Jerome L. Stein
- Published in print:
- 2006
- Published Online:
- May 2006
- ISBN:
- 9780199280575
- eISBN:
- 9780191603501
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199280576.001.0001
- Subject:
- Economics and Finance, Financial Economics
This book focuses on the interaction between equilibrium real exchange rates, optimal external debt, endogenous optimal growth, and current account balances in a world of uncertainty. The theoretical ...
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This book focuses on the interaction between equilibrium real exchange rates, optimal external debt, endogenous optimal growth, and current account balances in a world of uncertainty. The theoretical parts result from interdisciplinary research between economics and state of the art applied mathematics. From the economic theory and the mathematics of stochastic optimal control, benchmarks are derived for the optimal debt and equilibrium real exchange rate in an environment where both the return on capital and the real rate of interest are stochastic variables. The theoretically derived equilibrium real exchange rate — the natural real exchange rate (NATREX) — is where the real exchange rate is heading. These benchmarks are applied to answer the following questions: What is a theoretically based empirical measure of a “misaligned” exchange rate that increases the probability of a significant depreciation or a currency crisis? What is a theoretically based empirical measure of an “excess” debt that increases the probability of a debt crisis? What is the interaction between an excess debt and a misaligned exchange rate? The theory is applied to evaluate the Euro exchange rate, the exchange rates of the transition economies of Eastern Europe, the sustainability of U.S. current account deficits, and derives warning signals of the Asian crises, defaults, and debt crises in emerging markets.Less
This book focuses on the interaction between equilibrium real exchange rates, optimal external debt, endogenous optimal growth, and current account balances in a world of uncertainty. The theoretical parts result from interdisciplinary research between economics and state of the art applied mathematics. From the economic theory and the mathematics of stochastic optimal control, benchmarks are derived for the optimal debt and equilibrium real exchange rate in an environment where both the return on capital and the real rate of interest are stochastic variables. The theoretically derived equilibrium real exchange rate — the natural real exchange rate (NATREX) — is where the real exchange rate is heading. These benchmarks are applied to answer the following questions: What is a theoretically based empirical measure of a “misaligned” exchange rate that increases the probability of a significant depreciation or a currency crisis? What is a theoretically based empirical measure of an “excess” debt that increases the probability of a debt crisis? What is the interaction between an excess debt and a misaligned exchange rate? The theory is applied to evaluate the Euro exchange rate, the exchange rates of the transition economies of Eastern Europe, the sustainability of U.S. current account deficits, and derives warning signals of the Asian crises, defaults, and debt crises in emerging markets.
Jerome L. Stein
- Published in print:
- 2006
- Published Online:
- May 2006
- ISBN:
- 9780199280575
- eISBN:
- 9780191603501
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199280576.003.0004
- Subject:
- Economics and Finance, Financial Economics
The NATREX is a model of the equilibrium real exchange rate, which is where the real exchange rate is heading. The NATREX model has two components: the long-run equilibrium real exchange rate and the ...
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The NATREX is a model of the equilibrium real exchange rate, which is where the real exchange rate is heading. The NATREX model has two components: the long-run equilibrium real exchange rate and the dynamics of adjustment of the medium-run equilibrium to the long-run equilibrium. In the medium-run equilibrium, the ratio of the external debt/GDP is predetermined, and the real exchange rate is associated with both internal and external balance. The real exchange rate and debt ratio are endogenous variables. In full stock-flow equilibrium, the long run equilibrium real exchange rate and external debt ratio depend upon the vector of time varying fundamentals, which are productivity and thrift in the country relative to the rest of the world.Less
The NATREX is a model of the equilibrium real exchange rate, which is where the real exchange rate is heading. The NATREX model has two components: the long-run equilibrium real exchange rate and the dynamics of adjustment of the medium-run equilibrium to the long-run equilibrium. In the medium-run equilibrium, the ratio of the external debt/GDP is predetermined, and the real exchange rate is associated with both internal and external balance. The real exchange rate and debt ratio are endogenous variables. In full stock-flow equilibrium, the long run equilibrium real exchange rate and external debt ratio depend upon the vector of time varying fundamentals, which are productivity and thrift in the country relative to the rest of the world.
Jerome L. Stein
- Published in print:
- 2006
- Published Online:
- May 2006
- ISBN:
- 9780199280575
- eISBN:
- 9780191603501
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199280576.003.0001
- Subject:
- Economics and Finance, Financial Economics
This overview chapter explains the relevance and the contributions of this book to economic theory and policy. The economic theory and mathematics developed in chapters 2 and 3 derive benchmarks for ...
More
This overview chapter explains the relevance and the contributions of this book to economic theory and policy. The economic theory and mathematics developed in chapters 2 and 3 derive benchmarks for the optimal debt in an environment where both the return on capital and the real rate of interest are stochastic variables. The equilibrium real exchange rate, the subject of chapter 4, is where the real exchange rate is heading. These benchmarks are applied in chapters 5-9 to the euro, the real exchange rate of the transition economies in Eastern Europe, default risks in emerging market countries, the Asian crises, and the United States current account deficits.Less
This overview chapter explains the relevance and the contributions of this book to economic theory and policy. The economic theory and mathematics developed in chapters 2 and 3 derive benchmarks for the optimal debt in an environment where both the return on capital and the real rate of interest are stochastic variables. The equilibrium real exchange rate, the subject of chapter 4, is where the real exchange rate is heading. These benchmarks are applied in chapters 5-9 to the euro, the real exchange rate of the transition economies in Eastern Europe, default risks in emerging market countries, the Asian crises, and the United States current account deficits.
Jerome L. Stein
- Published in print:
- 2006
- Published Online:
- May 2006
- ISBN:
- 9780199280575
- eISBN:
- 9780191603501
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199280576.003.0006
- Subject:
- Economics and Finance, Financial Economics
On the basis of the NATREX model, several key studies are evaluated to answer the questions: How can the trends in the real exchange rates of the transition economies of Eastern Europe be explained? ...
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On the basis of the NATREX model, several key studies are evaluated to answer the questions: How can the trends in the real exchange rates of the transition economies of Eastern Europe be explained? What are sustainable and equilibrium real exchange rates, current account deficits, and net investment positions in the medium and in the long-run? What are the policy implications for the transition economies planning to join the Euro area? Neither the PPP nor the Balassa-Samuelson hypotheses can explain the data. Both the reduced form and structural equations of the NATREX model are consistent with the data for Hungary and the Czech Republic. The exchange rate behavior for Poland and Bulgaria also are explained by the NATREX model.Less
On the basis of the NATREX model, several key studies are evaluated to answer the questions: How can the trends in the real exchange rates of the transition economies of Eastern Europe be explained? What are sustainable and equilibrium real exchange rates, current account deficits, and net investment positions in the medium and in the long-run? What are the policy implications for the transition economies planning to join the Euro area? Neither the PPP nor the Balassa-Samuelson hypotheses can explain the data. Both the reduced form and structural equations of the NATREX model are consistent with the data for Hungary and the Czech Republic. The exchange rate behavior for Poland and Bulgaria also are explained by the NATREX model.
Joseph E. Stiglitz, José Antonio Ocampo, Shari Spiegel, Ricardo Ffrench-Davis, and Deepak Nayyar
- Published in print:
- 2006
- Published Online:
- September 2006
- ISBN:
- 9780199288144
- eISBN:
- 9780191603884
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199288143.003.0007
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter looks at exchange rate management and other policy options for an open economy. It begins with an introductory discussion of overall macroeconomic management for open economies, ...
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This chapter looks at exchange rate management and other policy options for an open economy. It begins with an introductory discussion of overall macroeconomic management for open economies, including the issues of internal and external balance and inflation targeting. It then examines how countries can attempt to manage the exchange rate. Topics covered in this section include the benefits of maintaining an undervalued exchange rate in some developing countries, government interventions to smooth out exchange rate fluctuations, and the trade-off between stability and flexibility when choosing an exchange rate regime. The chapter concludes with an analysis of other policy options in open economies, including heterodox microeconomic interventions, public sector liability management, and debt restructuring.Less
This chapter looks at exchange rate management and other policy options for an open economy. It begins with an introductory discussion of overall macroeconomic management for open economies, including the issues of internal and external balance and inflation targeting. It then examines how countries can attempt to manage the exchange rate. Topics covered in this section include the benefits of maintaining an undervalued exchange rate in some developing countries, government interventions to smooth out exchange rate fluctuations, and the trade-off between stability and flexibility when choosing an exchange rate regime. The chapter concludes with an analysis of other policy options in open economies, including heterodox microeconomic interventions, public sector liability management, and debt restructuring.
Jerome L. Stein
- Published in print:
- 2006
- Published Online:
- May 2006
- ISBN:
- 9780199280575
- eISBN:
- 9780191603501
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199280576.003.0005
- Subject:
- Economics and Finance, Financial Economics
Based on the NATREX model in chapter 4, this chapter answers the question: How can one explain the medium to longer run movements in the Synthetic-Euro, which is a basket of currencies of the member ...
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Based on the NATREX model in chapter 4, this chapter answers the question: How can one explain the medium to longer run movements in the Synthetic-Euro, which is a basket of currencies of the member countries, from 1973-2000? Based upon the answer to this question, the expected value of the Euro/$US exchange rate in the future is analyzed, conditional upon policies followed in the two areas. The NATREX model, whose fundamentals are relative productivity and thrift, is consistent with the evidence. Both the PPP and Balassa-Samuelson hypotheses are rejected.Less
Based on the NATREX model in chapter 4, this chapter answers the question: How can one explain the medium to longer run movements in the Synthetic-Euro, which is a basket of currencies of the member countries, from 1973-2000? Based upon the answer to this question, the expected value of the Euro/$US exchange rate in the future is analyzed, conditional upon policies followed in the two areas. The NATREX model, whose fundamentals are relative productivity and thrift, is consistent with the evidence. Both the PPP and Balassa-Samuelson hypotheses are rejected.
Joseph E. Stiglitz, José Antonio Ocampo, Shari Spiegel, Ricardo Ffrench-Davis, and Deepak Nayyar
- Published in print:
- 2006
- Published Online:
- September 2006
- ISBN:
- 9780199288144
- eISBN:
- 9780191603884
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199288143.003.0006
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter extends the analysis of the previous chapter to an open economy by introducing exchange rate policy; analyzing the complex relationships between exchange rate, fiscal, and monetary ...
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This chapter extends the analysis of the previous chapter to an open economy by introducing exchange rate policy; analyzing the complex relationships between exchange rate, fiscal, and monetary policies; and examining the ways in which capital flows complicate traditional analyses. Despite the greater complexities associated with open economy macroeconomics, the policy conclusions for a closed economy remain remarkably unaffected. While Keynesians and heterodox economists believe that government should actively intervene, conservatives remain skeptical about the desirability of such interventions. The objective of this chapter is to shed some light on how economists can come to such diverse views on economic policy. The first section examines the macroeconomic effects of exchange rates on employment, trade, inflation, aggregate demand, growth, and balance sheets. The second section examines the complex interactions between fiscal, monetary, and exchange rate policies in open economies with either fixed or flexible exchange rate regimes. This section also examines the effects of interest rates and exchange rates on capital flows in both crisis and non-crisis situations.Less
This chapter extends the analysis of the previous chapter to an open economy by introducing exchange rate policy; analyzing the complex relationships between exchange rate, fiscal, and monetary policies; and examining the ways in which capital flows complicate traditional analyses. Despite the greater complexities associated with open economy macroeconomics, the policy conclusions for a closed economy remain remarkably unaffected. While Keynesians and heterodox economists believe that government should actively intervene, conservatives remain skeptical about the desirability of such interventions. The objective of this chapter is to shed some light on how economists can come to such diverse views on economic policy. The first section examines the macroeconomic effects of exchange rates on employment, trade, inflation, aggregate demand, growth, and balance sheets. The second section examines the complex interactions between fiscal, monetary, and exchange rate policies in open economies with either fixed or flexible exchange rate regimes. This section also examines the effects of interest rates and exchange rates on capital flows in both crisis and non-crisis situations.
Jerome L. Stein
- Published in print:
- 2006
- Published Online:
- May 2006
- ISBN:
- 9780199280575
- eISBN:
- 9780191603501
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199280576.003.0008
- Subject:
- Economics and Finance, Financial Economics
The Asian financial crises were unexpected by the market and many countries in the region experienced it at about the same time. Drawing upon the theoretical analyses in chapters 2-4, an operational ...
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The Asian financial crises were unexpected by the market and many countries in the region experienced it at about the same time. Drawing upon the theoretical analyses in chapters 2-4, an operational theory is provided to answer the following questions for the Asian countries: Was a currency crisis produced by an overvalued real exchange rate? Was a debt crisis produced by an “excessive/unsustainable” external debt? What was the interaction between the two? The models imply a set of objective, theoretically-based warning signals and empirical analysis allows the assessment of which countries were or were not highly vulnerable to shocks.Less
The Asian financial crises were unexpected by the market and many countries in the region experienced it at about the same time. Drawing upon the theoretical analyses in chapters 2-4, an operational theory is provided to answer the following questions for the Asian countries: Was a currency crisis produced by an overvalued real exchange rate? Was a debt crisis produced by an “excessive/unsustainable” external debt? What was the interaction between the two? The models imply a set of objective, theoretically-based warning signals and empirical analysis allows the assessment of which countries were or were not highly vulnerable to shocks.
Jerome L. Stein and Polly Reynolds Allen
- Published in print:
- 1998
- Published Online:
- November 2003
- ISBN:
- 9780198293064
- eISBN:
- 9780191596940
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198293062.001.0001
- Subject:
- Economics and Finance, Macro- and Monetary Economics, International
The NATREX approach offers an alternative paradigm to the Purchasing Power Parity for equilibrium real exchange rates. NATREX is the acronym for NATural Real EXchange, referring to a medium‐run, ...
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The NATREX approach offers an alternative paradigm to the Purchasing Power Parity for equilibrium real exchange rates. NATREX is the acronym for NATural Real EXchange, referring to a medium‐run, inter‐cyclical equilibrium real exchange rate, determined by real, fundamental factors. Importantly, the NATREX is a moving equilibrium real exchange rate, responding to continual changes in exogenous and endogenous real fundamentals. In a world of high capital mobility, the fundamentals of thrift, productivity, capital intensity, and net debt to foreigners become particularly important, influencing desired long‐term capital flows and altering the equilibrium real exchange rate. The NATREX approach identifies and models the fundamental determinants of equilibrium real exchange rates, consistent with their recent empirical movements in various countries.The NATREX model is a dynamic stock‐flow growth model. The goal of the NATREX approach is primarily empirical – to explain movements of medium‐ to long‐run real exchange rates in terms of the fundamental real variables of thrift and productivity, assuming that real exchange rates do adjust toward their equilibrium level, although with a lag. A family of consistent general equilibrium models – of rational, optimizing behavior, determining medium‐run equilibrium real exchange rates – forms the core of the NATREX approach. These models provide logical economic justifications for the empirical results.Less
The NATREX approach offers an alternative paradigm to the Purchasing Power Parity for equilibrium real exchange rates. NATREX is the acronym for NATural Real EXchange, referring to a medium‐run, inter‐cyclical equilibrium real exchange rate, determined by real, fundamental factors. Importantly, the NATREX is a moving equilibrium real exchange rate, responding to continual changes in exogenous and endogenous real fundamentals. In a world of high capital mobility, the fundamentals of thrift, productivity, capital intensity, and net debt to foreigners become particularly important, influencing desired long‐term capital flows and altering the equilibrium real exchange rate. The NATREX approach identifies and models the fundamental determinants of equilibrium real exchange rates, consistent with their recent empirical movements in various countries.
The NATREX model is a dynamic stock‐flow growth model. The goal of the NATREX approach is primarily empirical – to explain movements of medium‐ to long‐run real exchange rates in terms of the fundamental real variables of thrift and productivity, assuming that real exchange rates do adjust toward their equilibrium level, although with a lag. A family of consistent general equilibrium models – of rational, optimizing behavior, determining medium‐run equilibrium real exchange rates – forms the core of the NATREX approach. These models provide logical economic justifications for the empirical results.
David R. Cameron
- Published in print:
- 1998
- Published Online:
- April 2004
- ISBN:
- 9780198294641
- eISBN:
- 9780191601071
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198294646.003.0007
- Subject:
- Political Science, European Union
Seeks to understand why some member‐states of the European Community attempted, with eventual success, to extend supranational authority in the domain of monetary and exchange‐rate policy and to ...
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Seeks to understand why some member‐states of the European Community attempted, with eventual success, to extend supranational authority in the domain of monetary and exchange‐rate policy and to anticipate some of the probable consequences of such extension. It begins by analysing the beliefs that originally underpinned the attempt, concerning the perceived need to resolve the community tensions inherent in independent economic policy‐making. It then considers the economic, political and institutional dilemmas, and uncertainties likely to confront member‐states as economic integration proceeds. Concentrating on the issues of low growth and high unemployment, it assesses how far European Monetary Union is likely to provide a remedy, and whether it will be necessary or desirable to create a counterweight to the authority of the European Central Bank, and to create new supranational organizations in the domain of European macroeconomic governance.Less
Seeks to understand why some member‐states of the European Community attempted, with eventual success, to extend supranational authority in the domain of monetary and exchange‐rate policy and to anticipate some of the probable consequences of such extension. It begins by analysing the beliefs that originally underpinned the attempt, concerning the perceived need to resolve the community tensions inherent in independent economic policy‐making. It then considers the economic, political and institutional dilemmas, and uncertainties likely to confront member‐states as economic integration proceeds. Concentrating on the issues of low growth and high unemployment, it assesses how far European Monetary Union is likely to provide a remedy, and whether it will be necessary or desirable to create a counterweight to the authority of the European Central Bank, and to create new supranational organizations in the domain of European macroeconomic governance.
Jerome L. Stein
- Published in print:
- 2006
- Published Online:
- May 2006
- ISBN:
- 9780199280575
- eISBN:
- 9780191603501
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0199280576.003.0009
- Subject:
- Economics and Finance, Financial Economics
For nearly a quarter of a century, the US has persistently run significant current account deficits that transformed it from the world’s largest net creditor to its largest debtor. The stochastic ...
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For nearly a quarter of a century, the US has persistently run significant current account deficits that transformed it from the world’s largest net creditor to its largest debtor. The stochastic optimal control/dynamic programming approach provides a framework to derive the optimal debt ratio, based upon both objective variables and preferences. The following set of questions are answered: What is a sustainable ratio of external debt/GDP? What are the consequences of an “excessive” debt? By how much does the dollar need to decline in order to achieve a sustainable current account position for the US and rest of world? The deviation of the actual debt ratio from the derived optimum increases the vulnerability of the economy to external shocks.Less
For nearly a quarter of a century, the US has persistently run significant current account deficits that transformed it from the world’s largest net creditor to its largest debtor. The stochastic optimal control/dynamic programming approach provides a framework to derive the optimal debt ratio, based upon both objective variables and preferences. The following set of questions are answered: What is a sustainable ratio of external debt/GDP? What are the consequences of an “excessive” debt? By how much does the dollar need to decline in order to achieve a sustainable current account position for the US and rest of world? The deviation of the actual debt ratio from the derived optimum increases the vulnerability of the economy to external shocks.
Giovanni Piersanti
- Published in print:
- 2012
- Published Online:
- September 2012
- ISBN:
- 9780199653126
- eISBN:
- 9780191741210
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199653126.003.0003
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This chapter discusses the basic analytical framework of “first-generation” models of currency crises and their extensions to deal with important features of balance-of-payments crises such as ...
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This chapter discusses the basic analytical framework of “first-generation” models of currency crises and their extensions to deal with important features of balance-of-payments crises such as alternative post-collapse regimes, capital control and borrowing constraints, interest rate defence policies, the interaction between bank solvency and currency stability, uncertainty about government policies, real effects of crises. The key implication of this approach is that a fixed exchange rate regime cannot survive the long-run inconsistency between monetary, fiscal, and exchange rate policies. Unnecessary domestic money growth leads to a persistent loss of reserves and ultimately to a speculative attack against the home currency that forces the government to switch out of the peg once reserves approach a minimum level. It also predicts that the attack will take place at the point where the shadow exchange rate (i.e., the rate that would prevail if the government diverted into a floating rate) equals the fixed peg.Less
This chapter discusses the basic analytical framework of “first-generation” models of currency crises and their extensions to deal with important features of balance-of-payments crises such as alternative post-collapse regimes, capital control and borrowing constraints, interest rate defence policies, the interaction between bank solvency and currency stability, uncertainty about government policies, real effects of crises. The key implication of this approach is that a fixed exchange rate regime cannot survive the long-run inconsistency between monetary, fiscal, and exchange rate policies. Unnecessary domestic money growth leads to a persistent loss of reserves and ultimately to a speculative attack against the home currency that forces the government to switch out of the peg once reserves approach a minimum level. It also predicts that the attack will take place at the point where the shadow exchange rate (i.e., the rate that would prevail if the government diverted into a floating rate) equals the fixed peg.
Phillippe Aghion and Abhijit Banerjee
- Published in print:
- 2005
- Published Online:
- January 2007
- ISBN:
- 9780199248612
- eISBN:
- 9780191714719
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199248612.003.0007
- Subject:
- Economics and Finance, Development, Growth, and Environmental
This chapter presents a highly stylized model, based on limited access to credit that can explain why an economy that is carrying a large amount of foreign currency debt might be vulnerable to ...
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This chapter presents a highly stylized model, based on limited access to credit that can explain why an economy that is carrying a large amount of foreign currency debt might be vulnerable to currency crises, leaving it with a depreciated currency and GDP that remains lower than the pre-crisis trend for some time into the future. It is argued that in a monetary economy with standard price rigidities, credit constraints together with pecuniary externalities working through the nominal exchange rate are sufficient to generate currency crises.Less
This chapter presents a highly stylized model, based on limited access to credit that can explain why an economy that is carrying a large amount of foreign currency debt might be vulnerable to currency crises, leaving it with a depreciated currency and GDP that remains lower than the pre-crisis trend for some time into the future. It is argued that in a monetary economy with standard price rigidities, credit constraints together with pecuniary externalities working through the nominal exchange rate are sufficient to generate currency crises.
Dominick Salvatore, James W. Dean, and Thomas D. Willett (eds)
- Published in print:
- 2003
- Published Online:
- November 2003
- ISBN:
- 9780195155358
- eISBN:
- 9780199832989
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0195155351.001.0001
- Subject:
- Economics and Finance, International
This book presents a compilation of papers that explore the dollarization debate. The prevailing view is that all exchange rate regimes have benefits and costs, which will vary across countries. The ...
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This book presents a compilation of papers that explore the dollarization debate. The prevailing view is that all exchange rate regimes have benefits and costs, which will vary across countries. The book is divided into four parts. Part I presents a general analysis of the dollarization debate. Part II focuses on the political economy. Part III looks into the dollarization debate in North America. Part IV considers the case for dollarization in Latin America.Less
This book presents a compilation of papers that explore the dollarization debate. The prevailing view is that all exchange rate regimes have benefits and costs, which will vary across countries. The book is divided into four parts. Part I presents a general analysis of the dollarization debate. Part II focuses on the political economy. Part III looks into the dollarization debate in North America. Part IV considers the case for dollarization in Latin America.
Giovanni Piersanti
- Published in print:
- 2012
- Published Online:
- September 2012
- ISBN:
- 9780199653126
- eISBN:
- 9780191741210
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780199653126.003.0005
- Subject:
- Economics and Finance, Macro- and Monetary Economics
In order to describe the path followed by major macroeconomic variable around the time of crises, this chapter examines some dynamic models. It thus shows how the dynamic adjustment path of the ...
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In order to describe the path followed by major macroeconomic variable around the time of crises, this chapter examines some dynamic models. It thus shows how the dynamic adjustment path of the economy associated with exchange rate based stabilization plan can be linked to currency crisis. How expected changes in future government's policies can affect the timing of attacks. How a run on central bank's foreign reserves can emerge in a context of consistent and flexible policy rules. How policymakers can elude speculative attacks by introducing uncertainty into the speculators' decisions. That the domestic currency often stays overvalued for a long period. That large discrete devaluations occur after the peg is abandoned. That the domestic interest rates tend to rise in the run up to the crisis. That speculative runs often occur in a multi-period context giving rise to alternating phases of “tranquillity” and “distress”. That asset price dynamics plays a critical role in triggering a full-blown financial crisis.Less
In order to describe the path followed by major macroeconomic variable around the time of crises, this chapter examines some dynamic models. It thus shows how the dynamic adjustment path of the economy associated with exchange rate based stabilization plan can be linked to currency crisis. How expected changes in future government's policies can affect the timing of attacks. How a run on central bank's foreign reserves can emerge in a context of consistent and flexible policy rules. How policymakers can elude speculative attacks by introducing uncertainty into the speculators' decisions. That the domestic currency often stays overvalued for a long period. That large discrete devaluations occur after the peg is abandoned. That the domestic interest rates tend to rise in the run up to the crisis. That speculative runs often occur in a multi-period context giving rise to alternating phases of “tranquillity” and “distress”. That asset price dynamics plays a critical role in triggering a full-blown financial crisis.
J. C. R. Dow and I. D. Saville
- Published in print:
- 1990
- Published Online:
- November 2003
- ISBN:
- 9780198283195
- eISBN:
- 9780191596186
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198283199.001.0001
- Subject:
- Economics and Finance, Macro- and Monetary Economics
This book has been written to work on two levels. On the one hand, it provides a theory of monetary policy, focusing on the role of the central bank in determining and effecting policy. It also ...
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This book has been written to work on two levels. On the one hand, it provides a theory of monetary policy, focusing on the role of the central bank in determining and effecting policy. It also examines the relationship of the central banks to the public and private sectors. Both authors have extensive experience working in the Bank of England, and so are attempting to transfer this experience to the area of economic theory. The theoretical analysis is complemented by an examination of the successes and failures of monetary policy in the UK from the mid‐1960s. As such, the book acts as an important work for students of economics and economic theory, but is also accessible to those involved in policy‐making, journalism, and other interested parties.Less
This book has been written to work on two levels. On the one hand, it provides a theory of monetary policy, focusing on the role of the central bank in determining and effecting policy. It also examines the relationship of the central banks to the public and private sectors. Both authors have extensive experience working in the Bank of England, and so are attempting to transfer this experience to the area of economic theory. The theoretical analysis is complemented by an examination of the successes and failures of monetary policy in the UK from the mid‐1960s. As such, the book acts as an important work for students of economics and economic theory, but is also accessible to those involved in policy‐making, journalism, and other interested parties.
J. C. R. Dow and I. D. Saville
- Published in print:
- 1990
- Published Online:
- November 2003
- ISBN:
- 9780198283195
- eISBN:
- 9780191596186
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198283199.003.0005
- Subject:
- Economics and Finance, Macro- and Monetary Economics
The focus shifts from a closed economic environment to the effects of exogenous factors such as overseas trading, with exchange rates being key. To this end, the chapter is split into two main ...
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The focus shifts from a closed economic environment to the effects of exogenous factors such as overseas trading, with exchange rates being key. To this end, the chapter is split into two main arguments. The first offers a more theoretical account of the role of official action on exchange rates. The authors discuss their ideas in relation to Dornbusch‐type models. After this, the chapter discusses the adoption of flotation rates in 1973 in place of the Bretton Woods. The chapter ends with a brief discussion on how arguments developed in previous chapters are influenced by exogenous factors such as exchange rates.Less
The focus shifts from a closed economic environment to the effects of exogenous factors such as overseas trading, with exchange rates being key. To this end, the chapter is split into two main arguments. The first offers a more theoretical account of the role of official action on exchange rates. The authors discuss their ideas in relation to Dornbusch‐type models. After this, the chapter discusses the adoption of flotation rates in 1973 in place of the Bretton Woods. The chapter ends with a brief discussion on how arguments developed in previous chapters are influenced by exogenous factors such as exchange rates.
Polly Reynolds Allen
- Published in print:
- 1998
- Published Online:
- November 2003
- ISBN:
- 9780198293064
- eISBN:
- 9780191596940
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198293062.003.0001
- Subject:
- Economics and Finance, Macro- and Monetary Economics, International
An outline is given of the NATREX approach to determining equilibrium real exchange rates as presented in the book. The underlying framework, implications, supporting empirical evidence, and relation ...
More
An outline is given of the NATREX approach to determining equilibrium real exchange rates as presented in the book. The underlying framework, implications, supporting empirical evidence, and relation to other approaches are discussed, emphasizing the economic scenarios and the meaning of both the mathematical models and econometrics contained in detail in the subsequent chapters.Less
An outline is given of the NATREX approach to determining equilibrium real exchange rates as presented in the book. The underlying framework, implications, supporting empirical evidence, and relation to other approaches are discussed, emphasizing the economic scenarios and the meaning of both the mathematical models and econometrics contained in detail in the subsequent chapters.
Jerome L. Stein
- Published in print:
- 1998
- Published Online:
- November 2003
- ISBN:
- 9780198293064
- eISBN:
- 9780191596940
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198293062.003.0002
- Subject:
- Economics and Finance, Macro- and Monetary Economics, International
To what extent has the real exchange rate of the US dollar been as stable as is justified by the ”fundamentals” – fiscal policy, private saving ratio, productivity, rate of return on investment, real ...
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To what extent has the real exchange rate of the US dollar been as stable as is justified by the ”fundamentals” – fiscal policy, private saving ratio, productivity, rate of return on investment, real long‐term rate of interest? What factors can explain the persistent and large deviations from purchasing power parity? How can we calculate whether the US dollar is over or undervalued? What has produced the US current account deficits? How do international financial markets affect the responses of the US economy to internal and external disturbances?Less
To what extent has the real exchange rate of the US dollar been as stable as is justified by the ”fundamentals” – fiscal policy, private saving ratio, productivity, rate of return on investment, real long‐term rate of interest? What factors can explain the persistent and large deviations from purchasing power parity? How can we calculate whether the US dollar is over or undervalued? What has produced the US current account deficits? How do international financial markets affect the responses of the US economy to internal and external disturbances?
Jerome L. Stein
- Published in print:
- 1998
- Published Online:
- November 2003
- ISBN:
- 9780198293064
- eISBN:
- 9780191596940
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198293062.003.0006
- Subject:
- Economics and Finance, Macro- and Monetary Economics, International
The longer‐term systematic determinants of the real effective exchange rate of Germany are both domestic and external. The main domestic determinants are time preference, the ratio of public plus ...
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The longer‐term systematic determinants of the real effective exchange rate of Germany are both domestic and external. The main domestic determinants are time preference, the ratio of public plus private consumption/GNP, and the Tobin q‐ratio. The main external determinants are the European terms of trade, whose variations are produced primarily by relative price of imported materials, and the GDP in the G7. The NATREX model explains how these fundamental determinants determine the evolution of the German equilibrium real effective exchange rate and the current account/GNP in the medium to longer run. The PPP theory is a special case of the NATREX when a linear combination of the fundamentals is stationary.Less
The longer‐term systematic determinants of the real effective exchange rate of Germany are both domestic and external. The main domestic determinants are time preference, the ratio of public plus private consumption/GNP, and the Tobin q‐ratio. The main external determinants are the European terms of trade, whose variations are produced primarily by relative price of imported materials, and the GDP in the G7. The NATREX model explains how these fundamental determinants determine the evolution of the German equilibrium real effective exchange rate and the current account/GNP in the medium to longer run. The PPP theory is a special case of the NATREX when a linear combination of the fundamentals is stationary.
