Download or read book What Does Really Discipline Fiscal Policy in Emerging Markets The Role and Dynamics of Exchange Rate Regimes written by Enrique Alberola and published by . This book was released on 2007 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: Fixing the exchange rate stabilises inflation and reduces monetary seignoriage, a key source of financing under the fiscal dominance hypothesis. However, the link between fixed exchange rate regimes and fiscal discipline in emerging markets has been found to be weak. This paper thoroughly reviews the issue through three venues. First, an alternative measure to gauge fiscal discipline -the so called shadow balance, inclusive of seignoriage revenues- is proposed, since the traditional one, the primary balance, does not convey monetary financing; notwithstanding this modification, no robust relation is found either. Second, we sustain and then prove the hypothesis that fixing the exchange rate may have offsetting effects on fiscal discipline through the relaxation of the fiscal constraint of the government. In particular fixing the exchange rate is expected to reduce the cost and burden of debt and to enhance the ability to obtain revenues through a higher level of activity. The empirical test of this hypothesis follows a two stage approach. First, we test the impact of the fiscal constraints on discipline: as advocated, a higher fiscal burden induces higher discipline; higher activity does not clearly relax discipline, although expenditures grow and the burden of debt is shown to diminish. The second stage tests the impact of fixed regime on the considered determinants. Again, the relation between fixed regimes and the reduction of the burden is robust, but not so the impact of fixed regimes on the cycle. Third, we explore the dynamics related to the pegging of the exchange rate, uncovering that at its inception exchange rates trigger an expansion and reduce the debt burden. This final outcome does not only strengthen our hypothesis but illustrates how the peg sows the seeds of its own destruction, also at the fiscal level.
Download or read book What Does Really Discipline Fiscal Policy in Emerging Markets written by Enrique Alberola Ila and published by . This book was released on 2004 with total page 42 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Do Fixed Exchange Rates Induce More Fiscal Discipline written by Yan Sun and published by International Monetary Fund. This book was released on 2003-04 with total page 36 pages. Available in PDF, EPUB and Kindle. Book excerpt: Conventional wisdom has held that a fixed exchange rate regime induces more fiscal discipline, but Tornell and Velasco (1995, 1998) argue the opposite. Using a dynamic model with fragmented fiscal policymaking, this paper evaluates the two arguments in a single framework and shows that (1) future punishment against fiscal laxity exists under both fixed and flexible regimes; (2) fiscal authorities have a greater incentive to spend more today under fixed rates than under flexible rates; (3) in the presence of both factors above, fixed rates will induce more fiscal discipline only if the future punishment is sufficiently stronger than under flexible rates; and (4) neither fixed nor flexible rates could resolve the structural distortions caused by fragmented policymaking, and fiscal centralization needs to be undertaken to strengthen fiscal discipline.
Download or read book Currencies Crises Fiscal Policy and Coordination written by Paul R. Masson and published by World Scientific. This book was released on 2011 with total page 355 pages. Available in PDF, EPUB and Kindle. Book excerpt: This volume provides an integrated compilation of selected major articles published by the author in several fields of international finance. These include contributions to the understanding of currency crises and financial contagion, the evolution of exchange rate regimes, the interaction between national fiscal policies and regional monetary unions, and the effect of uncertainty on the gains from international economic policy coordination. The author spent most of his career doing research at established institutions (the Bank of Canada, OECD, and IMF), and these articles emerged from the need to understand the major economic policy issues of the day. In the book's introduction, the author discusses the motivation for these contributions and the unifying themes that emerged, while a concluding chapter provides his personal reflections and suggestions about promising avenues for further research.
Download or read book Real Exchange Rate Appreciation in Emerging Markets written by Marialuz Moreno Badia and published by International Monetary Fund. This book was released on 2014-01-10 with total page 23 pages. Available in PDF, EPUB and Kindle. Book excerpt: A number of emerging markets have experienced substantial real exchange rate appreciation in recent years, generating concerns about competitiveness and prompting policymakers to respond with a combination of mitigating policies. This paper shows that fiscal policy can play a role in alleviating these pressures. Using a sample of 28 emerging market economies over 1983-2011, we estimate a dynamic model of the real exchange rate and find that a permanent fiscal adjustment may reduce appreciation pressures over the long term. Furthermore, the composition of public spending matters, with reductions in current spending playing a key role. To illustrate the importance of these findings, the paper focuses on the case of Brazil. Our results suggest that maintaining fiscal discipline while increasing public investment in Brazil is likely to ease real appreciation pressures, highlighting the importance of tackling long-standing budget rigidities.
Download or read book Exchange Rate Regimes for Emerging Markets written by John Williamson and published by Peterson Institute. This book was released on 2000 with total page 110 pages. Available in PDF, EPUB and Kindle. Book excerpt: In the aftermath of the Asian/global financial crises of 1997-98, how should emerging markets now structure their exchange rate systems to prevent new crises from occurring? This study challenges current orthodoxy by advocating the revival of intermediate exchange rate regimes. In so doing, Williamson presents a reasoned challenge to the new prevailing attitude which claims that all countries involved in the international capital markets need to polarize to one of the extreme regimes (to a fixed rate with either a currency board or dollarization, or to a lightly-managed float). He concludes that although there is some truth in the allegation that intermediate regimes are vulnerable to speculative crises, they still offer offsetting advantages. He also contends that it would be possible to redesign them to be more flexible so as to reduce their vulnerability to crises.
Download or read book Fiscal Discipline and Exchange Rates written by João Tovar Jalles and published by International Monetary Fund. This book was released on 2016-11-17 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: We look at the effect of exchange rate regimes on fiscal discipline, taking into account the effect of underlying political conditions. We present a model where strong politics (defined as policymakers facing longer political horizon and higher cohesion) are associated with better fiscal performance, but fixed exchange rates may revert this result and lead to less fiscal discipline. We confirm these hypotheses through regression analysis performed on a panel sample covering 79 countries from 1975 to 2012. Our empirical results also show that the positive effect of strong politics on fiscal discipline is not enough to counter the negative impact of being at/moving to fixed exchange rates. Finally, we use the synthetic control method to illustrate how the transition from flexible to fully fixed exchange rate under the Euro impacted negatively fiscal discipline in European countries. Our results are robust to a number of important sensitivity checks, including different estimators, alternative proxies for fiscal discipline, and sub-sample analysis.
Download or read book Monetary Policy Transmission in an Emerging Market Setting written by Ila Patnaik and published by International Monetary Fund. This book was released on 2011-01-01 with total page 27 pages. Available in PDF, EPUB and Kindle. Book excerpt: Some emerging economies have a relatively ineffective monetary policy transmission owing to weaknesses in the domestic financial system and the presence of a large and segmented informal sector. At the same time, small open economies can have a substantial monetary policy transmission through the exchange rate channel. In order to understand this setting, we explore a unified treatment of monetary policy transmission and exchangerate pass-through. The results for an emerging market, India, suggest that the most effective mechanism through which monetary policy impacts inflation runs through the exchange rate.
Download or read book Monetary Policy Frameworks for Emerging Markets written by Gill Hammond and published by Edward Elgar Publishing. This book was released on 2009-01-01 with total page 369 pages. Available in PDF, EPUB and Kindle. Book excerpt: Financial globalisation has made the formulation of monetary policy in emerging market economies increasingly complicated. This timely set of studies looks at the turmoil in global financial markets, which, coupled with volatile inflation, poses serious challenges for central banks in these countries. The book features a number of specially commissioned new papers from both front-line policymakers and researchers in developing and emerging market economies, which tackle the difficult issues currently being debated with increasing urgency by monetary policy theorists and policymakers around the world. They address questions such as: What monetary policy framework is most suitable for emerging market countries to confront the new challenges while they continue to open up to trade and financial flows? , What are the linkages between monetary stability and financial stability? and Is inflation targeting or a fixed exchange rate regime preferable for developing and emerging markets? Providing unique insights on the interaction between the theory and practice of monetary policy in emerging markets, this book will be of great interest to academics and students of economics, economic policy and development economics. Policymakers will also find this to be a useful and thought-provoking read.
Download or read book Evolution and Performance of Exchange Rate Regimes written by Mr.Kenneth Rogoff and published by International Monetary Fund. This book was released on 2003-12-01 with total page 85 pages. Available in PDF, EPUB and Kindle. Book excerpt: Using recent advances in the classification of exchange rate regimes, this paper finds no support for the popular bipolar view that countries will tend over time to move to the polar extremes of free float or rigid peg. Rather, intermediate regimes have shown remarkable durability. The analysis suggests that as economies mature, the value of exchange rate flexibility rises. For countries at a relatively early stage of financial development and integration, fixed or relatively rigid regimes appear to offer some anti-inflation credibility gain without compromising growth objectives. As countries develop economically and institutionally, there appear to be considerable benefits to more flexible regimes. For developed countries that are not in a currency union, relatively flexible exchange rate regimes appear to offer higher growth without any cost in credibility.
Download or read book Exchange Rate Policies For Emerging Market Economies written by Richard J Sweeney and published by Routledge. This book was released on 2019-03-13 with total page 347 pages. Available in PDF, EPUB and Kindle. Book excerpt: With the loss of Soviet control in Central and Eastern Europe, as well as the move toward economic liberalization in many developing countries, a huge increase in the number of convertible currencies in the world has occurred. A key aspect of the management of these currencies involves their relationships with the world economy, which is determined
Download or read book Fiscal Policy and the Real Exchange Rate written by Mr.Santanu Chatterjee and published by International Monetary Fund. This book was released on 2012-02-01 with total page 40 pages. Available in PDF, EPUB and Kindle. Book excerpt: Government spending on infrastructure has recently increased sharply in many emerging-market economies. This paper examines the mechanism through which public infrastructure spending affects the dynamics of the real exchange rate. Using a two-sector dependent open economy model with intersectoral adjustment costs, we show that government spending generates a non-monotonic U-shaped adjustment path for the real exchange rate with sharp intertemporal trade-offs. The effect of government spending on the real exchange rate depends critically on (i) the composition of public spending, (ii) the underlying financing policy, (iii) the intensity of private capital in production, and (iv) the relative productivity of public infrastructure. In deriving these results, the model also identifies conditions under which the predictions of the neoclassical open economy model can be reconciled with empirical regularities, namely the intertemporal relationship between government spending, private consumption, and the real exchange rate.
Download or read book Fiscal Policy and the Exchange Rate Current Account Nexus written by Jun Il Kim and published by International Monetary Fund. This book was released on 2007-02 with total page 20 pages. Available in PDF, EPUB and Kindle. Book excerpt: By using a simple intertemporal model of the current account, I show that the exchange rate elasticity of the trade balance would ceteris paribus be smaller for countries with higher government spending ratios (relative to GDP) and with more limited scope for private consumption smoothing. This finding may have important implications for the design of adjustment programs and for resolving current global imbalances. It could also help explain and reconcile mixed empirical findings on trade elasticities.
Download or read book Pick Your Poison written by Mr.Shigeru Iwata and published by International Monetary Fund. This book was released on 2003-05-01 with total page 29 pages. Available in PDF, EPUB and Kindle. Book excerpt: We characterize a country's exchange rate regime by how its central bank channels a capital account shock across three variables: exchange depreciation, interest rates, and international reserve flows. Structural vector autoregression estimates for Brazil, Mexico, and Turkey reveal such responses, both contemporaneously and over time. Capital account shocks are further shown to affect output growth and inflation. The nature and magnitude of these effects may depend on the exchange rate regime.
Download or read book The Role of the Exchange Rate in Inflation Targeting Emerging Economies written by Anna Nordstrom and published by International Monetary Fund. This book was released on 2009-11-24 with total page 106 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper explores the role of exchange rates in emerging economies with inflation-targeting regimes, an issue that has become especially germane during the current episode of financial turmoil and volatile capital flows. Under inflation targeting, the interest rate is the main monetary policy tool for influencing activity and inflation, and there is little agreement about the appropriate role of the exchange rate.The exchange rate is a more important monetary policy tool for emerging economies that have adopted inflation targeting than it is for inflation-targeting advanced economies. Inflation-targeting emerging economies generally have less flexible exchange rate arrangements and intervene more frequently in the foreign exchange market than their advanced economy counterparts. The enhanced role of the exchange rate reflects these economies' greater vulnerability to exchange rate shocks and their less developed financial markets. However, their sharper focus on the exchange rate may cause some confusion about the commitment of their central banks to achieve the inflation target and may also complicate policy implementation. Global inflation pressures, greater exchange rate volatility, and the financial stresses from the global financial turmoil that began in mid-2007 are heightening these tensions.
Download or read book Monetary Policy in Emerging Markets written by Mr.Donal McGettigan and published by International Monetary Fund. This book was released on 2013-05-03 with total page 30 pages. Available in PDF, EPUB and Kindle. Book excerpt: In contrast to advanced markets (AMs), procyclical monetary policy has been a problem for emerging markets (EMs), with macroeconomic policies amplifying economic upswings and deepening downturns. The stark difference in policy has not been subject to extensive study and this paper attempts to address the gap. Key findings, using a large sample of EMs over the past 50 years, are: (i) EMs have adopted increasingly countercyclical monetary policy over time, although large differences remain among EMs and policies became more procyclical during the recent crisis. (ii) Inflation targeting and better institutions have been key factors behind the move to countercyclicality. (iii) Only deep financial markets allow EMs with flexible exchange rate regimes turn countercyclical. (iv) More countercyclical policy is associated with far less volatile output. The economically meaningful impact of IT on monetary policy countercyclicality and output variability is another reason in its favor, over and above better inflation outcomes.
Download or read book Controlling Currency Mismatches in Emerging Markets written by Morris Goldstein and published by Columbia University Press. This book was released on 2004-04-25 with total page 181 pages. Available in PDF, EPUB and Kindle. Book excerpt: In most of the currency crises of the 1990s, the largest output falls have occurred in those emerging economies with large currency mismatches, a phenomenon that occurs when assets and liabilities are denominated in different currencies such that net worth is sensitive to changes in the exchange rate. Currency mismatching makes crisis management much more difficult since it constrains the willingness of the monetary authority to reduce interest rates in a recession (for fear of initiating a large fall in the currency that would bring with it large-scale insolvencies). The mismatching also produces a "fear of floating" on the part of emerging economies, sometimes inducing them to make currency-regime choices that are not in their own long-term interest. Authors Morris Goldstein and Philip Turner summarize what is known about the origins of currency mismatching in emerging economies, discuss how best to define and measure currency mismatching, and review policy options for reducing the size of the problem.
