Download or read book Exchange Rate Uncertainty in Money Based Stabilization Programs written by Mr.R. Armando Morales and published by International Monetary Fund. This book was released on 1998-01-01 with total page 19 pages. Available in PDF, EPUB and Kindle. Book excerpt: Complementing the explanation provided by Calvo and Vegh (1994) for money-based stabilization programs, exchange rate uncertainty introduced to a particular version of the portfolio approach with imperfect competition in the banking system leads to a bias toward appreciation that is directly related to the divergence of expectations and that dampens the interaction between portfolio movements and the real exchange rate. Based on Frankel-Froot, uncertainty exists when the fundamental equilibrium real exchange rate is temporarily unknown in a foreign exchange market with two types of agents: ‘parity-guessers,’ who expect a jump to a reference parity level, and ‘money-followers,’ who expect nominal depreciation equal to the monetary rule.

Download or read book Exchange Rate Uncertainty in Money Based Stabilization Programs written by Armando Morales Bueno and published by . This book was released on 2006 with total page 18 pages. Available in PDF, EPUB and Kindle. Book excerpt: Complementing the explanation provided by Calvo and Vegh (1994) for money-based stabilization programs, exchange rate uncertainty introduced to a particular version of the portfolio approach with imperfect competition in the banking system leads to a bias toward appreciation that is directly related to the divergence of expectations and that dampens the interaction between portfolio movements and the real exchange rate. Based on Frankel-Froot, uncertainty exists when the fundamental equilibrium real exchange rate is temporarily unknown in a foreign exchange market with two types of agents: `parity-guessers,` who expect a jump to a reference parity level, and `money-followers,` who expect nominal depreciation equal to the monetary rule.

Download or read book Exchange Rate Based Stabilization under Imperfect Credibility written by Mr.Guillermo Calvo and published by International Monetary Fund. This book was released on 1991-08-01 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes stabilization policy under predetermined exchange rates in a cash-in-advance, staggered-prices model. Under full credibility, a reduction in the rate of devaluation results in an immediate and permanent reduction in the inflation rate, with no effect on output or consumption. In contrast, a non-credible stabilization results in an initial expansion of output, followed by a later recession. The inflation rate of home goods remains above the rate of devaluation throughout the program, thus resulting in a sustained real exchange rate appreciation.

Download or read book Money Based Versus Exchange Rate Based Stabilization written by Ari Aisen and published by International Monetary Fund. This book was released on 2004-06 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt: In response to high and chronic inflation, countries have adopted different stabilization policies. However, the extent to which these stabilization programs were designed for political motives is not clear. Since exchange-rate-based stabilizations (ERBS) create an initial consumption boom followed by a contraction, whereas money-based stabilizations (MBS) generate a consumption bust followed by a recovery, policymakers may consider the timing of elections when determining the nominal anchor for stabilization. This paper finds strong evidence that the choice of nominal anchor depends on elections, implying the existence of political opportunism. ERBS are, on average, launched before elections while MBS are set after them.

Download or read book An Empirical Analysis of Exchange Rate based Stabilization Programs Under Exogenous and Endogenous Policy Uncertainty written by José E. De la Viña and published by . This book was released on 1997 with total page 304 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Exchange Rate Based Stabilization written by Mr.A. Javier Hamann and published by International Monetary Fund. This book was released on 1999-10-01 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: Do exchange-rate-based stabilizations generate distinctive economic dynamics? To address this question, this paper identifies stabilization episodes using criteria that differ from those in previous empirical studies of exchange-rate-based stabilizations. We find that, while some differences can be detected between exchange-rate-based stabilizations and stabilizations where the exchange rate is not the anchor, the behavior of important variables does not appear to differ—especially output growth, which is good in both cases. There is also no evidence that fiscal discipline is enhanced by adopting an exchange-rate anchor, or that there are any systematic differences in the success records of stabilizations that use the exchange rate as a nominal anchor and those that do not.

Download or read book Credibility and the Dynamics of Stabilization Policy written by Mr.Guillermo Calvo and published by International Monetary Fund. This book was released on 1990-11-01 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper studies price stabilization policy under both predetermined and flexible exchange rates. Under predetermined exchange rates, a non-credible stabilization program results in an initial expansion of output, followed by a later recession. The initial expansion accompanies an appreciating real exchange rate. Under flexible exchange rates, the recession occurs at the beginning of the program. The real exchange rate appreciates sharply on impact but depreciates afterwards. Lack of credibility is more costly under predetermined exchange rates because the real effects are more pronounced.

Download or read book Disinflation Programs Under Policy Uncertainty written by Amartya Lahiri and published by . This book was released on 1997 with total page 58 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Foreign Exchange Intervention Under Policy Uncertainty written by Juan Pablo Medina Guzman and published by . This book was released on 2016 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: We study the use of foreign exchange (FX) intervention as an additional policy instrument in an environment with learning, where agents infer the central bank policy rules from its policy actions. Under full information, a central bank focused on stabilizing output and inflation can achieve better outcomes by using FX intervention as an additional policy tool. Under policy uncertainty, where agents perceive that monetary policy may also have exchange rate stabilization goals, the use of FX intervention entails a trade-off, reducing output volatility while increasing inflation volatility. While having an additional policy tool is always beneficial, we find that the optimal magnitude of intervention is higher in monetary policy regimes with lower uncertainty. These results indicate that the benefits of using FX intervention as an additional stabilization tool are greater in regimes where monetary policy is credibly focused on output and inflation stabilization.--Abstract.

Download or read book NBER Macroeconomics Annual 1995 written by Ben S. Bernanke and published by MIT Press. This book was released on 1996 with total page 364 pages. Available in PDF, EPUB and Kindle. Book excerpt: Contents : Wage Inequality and Regional Unemployment Persistence: U.S. vs. Europe, Guiseppe BErtola and Andreas Ichino. Capital Utilization and Returns to Scale, Craig Burnside, Martin Eichenbaum, and Sergio Rebelo. Banks and Derivatives, Gary Gorton and Richard Rosen. Exchange-Rate-Based Stabilizations: Theory and Evidence, Sergio Rebelo and Carlos Vegh. Inflation Indicators and Inflation Policy, Stephen Cecchetti. Recent Central Bank Reforms and the Role of Price Stability as the Sole Objective of Monetary Policy, Carl Walsh. Is Central Bank Independence (and Low Inflation) the Result of Effective Financial Opposition to Inflation?, Adam Posen. The Unending Quest for Monetary Salvation, Stanley Fischer.

Download or read book Losing Credibility written by Mr.Pablo Emilio Guidotti and published by International Monetary Fund. This book was released on 1992-09-01 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: In exchange rate-based stabilization programs, credibility often follows a distinct time pattern. At first it rises as the highly visible nominal anchor provides a sense of stability and hopes run high for a permanent solution to the fiscal problems. Later, as the domestic currency appreciates in real terms and the fiscal problems are not fully resolved, the credibility of the program falls, sometimes precipitously. This paper develops a political-economy model that focuses on the evolution of credibility over time, and is consistent with the pattern just described. Inflation inertia and costly budget negotiations play a key role in the model.

Download or read book Foreign Exchange Intervention Rules for Central Banks A Risk based Framework written by Romain Lafarguette and published by International Monetary Fund. This book was released on 2021-02-12 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper presents a rule for foreign exchange interventions (FXI), designed to preserve financial stability in floating exchange rate arrangements. The FXI rule addresses a market failure: the absence of hedging solution for tail exchange rate risk in the market (i.e. high volatility). Market impairment or overshoot of exchange rate between two equilibria could generate high volatility and threaten financial stability due to unhedged exposure to exchange rate risk in the economy. The rule uses the concept of Value at Risk (VaR) to define FXI triggers. While it provides to the market a hedge against tail risk, the rule allows the exchange rate to smoothly adjust to new equilibria. In addition, the rule is budget neutral over the medium term, encourages a prudent risk management in the market, and is more resilient to speculative attacks than other rules, such as fixed-volatility rules. The empirical methodology is backtested on Banco Mexico’s FXIs data between 2008 and 2016.

Download or read book Stabilization with Exchange Rate Management Under Uncertainty written by Elhanan Helpman and published by . This book was released on 1990 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Stabilization programs in open economies typically consist of two stages. In the first stage the rate of currency devaluation is reduced, but the fiscal adjustment does not eliminate the fiscal deficit which causes growth of debt and loss of reserves, making a future policy change necessary. Only later, at a second stage, is this followed by either an abandonment of exchange rate management or by a sufficiently large cut in the fiscal deficit. We study how different second-stage policy changes affect economic dynamics during the first stage. These changes include tax increases, budget cuts on traded and nontraded goods, and increases in the growth rate of money. Under certainty about the timing and nature of a switch, current account developments provide information about which policy instrument is expected to be used for stabilization. Uncertainty about the timing of a stabilization is shown to be important in explaining phenomena such as continuous reserve losses and the possibility that a policy change is accompanied by a surprise discrete devaluation rather than a run on reserves

Download or read book Money Based Vs Exchange Rate Based Stabilization written by Ari Aisen and published by . This book was released on 2003 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: In response to the high and chronic inflation that has plagued the developing world since the 1980's, countries adopted different stabilization policies. However, to what extent these stabilization programs were designed for political rather than economic motivations is not clear. Nor is it known whether and to what degree policy-makers may take advantage of the consumption cycles derived from the different stabilization strategies in order to further their political career. Since in chronic inflation countries, exchange-rate-based stabilizations create an initial consumption boom followed by a contraction whereas money-based stabilizations generate a consumption bust followed by a recovery, policy-makers may take into account the timing of elections when determining the nominal anchor for stabilization. This paper finds strong evidence that the choice of nominal anchor to stabilize inflation depends on the election cycle. In particular, exchange-rate-based stabilizations are on average launched before elections while money-based stabilizations are set after them, implying the existence of political opportunism in the choice of stabilization anchor. The empirical estimates are obtained through the use of fairly simple econometric models based on a sample of 34 fully-fledged stabilization episodes in 11 countries with high and chronic inflation. The results are robust to different model specifications. This paper contributes to understanding of interaction between political and economic phenomena providing a useful methodology to quantify this relationship.

Download or read book Credit and Exchange Rate Based Stabilization written by May Khamis and published by . This book was released on 2006 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper examines the behavior of private sector credit in chronic inflation countries that undergo exchange rate-based inflation stabilizations. It concludes that these programs are characterized by a strong increase in private sector credit, both in absolute terms and as a fraction of real economic activity. Empirical results using data for Mexico, Chile, Argentina, and Israel support a negative statistically significant relationship between credit and inflation for Mexico, Argentina, and Chile, but not for Israel. In addition, for both Chile and Mexico, dummy variables representing periods of inflation stabilization are positive and statistically different from zero indicating a stronger expansion in private sector credit during stabilization. These results could potentially explain the consumption boom that is usually present in the early stages of these programs.

Download or read book Modern Exchange rate Regimes Stabilisation Programmes and Co ordination of Macroeconomic Policies written by Maria Luiza Falcão Silva and published by Routledge. This book was released on 2018-08-17 with total page 347 pages. Available in PDF, EPUB and Kindle. Book excerpt: Published in 1999, this work analyzes the phenomenon of macroeconomic adjustment, with special emphasis on selected Latin American countries facing stabilization programmes. It provides a historical description of the origins, functioning and collapse of exchange-rate regimes from the international classical gold standard period to modern arrangements. The author supports the argument that systemic asymmetries in the worldwide adjustment mechanism are inherent in the international monetary system. The recent theoretical literature dealing with the rules vs discretion debate and its interaction with the credibility issue is reviewed. This topic is intrinsically related to the dispute over the appropriate role of exchange-rate anchors in disinflation programmes. Against a background of academic dispute between advocates of exchange-rate prescriptions and monetary conceptions, the contrasting views of different theorists regarding the choice of exchange rate regimes are presented and assessed. Finally, a comparative analysis of recent experiments in Argentina, Brazil, Chile and Mexico with exchange-rate based disinflation stabilization programmes is undertaken. The problems that have arisen while establishing new institutional arrangements, such as new currency or a policy rule for monetary base creation, are examined.

Download or read book IMF Staff Papers Volume 54 No 2 written by International Monetary Fund. Research Dept. and published by International Monetary Fund. This book was released on 2007-09-26 with total page 236 pages. Available in PDF, EPUB and Kindle. Book excerpt: Vol. 54, No. 2 includes three notable contributions from the Seventh Jacques Polak Annual Research Conference (ARC) hosted by the IMF in November 2006. Its lead paper, by Olivier Blanchard of Harvard University, is the 2006 Mundell-Fleming Lecture (delivered at the ARC), which analyzes current-account deficits in the advanced economies. Other papers in this issue look at the relationship between international financial integration and the real economy. Other papers discuss whether (or not): i) the next capital account crisis can be predicted; ii) accepted definitions of debt crises are adequate; iii) the Doha Round of trade talks (if they are ever successfully completed) will lead to preference erosion; and finally iv) there is room for political opportunism in countries deciding between money-based or exchange-rate-based stabilization programs.