Download or read book Essays on Exchange Rates and Consumption written by Pierre-Olivier Gourinchas and published by . This book was released on 1996 with total page 292 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Consumption and the Real Exchange Rate written by Drausio S. Giacomelli and published by . This book was released on 1998 with total page 130 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Exchange Rates and Prices written by Federico Grinberg and published by . This book was released on 2015 with total page 108 pages. Available in PDF, EPUB and Kindle. Book excerpt: In these essays, I examine exchange rates and prices in the context of a small open economy. My first chapter is an empirical study of the behavior of nominal and real exchange rates in Mexico in the last 20 years. I present facts for exchange rate pass-through to prices, using both aggregate prices and CPI micro-data. I structure the evidence in two sets of facts that highlight the importance of real shocks and monetary regime in explaining changing patterns of aggregate prices and the CPI micro data. The first set shows that the nominal and real exchange rates have a strong co-movement at short and medium run horizons. Second, real exchange rate movements are mostly explained by changes in relative prices between `at the dock' prices and retail prices. Third, there is a large nominal exchange rate shock, the reason behind the incomplete exchange rate pass-through and the increase in the real exchange rate is not a slow price adjustment of goods that are actually traded, but a less-than-proportional adjustment of retail prices. The second set of facts analyzes the behavior of individual prices used to compute the CPI. First, there is a positive correlation between the fraction of prices that adjust per period (i.e., the frequency of price adjustment) and the level of inflation. Second, this correlation and the role of these changes in the fraction of adjusting prices in inflation is mostly explained by the exchange rate pass through after the 1994 large currency devaluation episode. In the second chapter I study the role of nominal price rigidities in accounting for low CPI inflation after large currency depreciations. Using a small open economy model with menu-cost nominal frictions calibrated to micro data from Mexico's Consumer Price Index, I find that in episodes of large depreciations, the effects of nominal rigidities in retail prices are quantitatively small and short-lived. The incomplete exchange rate pass-through to consumer prices is largely a result of a fall in real wages caused by negative real shocks and nominal stickiness in wages. In my third chapter I present a model of a small open economy subject both to a collateral constraint and downward rigidity in wages. These constraints will interact generating external shocks amplification and, in the presence of a currency peg regime, it also generates unemployment. This can be seen as an example that captures two main themes for small open economies: real exchange rigidities and consumption volatility. The contributions of my chapter are twofold. First, I show how financial amplification effects caused by `over borrowing can generate high unemployment rates without resorting to extreme wage rigidity. Second, it shows that the exchange rate policy faces a tradeoff between unemployment and tradable consumption when the collateral constraint binds. These two insights reflect the tradeoff of maintaining a currency peg during a crises: higher unemployment or an amplification of financial amplification of shocks.

Download or read book Essays on Flexible Exchange Rates written by Janet Eve Ceglowski and published by . This book was released on 1986 with total page 596 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on the Current Account the Real Exchange Rate and Durable Consumption written by Luis Oscar Herrera Barraiga and published by . This book was released on 1996 with total page 266 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Three Essays in International Finance written by Byong-Ju Lee and published by Stanford University. This book was released on 2011 with total page 132 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three essays on international finance. The first essay is "Exchange rates and Fundamentals". A new open interest rate parity condition that takes account of economic fundamentals is developed from stochastic discount factors (SDFs) of two countries. Through this parity condition, business cycles or fundamentals are linked to exchange rates. Key empirical findings from this parity condition are as follows. First, this model beats the random walk hypothesis: economic fundamentals explain exchange rate movements for high interest rate currencies. Exchange rates of low interest rate currencies act like a random walk because they are less correlated with fundamentals owing to their low risk. For example, U.S. business cycles explain the direction of changes in exchange rates against the dollar. The same thing is true for Japan. Second, this model resolves the forward premium puzzle: the forward premium puzzle is not a general characteristic as regarded in previous studies. It happens when the risk awareness of investors is low, during economic expansions and for low risk currencies. The second essay is "Carry Trade and Global Financial Instability". Carry trade, an opportunistic investment strategy that takes advantage of interest rate differential across countries, is identified the cause of the large-scale depreciations of peripheral currencies in the later half of 2008. A simultaneous equations model, which is derived from a conceptual partial equilibrium model for a local foreign exchange market, is estimated from a cross-sectional sample. The results suggest that the larger appreciation of the yen than the dollar was brought about by a lack of the local supply of the yen rather than a more severe crunch of yen credits. The third essay is "The Economic Origin of Letters of Credit". This essay discusses the economic origin of letters of credit, an instrument widely used in international trade. A game theoretical analysis shows that letters of credit improve efficiency in trade settlements, increasing returns in trade. A few notable facts on letters of credit are discussed. First, the new institution is adopted by merchant banks to maximize their profits and in the process, an improvement in efficiency of international transactions is obtained. Second, the organization established by the legacy institution, bills of exchange, played a critical role in adopting the new institution. Third, the legal enforcement is not essential in this economic institution. Finally, two drivers are identified that improve efficiency of transactions: concentration and projection.

Download or read book Monetary Policy Capital Flows and Exchange Rates written by David G. Dickinson and published by Psychology Press. This book was released on 2002 with total page 305 pages. Available in PDF, EPUB and Kindle. Book excerpt: Max Fry was known internationally for his research on international and domestic financial issues. This book draws together contributions from a range of academic and policy-making friends and colleagues.

Download or read book Essays on the Current Account Consumption Smoothing and the Real Exchange Rate written by Christopher John Kent and published by . This book was released on 1997 with total page 254 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Monetary Coordination Exchange Rate Volatility and Interfirm Networks written by Qing Liu and published by . This book was released on 2008 with total page 328 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation consists of three independent essays in Macroeconomics. The first essay analyzes monetary coordination between currency areas. It is shown that search frictions can generate the deviations from the law of one price and that each country is tempted to exploit these deviations by inflation. Monetary coordination eliminates the inefficiency caused by inflation. The welfare gains from coordination increase when the two economies become more integrated. In contrast to traditional models, the need for coordination exists even after each country is allowed to directly tax foreign holdings of its currency.The second essay studies the behavior of exchange rates in an environment with search frictions. In contrast to traditional models, even without any nominal rigidity, the model can generate enough volatility of exchange rates found in the data. The changes in the behavior of exchange rates under different regimes are also examined in this essay. The model shows a sharp increase in the volatility of exchange rates when moving from a pegged to a floating exchange regime, while there is no such systematic change in fluctuations of output or consumption. Moreover, the co-movements of output and consumption across countries are higher under a fixed rate regime than under a flexible rate regime. These results are consistent with empirical findings.The final essay focuses on the competition between groups of allied firms. In the essay we propose a model of group fitness and develop an approach to evaluate the fitness of groups and the utility of their member firms. A group has high fitness if member firms have four features: (i) high capacity, (ii) being embedded in dense relationships, (iii) holding complementary resources and (iv) having limited competition and conflict. We illustrate the effectiveness of our model and methodology by applying it to the airline groups between 1997 and 2002. By examining what really happened to the airline groups afterwards, we found that the predictions based on the comparison between the fitness scores of actual groups formed and those of the corresponding population constructed are reasonably accurate, and that the implications based on the ranking of individual firm utility within each group are generally supported.

Download or read book Essays on Exchange Rate Models Under a Taylor Rule Type Monetary Policy written by Hyeongwoo Kim and published by . This book was released on 2006 with total page 102 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book International Monetary Problems and Supply Side Economics written by G. Harcourt and published by Springer. This book was released on 1986-09-29 with total page 170 pages. Available in PDF, EPUB and Kindle. Book excerpt:

Download or read book Essays on Exchange Rates written by Wenbo Zhou and published by . This book was released on 2017 with total page 109 pages. Available in PDF, EPUB and Kindle. Book excerpt: This dissertation studies the forward premium puzzle (FPP) and short-term exchange rate forecasting. Chapter 1 studies the empirical behavior of the FPP over different subsamples instead of an average effect for the whole sample period as what is typically done in the literature. We find that the estimated slope coefficients from the Fama regression vary considerably from period to period. The signs of the slope estimate could be both significantly positive and negative. Our contribution is to show that the variation of the slope estimates is not random, rather it is driven by a common factor. We document a link between the variation and investors' long-run uncertainty about the economy. The long-run uncertainty index is specific to individual countries and defined as either a large fall in the real GDP growth rate or an inflation hike compared to past levels. We find that the long-run uncertainty index and its lags contribute to the positiveness of the slope estimate. The effect lasts longer for developed countries than emerging ones. The FPP exists if there is no long-run uncertainty about the economy but disappears with such uncertainty. Chapter 2 provides a potential theoretical framework to understand the empirical facts described in Chapter 1 based on Li and Tornell (2015). They show that the robustness against model misspecification can generate both positive and negative Fama slope coefficients, depending on investors' beliefs about the relative importance of transitory and persistent interest rate shocks. But they miss one step linking the economic fundamentals to the assumed interest rate differential model. We fill the gap using the long-run risk model with two variables: real consumption growth and inflation. We map the persistent interest rate shocks to long-run shocks to either consumption growth or inflation, which matches the long-run uncertainty defined in Chapter 1. We then qualitatively explain the empirical facts of time-varying slope estimates. Chapter 3 implements an empirical forecasting strategy based on what the Federal Open Market Committee (FOMC) says after their regular meetings. We use several techniques from natural language processing including bag-of-words, latent semantic analysis and vector space model to construct nontraditional predictors from three types of text documents released by the FOMC. We apply a machine learning algorithm called support vector machine to forecast individual G10 currencies and also build a portfolio of all G10 currencies. For the portfolio, our out-of-sample forecasts have success ratios more than 50\% for short-term prediction (less than 6 weeks) except for the 1-month horizon. Our best performance can be found for 1-week forecasting horizon. Eight out of nine currencies, as well as the portfolio, can beat the random walk model significantly using the weighted directional test.

Download or read book Essays on Exchange Rates and Optimal Monetary Policy for Open Economies written by Konstantinos Mavromatis and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: The thesis consists of three chapters of self-contained empirical and theoretical studies. In Chapter 1, I examine whether the Balassa-Samuelson effect is indeed the reason behind the behaviour of the currencies of transition economies. So far, in the literature, transition Economies appear to be subject to the Balassa-Samuelson effect. This implies that their currencies experience a prolonged appreciation in real terms as their convergence goes on. However, in the current literature, the effects of the capital account have not been analyzed extensively. In this paper I show that the capital account, rather than productivity, is a key determinant of the appreciation of the currencies of transition economies. I find that a long-run relationship exists between the real exchange rate, productivity, the real interest rate differential and the capital account. Moreover, those variables are found to cointegrate in a nonlinear fashion according to a smooth transition autoregressive model. This implies that a multivariate smooth transition error correction model is the appropriate model to describe their short-run and long-run dynamics. In Chapter 2, I examine the importance of a real exchange rate target in the monetary policy of a central bank. I address that question both empirically and theoretically. Using monthly data I estimate of a structural VAR model for the Eurozone providing evidence in favour of real exchange rate targeting. I examine this case theoretically using a twocountry DSGE model; I find that when the home central bank includes a real exchange rate target in its interest rate rule, it achieves lower welfare losses compared to the Taylor rule. Contrary to similar papers, I compute the optimized coefficients in the interest rate rules considered. I show that the benefits from real exchange rate targeting at home rise as persistence in inflation and output increases. In the robustness analysis I show that a rise in the fraction of backward looking consumers affects negatively the performance of the real exchange rate targeting rule and positively that of the Taylor rule. Asymmetries in the degree of rule-of-thumb behavior in consumption have important effects, as regards the performance of a real exchange rate targeting rule. The performance of both rules is not sensitive to variations in the degree of backward looking price setting behavior . In Chapter 3, I show, using both empirical and theoretical analysis, that changes in monetary policy in one country can have important effects on other economies. My new empirical evidence shows that changes in the monetary policy behaviour of the Fed since the start of the Euro, well captured by a Markov-switching Taylor rule, have had significant effects on the behaviour of inflation and output in the Eurozone even though ECB's monetary policy is found to be fairly stable. Using a two-country DSGE model, I examine this case theoretically; monetary policy in one of the countries (labelled foreign) switches regimes according to a Markov-switching process and this has nonnegligible effects in the other (home) country. Switching by the foreign central bank renders commitment to a time invariant interest rate rule suboptimal for the home central bank. This is because home agents expectations change as foreign monetary policy changes which affects the dynamics of home inflation and output. Optimal policy in the home country instead reacts to the regime of the foreign monetary policy and so implies a time-varying reaction of the home Central Bank. Following this time-varying optimal policy at home eliminates the effects in the home country of foreign regime shifts, and also reduces dramatically the effects in the foreign country. Therefore, changes in foreign monetary regimes should not be neglected in considering monetary policy at home.

Download or read book Essays in International Economics written by Mehmet Fatih Ekinci and published by . This book was released on 2011 with total page 162 pages. Available in PDF, EPUB and Kindle. Book excerpt: "In Chapter 1, we present and study the properties of a sticky information exchange rate model where consumers and producers update their information sets infrequently. We find that introducing inattentive consumers has important implications. Through a mechanism resembling the limited participation models, we can address the exchange rate volatility for reasonable values of risk aversion. We observe more persistence in output, consumption and employment which brings us closer to the data. Impulse responses to monetary shocks are hump shaped, consistent with the empirical evidence. Forecast errors of inattentive consumers provide a channel to reduce the correlation of relative consumption and real exchange rate. However, we find that decline in the correlation is quantitatively small. Chapter 2 explores the international business cycle implications of replacing the sticky price assumption with sticky information. We assume attentive consumers through this exercise. Mankiw and Reis (2002) propose the sticky information model to generate a lagged inflation response to monetary shocks consistent with the empirical evidence. Their model is also successful to address the inflation persistence observed in the data. We conjecture that sticky information assumption could be helpful to resolve the 'persistence anomaly' of the real exchange rates. We show that hump-shaped inflation response result is sensitive to the assumptions on the monetary policy and price setting block of the model. Furthermore, the response of nominal exchange rate is quite large and it dissipates quickly after a monetary shock. The improvement obtained in the real exchange rate persistence by the lagged inflation response is dominated by the large and short-lived nominal exchange rate responses, therefore it is quantitatively small. For all alternative specifications, we find that sticky information and sticky price models produce similar moments. Chapter 3 investigates the degree of financial integration within and between European countries. We construct two measures of de-facto integration across European regions to capture 'diversification' and 'development finance' in the language of Obstfeld and Taylor (2005). We find evidence that capital market integration within the EU is less than what is implied by theoretical benchmarks and also less than what is found for U.S. states. We ask why is this the case? Using country-level data for economic institutions, we find that these are not able to explain differences between countries. Using regional data from the World Values Surveys, we investigate the effect of 'social capital' on financial integration among European regions. We find regions, where the level of confidence and trust is high, are more financially integrated with each other"--Page v-vi.

Download or read book Real Exchange Rates and Foreign Assets written by Marcel Schroder and published by . This book was released on 2014 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: This thesis consists of three self-contained papers, which contribute to the debates surrounding global imbalances and financial globalization. The papers are unified by their featuring of foreign assets and real exchange rates (RERs) as the central themes. Following the introductory chapter, the first paper revisits the growth impact of RER distortions. The Washington Consensus emphasizes the economic costs of RER misalignment. However, a sizable recent empirical literature finds that undervalued RERs help countries achieve faster economic growth. The study shows that these findings are driven by inappropriate homogeneity assumptions imposed on long-run RER behavior across countries and/or misspecification of the growth equation. When these problems are redressed, the empirical results for a sample of 63 developing countries over the period 1970-2007 suggest that misalignment of the RER, in either direction from the level consistent with external and internal equilibrium reduces economic growth. However, deviations from Balassa-Samuelson adjusted purchasing power parity do not seem to affect growth. The RER should thus be consistent with external and internal balance, irrespective of the purchasing power parity benchmark. The second paper is motivated by the popular view that the surge in China's foreign exchange reserves is due to a distortionary exchange rate policy aimed at keeping the RER undervalued in order to support export-led growth. It undertakes an in-depth empirical investigation to quantify how much "mercantilist" and "precautionary" motives have contributed to the reserve build-up in China during the period 1998Q4-2011Q4. A substantial problem is that theory is consistent with employing two vastly differing approaches to defining and estimating the role of mercantilist reserve accumulation. A priori, either method could generate misleading results. The study shows, however, that the distinction between the two approaches is immaterial in China's case. The results suggest that mercantilism accounts for less than 10 percent of the reserve accumulation. Precautionary motives and other factors seem to be the dominant determinants of the surge in China's international reserves. The third paper studies the macroeconomic impact of valuation effects (changes in net external assets of a country arising from movements in exchange rates or asset returns). In theory, valuation effects are an important channel of international risk sharing through their facilitation of external adjustment. However, the effects can also be economically destabilizing in the presence of frictions in the international financial system. Despite the growing significance of valuation effects in an era of financial globalization, the nature and extent of their macroeconomic effect has not yet been systematically examined, especially in relation to emerging market economies (EMEs). The study examines the macroeconomic impact of valuation effects for 53 countries over 1980-2010. Valuation effects seem to operate as a risk sharing channel in high income countries. For EMEs the results depend on how valuation effects correlate with domestic consumption growth. There is weak evidence that valuation effects act as a risk sharing channel only if the correlation is negative, and are destabilizing otherwise. In the latter case, the welfare loss may well exceed one percent of permanent consumption.

Download or read book Debt Deficits and Exchange Rates written by Helmut Reisen and published by Edward Elgar Publishing. This book was released on 1994 with total page 264 pages. Available in PDF, EPUB and Kindle. Book excerpt: Debt, Deficits and Exchange Rates presents recent work by Helmut Reisen on current international monetary problems in East Asia and Latin America. Written over the last four years, these papers are readily accessible and of immediate policy relevance. The first part is concerned with the debt problems of developing countries, including the growth of domestic public debt, means of hedging a country's debt portfolio against key currency fluctuations, evidence on the debt overhang hypothesis, an evaluation of the Brady Plan, and how to attract foreign direct investment. This is followed by essays on financial opening which discuss the impact of alternative exchange rate regimes during financial integration, the degree of financial openness in Korea and Taiwan, an appropriate strategy for the liberalization of capital flows, and the relationship between financial opening and capital flows. The final part underlines the need for exchange rate management. Issues considered include New Zealand's experience with a pure float, the use of the theory of optimal currency areas to assess whether Asian countries should peg to the Yen, institutional features of macroeconomic management in Asia, and how Latin America should respond to heavy capital flows. Bringing together under one cover a wealth of analysis, comment and argument by a leading international scholar, this volume will be welcomed by students, teachers and policymakers as an important contribution to understanding international monetary problems in the developing world.

Download or read book Money Capital Mobility and Trade written by Guillermo A. Calvo and published by MIT Press. This book was released on 2004 with total page 572 pages. Available in PDF, EPUB and Kindle. Book excerpt: Essays by leading economists and scholars reflecting on Mundell's broad influence on modern open-economy macroeconomics.