Exchange rate regime Research Papers (original) (raw)

2025, International journal of academic research in business & social sciences

Background: Bank Indonesia has undertaken pilot projects for Digital Rupiah, known as w-Digital Rupiah and r-Digital Rupiah. Purpose: This study aims to analyze the dynamic causal relationship model of digital money in Indonesia as the effect of implementing a dual economic system. Method: Vector Autoregressive (VAR), Vector Error Correction model including Granger Causality Test, Impulse Response Function and Variance Decomposition. Results: The results indicate that the circulation of digital money is cointegrated and has a long-term causal relationship with economic growth, with a long-term balance adjustment speed of 24.22%. There is a positive response from Digital Money to Economic Growth shocks, with a response time of one month. However, there is no cointegration or causal relationship to the profit loss-sharing rate. Practical implications: The results suggest that monetary authorities should consider Islamic banks when implementing monetary policy in Indonesia.

2025

In this study, Feldstein-Horioka hypothesis on saving-investment relationship was tested for the period 1968-2008 in Turkey using Hansen-Seo, Gregory-Hansen and Hatemi-J models. First of all, when Feldstein-Horioka hypothesis was researched by Hansen-Seo method, the variables did not exhibit a nonlinear structure. Then, with Gregory-Hansen and Hatemi-J models, it was found that the saving-retention coefficient got a value close to 1 and 0.426 respectively. It was understood that the Feldstein-Horioka puzzle continued. The results obtained show that in testing Feldstein-Horioka hypothesis, instead of a fixed parameter assumption, applying test techniques that take endogenous structural breaks into consideration would give more reliable results.Bu çalışmada Hansen-Seo, Gregory-Hansen ve Hatemi-J modelleri kullanılarak Türkiye’de Feldstein-Horioka hipotezi 1968-2008 dönemi için test edilmiştir. Öncelikle Feldstein-Horioka hipotezi Hansen-Seo yöntemiyle araştırılmış, değişkenlerin uzun ...

2025, Doğuş Üniversitesi Dergisi

2025, Anales de economía aplicada 2010, 2010, ISBN 978-84-92954-15-5

The aim of this study is to assess to what extent the Portuguese participation in the European Monetary System (EMS) has been characterized by mean reverting behaviour, as predicted by the exchange rate target zone model developed by . For this purpose, a new class of mean reversion tests is introduced. The empirical analysis of mean reversion in the Portuguese exchange rate shows that most of the traditional unit root and stationarity tests point to the nonstationarity of the exchange rate within the band. However, using a set of variance-ratio tests, it was possible to detect the presence of a martingale difference sequence. This suggests that the Portuguese foreign exchange market has functioned efficiently, allowing us to conclude that the adoption of an exchange rate target zone regime has contributed decisively to the creation of the macroeconomic stability conditions necessary for the participation of Portugal in the euro area.

2025, RePEc: Research Papers in Economics

Exchange rates were heavily distorted under the central planning system in Central and Eastern Europe and are still adjusting in the transition process. The use of nominal exchange rates introduces a bias for international price comparisons and in calculations based on them. We present various exchange rates and discuss their relevance and usefulness for CEEC economic transition studies. We show that calculations of agricultural price distortions, protection rates and budgetary costs of EU-CEEC accession are sensitive to the exchange rate assumptions. More specifically, our simulations of EU-CEEC integration effects show that net exports are substantially smaller and budgetary costs less under the assumption of continued real appreciation of the CEC-4 currencies. However, the calculations also show that even under the extreme assumption of full adjustment to PPPs, the total budgetary costs remain large and GATT commitments on the maximum quantity of subsidized exports are still prohibiting an introduction of an unreformed CAP in the CEC-4.

2025, Revista Brasileira De Economia

The model presented in this paper clarifles lhe links existing between lhe stabilization policies which were implemented in Brazil dming lhe 1981-88 períod, lhe trade balance, lhe GDP palh, lhe rate of inflation and lhe dynamics of lhe relative income of lhe workers of a dual economy. Basing our analysis on special tabulations of household surveys (PnadfIBGE) we show that this very general model contributes to understand how, despite lhe stagnation that characterized this period as a whole, lhe losses of lhe informal workers were smaller than Ihose of lhe formal. o modelo que apresentamos neste texto explicita as relações existentes entre as políticas de estabilização implementadas no período 1981-88, a balança comercial, a trajetória do PIB, a taxa de inflação e a dinâmica do diferencial de salários em mna economia dual. Baseando nossa análise em tabulações especiais da PnadfIBGE, mostramos que esse modelo é capaz de explicar por que os trabalhadores informais registraram perdas menores que os formais ao longo desse período. * lEI/UFR1 and Ipea. ** Delta (Paris) and Nuffield College (Oxford). 1 For surveys about distributional effects of stabilization policies and structural reforms see and Bourguignon et alii (1991).

2025

This paper examines Argentina's currency crises from 1970 to 2001, with particular attention to the role of domestic and external factors. Using VAR estimations, we find that deteriorating domestic fundamentals matter. For example, at the core of the late 1980s crises was excessively loose monetary policy while a sharp output contration triggered the collapse of the currency board in January 2002. In contrast, adverse external shocks were at the heart of the 1995 crisis, with spillovers from the Mexican crisis and high world interest rates being key sources of financial distress.

2025, Oxford Economic Papers

In this paper I investigate the relevance of the exchange rate regime for macroeconomic stability. I simulate hypothetical macroeconomic developments under different hypothetical regimes in Sweden during the period 1974-1994. The main question is how stable output would have been if Sweden had had a floating exchange rate regime. Would it have been better with a floating exchange rate than the actual quasi-fixed regime? Also the development with an irrevocably fixed exchange rate is investigated. The results indicate that the central bank can stabilize much of the macroeconomic disturbances under a floating exchange rate, but still the volatility of the macroeconomic variables under the hypothetical floating exchange rate regime is about the same as under the actual quasi-fixed regime.

2025, Journal of International Money and Finance

Though Svensson (1997, 2003) provides theoretical evidence that the introduction of inflation targeting is consistent with an inflation stabilizing monetary policy, empirical evidence that the introduction of inflation targeting actually changes central bank's behavior is still missing. This paper aims to close this gap and estimates forward-looking monetary policy rules for 20 inflation targeting countries. To this end, we use a data set which is available to the central bank in real-time, published on a frequently basis, comparable among all countries, and which includes the periods before and after the introduction of inflation targeting. We find that the introduction of inflation targeting significantly shifts the central bank's reaction function toward inflation stabilizing. We also provide evidence of time-varying effects and find that central banks stabilize inflation once inflation targeting is introduced. We take our results as strong evidence that the introduction of inflation targeting makes the difference for monetary policy strategies.

2025, Policy Research Working Papers

This paper analyzes the process of institutional transformation in Bulgaria and assesses the extent to which it has established institutions and policies fostering domestic economic activity and integration into global markets. After a brief review of characteristics and achieved progress in firstgeneration reforms, i.e., removal of central control over prices, liberalization of foreign trade and exchange rate regimes, the paper first assesses in the comparative perspective the progress made in the quality of governance and structural reforms. It then takes a look at the extent to which this has impacted foreign direct investment (FDI) inflows and was translated into improved business environment in its domestic and external dimensions. The external dimension relates to backbone services facilitating trade and Bulgaria's trade policies. As far as the latter are concerned, the discussion highlights tensions that emerge from duality-regional versus multilateral-in Bulgaria's trade policy. Despite significant progress in implementation of structural reforms and converging to the EU acquis communautaire that has led to a significant enhancement in the quality of governance and market supporting institutions, 'macro' institutional improvements are yet to be fully transplanted to a micro-level, as three areas appear to remain a binding constraint: First and foremost is the low quality of the judicial system and, by the same token, weaknesses in the enforcement of property rights and contracts. Second, backbone services facilitating trade remain a barrier. Bulgaria ranks low relative to the levels of efficiency achieved on average by both EU-8 and the EU-15 countries in management of ports, IT infrastructure and customs. Third, there are recurrent complaints among businesses of government bureaucracy, poor infrastructure and frequent changes in the legal framework including taxation. As a result, the regulatory burden remains huge. There are still redundant and excessive sector specific regulatory regimes. Bulgaria's markets for industrial goods are fully contestable for pan-Europe (EU-25, EFTA, Romania, and Turkey), exposing local producers to duty-free competition from imports. With relatively high MFN tariff rates, the level of reverse discrimination significantly increased over the last couple of years. While this has not resulted in perceptible trade diversion, organizational arrangements preventing that to happen unnecessarily increase administrative intervention in the economy.

2025

We investigate the effects of U.S. monetary policy on asset prices using a high-frequency event-study analysis. We test whether these effects are adequately captured by a single factor-changes in the federal funds rate target-and find that they are not. Instead, we find that two factors are required. These factors have a structural interpretation as a "current federal funds rate target" factor and a "future path of policy" factor, with the latter closely associated with Federal Open Market Committee statements. We measure the effects of these two factors on bond yields and stock prices using a new intraday data set going back to 1990. According to our estimates, both monetary policy actions and statements have important but differing effects on asset prices, with statements having a much greater impact on longer-term Treasury yields. JEL Codes: E52, E58, E43, G14. * We thank Ben Bernanke, Ken Kuttner, Jon Faust, Jonathan Wright, two anonymous referees, and seminar participants at Bilkent, Koç, and Sabancı Universities, the Central Bank of Turkey, and the Federal Reserve Bank of San Francisco for valuable discussions, comments, and suggestions.

2025, Quarterly Journal

In the way towards the euro, the monetary and exchange rate policy must follow, in parallel, the achievement of the nominal and real convergence. The purpose of this work paper is the analysis of the monetary policy strategies in Slovenia and Slovakia before the adoption of the euro on two periods: pre-ERM II and ERM II. On the one hand the two forms of the inflation targeting strategy have been efficient in the pre-EMU period through the adjustment of the interest rate so that the real rate would not stimulate the crediting, while on the other hand the monetary authority has followed the reduction of the interest rate differential in order to assure the stability of the exchange rate.

2025, Working Paper CEsA CSG, 179

During the colonial period and within the framework of the monetary system of the Portuguese colonies, Cabo Verde lived in a situation of relative monetary and exchange stability. After independence, in 1975, the country underwent two monetary transitions: the first, immediately after independence and with the abandonment of the exchange rate parity with the Portuguese escudo; and the second, from 1998 onwards, following an exchange cooperation agreement with Portugal. During both transitions, the country could rebuild monetary and exchange stability, as a result of the way in which institutional and external factors of stability were used in each of them. However, the second transition significantly affected the evolution of trade and international investments in Cabo Verde, whose expansion resulted in a strong growth of the economy and exports. This paper analyses not only the conditions of monetary and exchange stability in the two transitions, but also the nature of the changes that took place with the second transition. Those changes were reflected in a trend of structural transformation and consolidation of the market economy in Cabo Verde, paving the way to the good economic performance of the last few decades.

2025, Social Science Research Network

This paper assesses the effects of real depreciation on the economic performance of Turkey by considering quarterly data from 1987:I to 2001:III. The empirical evidence suggests that, contrary to classical wisdom, the real depreciations are contractionary, even when external factors like world interest rates, international trade, and capital flows are controlled. Moreover, the results obtained from the analyses indicate that real exchange rate depreciations are inflationary.

2025, SSRN Electronic Journal

This paper investigates the long run behavior of real exchange rates in nineteen countries of Latin America over the period 1970 -2006. Our data does not support the Purchasing Power Parity (PPP) hypothesis, implying that real shocks tend to have permanent effects on Latin America's real exchange rates. By exploiting the advantage of non stationary panel econometrics, we are able to determinate factors that drive real exchanges rate in the long run : the Balassa-Samuelson effect, government spending, the terms of trade, the openness degree, foreign capital flows and the de facto nominal exchange regime. The latter effect has policy implications since we find that a fixed regime tends to appreciate the real exchange rate. This finding shows the non neutrality of exchange rate regime regarding its effects on real exchange rates. We also run estimations for country subgroups (South America versus Caribbean and Central America). Regional results highlight that several real exchange rates determinants are specific to one geographic zone. Finally, we compute equilibrium real exchange rate estimations. Two main results are derived from the investigation of misalignments, [i] eight real exchange rates are quite close to their equilibrium level in 2006, and [ii] our model shows that a part of currencies crises that arose in Latin America was preceded by a real exchange rate overvaluation.

2025

This thesis contributes to the research on determinants and welfare effects of real exchange rate movements. Chapters two to four focus on a discussion of money supply shocks as one of the sources of changes in the real exchange rate. More specifically chapter two contains a critical overview of empirical and theoretical research that contributes to our understanding of the monetary transmission mechanism in open economies. The chapter analyses two specific classes of models, liquidity models and sticky price models and investigates to which degree these models are able to rationalise the result of related empirical studies. The third chapter focuses on the determinants of the welfare effects of money supply shocks across countries if prices are sticky. It analyses specifically the implications of different forms of price stickiness. Furthermore it combines these nominal rigidities with different real imperfections in the labour market. The chapter concludes that the impact of a mon...

2025

The views and opinions expressed are those of the authors. They do not necessarily represent the views and opinions of the European Bank for Reconstruction and Development. This note was written as a contribution to the UK Treasury's... more

2025

We study the relationship between exchange-rate regime announcements and exchange-rate dynamics around government changes by combining the IMF de jure and the Reinhart and Rogoff de facto exchange-rate regime classifications. Using monthly data from Latin American democracies, we do not identify significant exchange-rate depreciations before the change of government in any of the regimes, but we do identify a gradual exchange-rate overvaluation when regimes are fixed inconsistent (i.e., the de jure regime announcement is fixed and differs from the de facto behavior). After the change of government, the overvaluation under fixed-inconsistent regimes is abruptly corrected through significant devaluations. We thus identify a pattern of broken promises by which incumbents delay devaluations until after the change of government under fixed-inconsistent announcements, but not under fixed-consistent ones. Controlling for conditional volatility, we also detect significant “fear of floating”...

2025, Czech Journal of Economics and Finance ( …

This paper discusses central bank losses and develops a formal framework for assessing the sustainability of its balance sheet. Analyzing the consequences of economic convergence in depth, it emphasizes the role played by the risk premium and equilibrium real exchange rate appreciation. A closed-form comparative-static analysis and also numerical solutions of the future evolution of the central bank's own capital are presented. Applying this framework to an example of a converging economy, namely the Czech Republic, we find that the Czech National Bank should be able to repay its accumulated loss in about 15 years without any transfer from public budgets.

2025, AUCO Czech Economic Review

This paper discusses the exchange rate policies in the three stages of the euro adoption process. In the first stage, i.e., after EU accession but before ERM II entry, the exchange rate becomes a matter of "common concern" according to the Treaty. The paper argues that in the modern conditions, this has no real meaning besides mutual consultations on macroeconomic policy issues. In the second stage, common concern becomes institutionalized under the ERM II mechanism. Its main advantages and risks are discussed, and the arguments for minimizing the length of this stage are presented. In the third step, the exchange rate stability criterion is assessed before the country is allowed to adopt the euro. The paper discusses the open issues in the interpretation of this criterion. Finally, the current state of the Czech euro adoption strategy is described.

2025

This article was written as part of the CNB's research programme. However, it presents authors' own opinions that may not correspond to the views either of the CNB or the IMF. The authors would like to thank to Ale‰ Bulífi, Vratislav Izák, and Richard Podpiera, participants of two research seminars at the CNB as well as to two annonymous referees for their useful comments, which helped to improve this paper. All remaining errors and omissions are those of the authors.

2025, History + Technology: An International Journal

Health economists coined the term financial epidemiology in 2012 to monitor US household medical bankruptcies. Financial epidemiology has since expanded into a field of study assessing US household financial health in the age of COVID-19 and nuclear family development in the global South. This article traces the field’s formation and progressive standardization to the International Monetary Fund (IMF). It demonstrates how, in 1998, the IMF responded to the HIV/AIDS crisis, ‘Asian Financial Crisis’, and rapid internet information spread affecting market values by weaving together HIV risk, financial risk, and colonial discourses of disease into a theory of financial ‘contagion’. The theory of financial contagion has since globalized a ‘risk economy’. To inoculate against financial contagion, the IMF obligated Asian countries seeking bailouts to convert their assets into financialized reservoirs underpinned by the US dollar (USD). Global South households were thus financially converted to the nuclear family model of consumer healthcare like the United States. Aided by today’s deployments of financial epidemiology operating on behalf of US political economic interests, the IMF seeks to replace world currencies with the USD but with dubious impacts on the cycles of disease, disaster, and financial crises disproportionately borne by the global South.

2025, Journal of Post Keynesian Economics

This paper presents, in the light of Keynesian theory and taking in account the emerging economies reality in nowadays global world, an exchange rate regime proposal for emerging countries with the capability to mitigate their external vulnerability and fragility and their dependence on foreign capital, and thus making possible the implementation of domestic economic policies that would permit macroeconomic stabilization -understood, following Keynes, as being the combination of price stability and full employment. For this purpose the paper revisits Keynes' proposals with regard to both exchange rate policy and capital inflows, with a view to showing how they contribute to maintaining full employment, develops a Post Keynesian view on financial globalization and the behavior of exchange rate, and finally presents a strategy for an exchange rate regime with capital controls for emerging countries.

2025, Revista venezolana de análisis de coyuntura

Consideraciones sobre la propuesta de convertibilidad plena del real en base a la experiencia de convertibilidad Argentina en los años 90'

2025, Journal of Post Keynesian Economics

This paper presents, in the light of Keynesian theory, an exchange rate regime proposal for emerging countries to assure macroeconomic stabilization, that is, price stability and full employment.

2025, Administrando En Entornos Inciertos Managing in Uncertain Environment 2009 Isbn 978 84 7356 609 4

En el siguiente artículo analizamos si las economías de México y Chile con sistemas cambiarios de bandas muestran un comportamiento caótico. Para ello, realizamos un breve repaso de la situación histórica de estas economías bajo el sistema de bandas cambiarias. En el caso de México el periodo analizado fue de 1991 a 1994 y el de Chile de 1984 a 1999. En este contexto, lo que deseamos responder es si el TC pesos/dólar en régimen de intervención cambiaria sigue un comportamiento caótico o no. Para ello, realizamos algunas pruebas de detección entre ellas podemos mencionar la reconstrucción del espacio de fases de ) y Takens, (1981), el test BDS elaborado por W. Brock, W. Dechert y J. Scheinkman (1987) para la detección de la dependencia no lineal de nuestras series, el cálculo de la dimensión de correlación desarrollado por Grassberger y Procaccia (1983) y la estimación de los exponentes de Lyapunov con el algoritmo de Kantz (1994). La investigación se divide en 4 temas, primero exponemos una breve explicación de los regímenes cambiarios, después se hace una revisión de las bandas cambiarias para el caso mexicano y chileno, posteriormente se presenta un repaso de la teoría del caos y su aplicación en las finanzas y por último las herramientas de detección de una dinámica caótica en el TC para las dos economías. Los resultados muestran una dinámica no lineal e indicios de un posible comportamiento caótico en las dos economías bajo estudio. El TC de México muestra una mayor volatilidad y un menor horizonte de predicción que el TC en Chile durante el periodo de Bandas Cambiarias, ya que el TC en México fluctuaba en una zona objetivo donde las autoridades monetarias intervenían sólo en el caso en donde se tocarán lo límites de esta zona. Por otro lado, en el caso de Chile la volatilidad era menor, ya que el tipo de cambio se ajustaba a un sistema de bandas cambiarias reptantes el cual se fijaba en torno a una paridad central (inicialmente fijada respecto del dólar de EE.UU.), que se depreciaba en función de la diferencia entre la inflación doméstica y la inflación externa.

2025, RePEc: Research Papers in Economics

The paper discusses the historical background and institutional details of Hong Kong's currency board. We argue that its experience provides a good opportunity to test the macroeconomic implications of the currency board regime. Using the method of Blanchard and Quah (1989), we show that the parameters of the structural equations and the characteristics of supply and demand shocks have significantly changed since adopting the regime. Variance decomposition and impulse response analyses indicate Hong Kong's currency board is less susceptible to supply shocks, but demand shocks can cause greater short-term volatility under the system. The decent performance of Hong Kong's currency board is due mainly to the stable fiscal policy of its government. Counterfactual exercises also show that three-fourths of the reduction in observed output volatility and twothirds of that in observed inflation volatility are explained by the adoption of the currency board, while the remainder is explained by changes in the external environment, The improvement in stability does not rule out the possibility of monetaty collapse, however.

2025

Cet article propose une evaluation de la relation entre l'incertitude emanant de la volatilite de l'inflation et la croissance economique des pays de l'UEMOA. Il s'interroge egalement sur les repercussions des chocs d'inflation sur l'economie reelle des pays de la zone. L'etude s'appuie sur un modele VAR-GARCH susceptible de faire ressortir, d'une part, les differentes caracteristiques des chocs d'inflation dans l'union, et d'autre part, les liens entre l'inflation incertaine et la croissance economique. Les resultats suggerent la persistance accentuee de la volatilite de l'inflation et de l'activite economique mais aussi une ampleur tres significative de l'incertitude de l'inflation. Les mecanismes de transmission de l'inflation incertaine sur la croissance economique sont differents selon les pays. Les politiques relatives a la convergence macroeconomique, a la stabilisation et au developpement n'ont pas s...

2025, World Journal of Applied Economics, 11(1)

The debate on the potential impact of full dollarization for promoting economic growth has been controversial and based on limited empirical analysis. This work scrutinizes the impact of dollarization on real per capita GDP in Ecuador's experience. We apply a Synthetic Control Method, a transparent and data-driven statistical technique, aiming to construct an artificial control group and a plausible counterfactual against which impacts from dollarization could be evaluated as part of the historical record. We found that after the decision to officially dollarize was made in 2000, per capita GDP in Ecuador increased on average about 9.69 percentage points relative to the synthetic control country. Furthermore, this gap appears to show an inverted U-shape over time, which would indicate that the effects of dollarization on economic activity are very powerful at the beginning but fade out over time.

2025, World Journal of Applied Economics

2025, Routledge Handbook of South Asian Economics

Stylized facts for South Asia show the dominance of supply shocks, amplified by macroeconomic policies and procyclical current accounts. Interest and exchange rate volatility rose initially on liberalization, but fell as markets deepened. A gradual middling through approach to openness and market development are helping the region absorb shocks without reducing growth. Diverse sources of demand, flexible exchange rates, robust domestic savings, and changing political preferences are contributing. Countercyclical policy more suited to structure, and removal of distortions raising costs, would allow better coordination of monetary and fiscal polices to further support the process.

2025, Asian Economic Journal

In a recent paper, Giugale and Korobow (2000) present evidence that suggests that the time required by output to return to trend following a financial shock is faster under a flexible exchange rate regime than under a fixed exchange rate. In this paper, we use vector autoregression models to measure the persistence properties of output for a number of countries in the Asia-Pacific region. Our results suggest that output persistence is not uniquely related to a country's choice of exchange rate regime. The two countries in our sample with the least persistent output following a financial shock are Australia, where the exchange rate is fully flexible, and Hong Kong, where it is rigidly fixed via a currency board.

2025

is an economist in the Middle East North Africa Region of the World Bank. Mustapha K. Nabli is Chief Economist of the Middle East and North Africa Region of the World Bank. The authors are grateful to Sebastien Dessus, Dipak Dasgupta, and Marie-Ange Veganzones for their comments and suggestions. Views expressed here do not necessarily reflect those of the World Bank, its executive directors, or the countries they represent.

2025, … de Trabajo (Instituto de Economía PUC)

1. INTRODUCTION 2. RECEIVED KNOWLEDGE 3. STYLIZED FACTS 4. EMPIRICAL ANALYSIS 4.1 Economic Growth 4.2 Exports 4.3 Money Holdings 4.4 Inflation 4.5 Remnants of the past 5. CONCLUSIONS

2025, Policy Research Working Paper Series

Downloadable! In the context of an empirical model, the authors examine the impact of capital flows, among other fundamentals, on long-term exchange rates in Chile. The real exchange rate and its fundamentals were found to be cointegrated... more

2025, Journal of African Economies

2025

Introduction and motivation South Africa’s National Development Plan (NDP) Vision for 2030 clearly articulates that fiscal policy would be expected to play a central role in influencing the pace at which the economy will grow and its capacity to deal with the key challenges that will arise over the next several decades. Domestic policy challenges include poor education and health outcomes, rapid urbanisation, environmental hazards, infrastructure capacity weaknesses coupled with inadequate investment levels and household and spatial inequalities. External challenges include immigration and an uncertain global economic environment. Fiscal policy will not only affect macroeconomic stability, but also whether the country can transition to a higher economic growth path, reduce its high poverty rate, and address its substantial income, asset, and regional inequalities. It is now some five years since the global economic and financial crisis of 2008. The crisis led to prolonged and previo...

2025, Open Economies Review

We look at the exchange rate policy choices and outcomes for small rich economies. Small rich economies face significant policy challenges due to proportionately greater economic volatility than larger economies. These economies usually choose some form of fixed exchange rate regime, particularly in the very small economies where the per capita cost of independent monetary policy is relatively high. When such countries do choose a free or managed floating regime, they appear to derive no benefit from those regimes; their exchange rate volatility seems to rise without any significant change in fundamental economic volatility. Thus, for these countries, floating exchange rates seem to create problems for policy makers without solving any.

2025

Exchange rate volatility not only affects exchange rates, but also has important implications for export policies. This study investigates these issues as they relate to Indonesia's relations with its fi ve main trading partners: the United States of America, Japan, Hong Kong, Singapore, and Malaysia. This is achieved by (i) measuring exchange rate volatility for each destination country; (ii) analysing whether exchange rate volatility has an effect on the export fl ows of Indonesia's fi ve main trading partners; and (iii) exploring some of the policy implications. It uses three measures of exchange rate volatility: the standard deviation, the moving average standard deviation (MASD), and the autoregressive conditional heteroscedasticity (ARCH) model. Moreover, to analyse the effect of exchange rate volatility on exports, this study applies Johansen cointegration techniques and an error correction model to Indonesian quarterly data over the years from 1990 to 2008. According...

2025

This paper examines how the COVID-19 pandemic has influenced both the prevalence of excess liquidity and the degree of information sharing within the CEMAC region's financial sector. Using monthly data from 2000 to 2023 and applying a Bayesian Vector Autoregression (BVAR) approach. Pandemic-related shocks reduced excessive liquidity by approximately 12% and deposit levels by 8% over a 6-month horizon. These liquidity disturbances were observed to persist over both short-and long-term periods, indicating systemic challenges linked to information asymmetry. Following the onset of COVID-19, there was an uptick in credit provision, coupled with a downturn in equity investment observed after the initial 6-month period of the outbreak. Likewise, in parallel with the decline in equity, the flow of banking information diminished during the pandemic, indirectly supporting an increase in indebtedness. To mitigate these effects, the study recommends addressing information asymmetry by introducing comprehensive credit registries and implementing borrower assistance measures.

2025, RePEc: Research Papers in Economics

This paper investigates the effect of remittances in attracting U.S. foreign direct investment flows to Latin America and the Caribbean (LAC). It uses an unbalanced panel data set for fifteen countries covering the period 1983-2010. The results suggest a positive and significant impact of remittances on U.S. FDI flows to LAC, but it depends upon the level of per capita GDP in the host country. Thus, a threshold of per capita GDP is needed for a country to benefit from the positive effect of remittances on U.S. FDI flows. Also, host country demand positively affects U.S. FDI flows to LAC, which supports the market size hypothesis.

2025

The "commodity currency" literature highlights the robust exchange rate response to fluctuations in world commodity prices that occurs for major commodity exporters. The magnitude of this response, however, varies widely among countries. Our panel data analysis using 63 countries for 1980-2010 finds that, in accordance with theory, the long-run cointegrating relationship between the real exchange rate and commodity export prices depends on the nationâ€™s export market structure, monetary policy choices and degree of trade and financial openness. We also show that the commodity price-exchange rate connection is much weaker in the short-run and for a group of oil-exporting countries. Given concerns for the Dutch disease or resource curse, our findings are of particular relevance for monetary policy-making and for globalization strategy in commodity-exporting developing economies.

2025, Journal Economía Chilena …

Under a flexible exchange rate regime, international reserves contribute to reducing the risk of a financial crisis, and allow the monetary authority to intervene exceptionally in the exchange market. However, holding reserves is costly.... more

2025

This paper studies the association between the current account and real estate valuation across countries, subject to data availability [43 countries, of which 25 are OECD], during 1990 -2005. We find robust and strong positive association between current account deficits and the appreciation of the real estate prices/(GDP deflator). Controlling for lagged GDP/capita growth, inflation, financial depth, institution, urban population growth and the real interest rate; a one standard deviation increase of the lagged current account deficits is associated with a real appreciation of the real estate prices by 10%. This real appreciation is magnified by financial depth, and mitigated by the quality of institutions. Intriguingly, the economic importance of current account variations in accounting for the real estate valuation exceeds that of the other variables, including the real interest rate and inflation. Among the OECD countries, we find evidence of a decline overtime in the cross country variation of the real estate/(GDP deflator), consistent with the growing globalization of national real estate markets. Weaker patterns apply to the non-OECD countries in the aftermath of the East Asian crisis.

2025, Quaderni del Dipartimento di Economia, Finanza e …

The aim of this article is to show the threats connected with the exchange rate stabilization within the framework of ERM II and the analysis of the randomly selected EU countriescandidates for the Euro Zone. A two year stabilization of the exchange rate within the ERM II required prior to the Euro Zone accession is connected with numerous risks typical of a fixed rate with a hard band of fluctuations. There are two ways of exchange rate stabilization -a standard one as in the case of the Slovenian Tolar or a currency board (the case of the Baltic states). Neither of them is free of drawbacks. Against this background a question can be formulated: is the exchange rate stabilization indispensable for the Euro Zone accession at all? More and more arguments are raised against it. The most relevant ones refer to the criteria of price stability and fiscal stability. Stabilization of the exchange rate within the ERM II for two years in the situation of free capital flows may not be successful and there is a probability of the currency crisis in the country stabilizing the exchange rate.

2025

Evalúan los cuarenta años de convivencia entre regímenes cambiarios fijos y flotantes.

2025, Factors that affect exchange rates

This paper explores the multifaceted determinants of exchange rate fluctuations, emphasizing their critical role in international trade, investment, and economic policymaking. It identifies and examines ten key factors that influence exchange rates: interest rates, inflation, economic performance, political stability, market speculation, government intervention, trade balances, commodity prices, foreign debt, and natural disasters or geopolitical events. Drawing upon academic literature and real-world examples, the paper illustrates how these variables interact in complex and dynamic ways to shape currency values. It highlights the significance of economic fundamentals alongside speculative and psychological market forces in driving exchange rate volatility. The discussion culminates in strategic recommendations for policymakers, investors, and businesses on mitigating exchange rate risks through diversification, hedging, and policy transparency. Ultimately, the paper underscores the importance of understanding both controllable and uncontrollable factors influencing exchange rates to ensure economic stability in an increasingly interconnected global economy.

2025, International Journal of Economics and Financial Issues

The purpose of this study is to identify the Moroccan dirham misalignment phases over the period 1998T1-2017T4, related to an estimated equilibrium exchange rate, using an ad hoc behavioral equilibrium exchange rate econometric model. The overvaluation that may result from misalignments is one of the major arguments in the adoption of the flexibility regime by the Moroccan monetary authorities since 2018. We examine the relevance and the validity of the choice of this new regime in the case of Morocco. The observation of the misalignment graph leads us to the following findings: (1) The highest overvaluation is found in the early 2000s, reaching 35% by 2009 and then decreasing until 2012T2; (2) the largest undervaluation of about 15% is observed around 2014; then from the end of 2015, the misalignments did not exceed ± 15%.