Exchange rate policy
211306580
Exchange rate policy
Latin American Economic Development
Javier Reyes William Charles Sawyer
158088937
EXCHANGE RATE POLICY
Joshua E Greene
156096186
Exchange rate expectations and economic policy uncertainty
This study provides a new angle on the relationship between political decisions and exchange rates. We link a conventional exchange rate modeling approach to the literature on the political economy of exchange rates and studies dealing with the role of policy announcements for financial market expectations by addressing the impact of policy uncertainty on exchange rate expectations and forecast errors of professionals. Our results show that expectations are not only affected by announcements but also by the degree of uncertainty regarding the future stance of economic policy. We find that forecast errors are strongly affected by policy uncertainty compared to expectations, suggesting that the effect of uncertainty is not efficiently accounted for in market expectations. Our main findings hold for economic policy uncertainty, fiscal policy uncertainty and monetary policy uncertainty. In addition, the estimates for the Japanese yen suggest a safe haven role of the yen since higher policy uncertainty in the US results in an expected appreciation of the yen.
Joscha Beckmann Robert L Czudaj
10318062
Financial crises and exchange rate policy
This paper studies exchange rate policy in a small open economy model featuring an occasionally binding collateral constraint and Fisherian deflation. The goal is to evaluate the performance of alternative exchange rate policies in sudden stop prone economies. The key element of the analysis is a pecuniary externality arising from frictions in the international credit markets, which creates a trade off between price and financial stability. The main result is that depreciating the exchange rate during a financial crisis has a positive impact on welfare, because the stimulus provided by a depreciation sustains asset prices, value of collateral, and access to the international credit markets.
Luca Fornaro
152715731
Currency Politics: The Political Economy of Exchange Rate Policy
The exchange rate is the most important price in any economy, since it affects all other prices. Exchange rates are set, either directly or indirectly, by government policy. Exchange rates are also central to the global economy, for they profoundly influence all international economic activity. Despite the critical role of exchange rate policy, there are few definitive explanations of why governments choose the currency policies they do. Filled with in depth cases and examples, Currency Politics presents a comprehensive analysis of the politics surrounding exchange rates. Identifying the motivations for currency policy preferences on the part of industries seeking to influence politicians, Jeffry Frieden shows how each industry's characteristics including its exposure to currency risk and the price effects of exchange rate movements determine those preferences. Frieden evaluates the accuracy of his theoretical arguments in a variety of historical and geographical settings: he looks at the politics of the gold standard, particularly in the United States, and he examines the political economy of European monetary integration. He also analyzes the politics of Latin American currency policy over the past forty years, and focuses on the daunting currency crises that have frequently debilitated Latin American nations, including Mexico, Argentina, and Brazil. With an ambitious mix of narrative and statistical investigation, Currency Politics clarifies the political and economic determinants of exchange rate policies.
Jeffry A Frieden
154737577
Exchange rate policy and export performance in a landlocked developing country: The case of Nepal
This paper examines the implications of Nepal's exchange rate policy for its export performance over the period 1980 2010. We first document Nepal's long standing currency peg against the Indian rupee and that Nepal's real exchange rate appreciated substantially from the late 1990s. We then employ a gravity modeling approach to confirm that this real exchange rate appreciation has adversely affected Nepal's exports, especially to third country markets. Nepal's exchange rate related export competitiveness trap provides a motivation to reconsider the current peg.
Ramesh Paudel Paul J Burke
154617948
The Effect of Authorita rian Regime Type on Exchange Rate Policy
Conventional wisdom holds that autocracies are more likely than democracies to adopt interventionist and protectionist economic policies, including fixed and undervalued exchange rates. This article suggests that this view is only partially correct: nondemocracies are a heterogeneous grouping, and only some types of authoritarian regimes adopt different foreign economic policies from those of their democratic counterparts. Using the example of exchange rate policy, the authors show that foreign economic policy varies across monarchic, military, and civilian dictatorships. More specifically, they hypothesize that monarchies and military regimes are more likely than democracies and civilian dictatorships to maintain fixed exchange rate regimes because the former regimes have smaller "selectorates" than the latter. The authors also expect that monarchies and civilian dictatorships maintain more undervalued exchange rates than democracies and military regimes because the former regimes provide their leaders with greater tenure security than the latter regimes. These hypotheses are evaluated using a time series cross sectional data set of a large sample of developing countries from 1973 to 2006. The statistical results accord with these predictions. These findings indicate that the ways in which democracies engage with the global economy may be less unique than many believe.
David A Steinberg Krishan Douglas Malhotra
201744989
The Effect of Authoritarian Regime Type on Exchange Rate Policy
Conventional wisdom holds that autocracies are more likely than democracies to adopt interventionist and protectionist economic policies, including fixed and undervalued exchange rates. This article suggests that this view is only partially correct: nondemocracies are a heterogeneous grouping, and only some types of authoritarian regimes adopt different foreign economic policies from those of their democratic counterparts. Using the example of exchange rate policy, the authors show that foreign economic policy varies across monarchic, military, and civilian dictatorships. More specifically, they hypothesize that monarchies and military regimes are more likely than democracies and civilian dictatorships to maintain fixed exchange rate regimes because the former regimes have smaller "selectorates" than the latter. The authors also expect that monarchies and civilian dictatorships maintain more undervalued exchange rates than democracies and military regimes because the former regimes provide their leaders with greater tenure security than the latter regimes. These hypotheses are evaluated using a time series cross sectional data set of a large sample of developing countries from 1973 to 2006. The statistical results accord with these predictions. These findings indicate that the ways in which democracies engage with the global economy may be less unique than many believe.
David A Steinberg David A Krishan Malhotra
38484870
Optimal exchange rate policy under collateral constraints and wage rigidity
Abstract This paper studies the conduct of monetary policy in economies with currency mismatch. To this end, I build a model that embeds financial frictions from households' collateralized borrowing in foreign currency into an open economy Keynesian framework. The monetary authority faces a trade off between traditional unemployment stabilization gains from currency depreciation and its costs in terms of generating debt deflation and tightening households' ability to borrow. The optimal policy under this trade off results in macroeconomic patterns aligned with those observed in emerging markets data, including large currency depreciation and consumption adjustments during crises. The optimal degree of "fear of floating" depends on the level of indebtedness with which the economy arrives to a crisis and on the type of experienced by the economy.
Journal of International Economics
Pablo Ottonello
154649142
Ties that Bind? Preferential Trade Agreements and Exchange Rate Policy Choice
This paper examines the question of whether a country's exchange rate policy choices are influenced by membership in preferential trade agreements (PTAs) We argue that PTAs, by constraining a government's ability to employ trade protection, increase its incentives to maintain monetary and fiscal autonomy in order to manipulate the domestic political economy. Consequently, we contend that countries are less likely to adopt or sustain a fixed exchange rate when they have signed a PTA with their "base" country the country to whom they have traditionally fixed the currency or the major industrial country to whom they have the most extensive trade ties. Likewise, countries that have signed a "base" PTA also tend to have more depreciated/undervalued currencies, as measured by the level of the real exchange rate. Using data on 99 countries from 1975 to 2004, we find strong support for these hypotheses. These findings shed light on the complex relationship between different types of macroeconomic policies in the contemporary world economy. More broadly, they speak to the question of whether international agreements are credible commitment mechanisms when close policy substitutes exist at the domestic level.
Mark S Copelovitch Jon C W Pevehouse