper analyzes the linkages between the credibility of a target zone regime, the volatility of the exchange rate, and the width of the band where the exchange rate is allowed to fluctuate. These three concepts should be related since the band width induces a trade-off between credibility and volatility. Narrower bands should give less scope for the exchange rate to fluctuate but may make agents perceive a larger probability of realignment which by itself should increase the volatility of the exchange rate. We build a model where this trade-off is made explicit. The model is used to understand the reduction in volatility experienced by most EMS countries after their target zones were widened on August 1993. As a natural extension, the model also rationalizes the existence of non-official, implicit target zones (or fear of floating), suggested by some authors.