The Experts below are selected from a list of 5544 Experts worldwide ranked by ideXlab platform
Stefan Gerlach - One of the best experts on this subject based on the ideXlab platform.
-
monetary operations by hong kong s Currency Board
Journal of Asian Economics, 2005Co-Authors: Stefan GerlachAbstract:Abstract Currency Boards are typically seen as demonstrating the advantages of rule-bound monetary policies with automatic responses to exchange market imbalances. We study the monetary operations conducted by Hong Kong's Currency Board, using daily data between September 1998 and December 2001. Since this regime is one-sided in that there is a commitment to sell, but not to buy, US dollars at a given rate, we estimate logit equations for dollar purchases. We show that these have shifted over time and that while the variables are statistically highly significant, the predictive power is low.
-
HONG KONG'S Currency Board: Modelling the discretion on the strong side
2002Co-Authors: Stefan GerlachAbstract:While Hong Kong’s Currency Board is frequently seen as indicating the advantages of a rule-bound monetary policy, this Currency Board is one-sided and involves discretion in that there is a commitment to sell, but not to buy, US dollars at a given rate. Using daily data for September 1998 to December 2001 to estimate reaction functions for dollar purchases, we show that the aggregate balance, interest rate spreads and market exchange rates help predict such purchases. However, this relationship has shifted over time. Moreover, while the variables are statistically highly significant, the predictive power is low.
Kurt Schuler - One of the best experts on this subject based on the ideXlab platform.
-
a Currency Board solution for the albanian lek
2013Co-Authors: Steve H Hanke, Kurt SchulerAbstract:To have a stable Currency, Albania needs to avoid both foreign political influences on its monetary policy, as under National Bank of Albania, and domestic political influences, as under the State Bank of Albania. It needs to remove monetary policy from political influence. Albania needs to give its monetary reform instant credibility, to avoid the dangers of continuing inflation on the one hand and depression on the other hand. The best way to do so is to strip the State Bank of Albania its Currency issuing functions, and to establish a Currency Board, whose only job will be to issue a convertible Currency according to strictly defined rules. A Currency Board is explicitly designed to maintain a fixed exchange rate. A Board is easy to establish and operate, and it has worked successfully time and time again. Indeed, Currency Boards have always been able to maintain fixed-rate Currency convertibility, even during the most trying times.
-
Teeth for the Bulgarian Lev: A Currency Board Solution
Social Science Research Network, 2013Co-Authors: Steve H Hanke, Kurt SchulerAbstract:Bulgaria needs to give its monetary reform instant credibility, to avoid the dangers of continuing inflation on the one hand and depression on the other. A fixed exchange rate system with a central bank always fails. There is, however, one proven system that will successfully maintain a fixed exchange rate - the Currency Board system. To establish monetary confidence in the Lev, Bulgaria should replace its central bank with a Currency Board. A Currency is explicitly designed to maintain a fixed exchange rate. A Board is easy to establish and operate, and it has worked successfully time and time again. Indeed, Currency Boards have always been able to maintain fixed-rate Currency convertibility, even during the most trying times.
-
Russian Currency and Finance: A Currency Board Approach to Reform
1993Co-Authors: Steve H Hanke, Lars Jonung, Kurt SchulerAbstract:As the new Russian state struggles with the transition to a market economy, the need for radical monetary reform becomes increasingly urgent. The choice of reform is crucial, for it will largely determine Russia's future economic performance. In order to break free of the lingering effects of Soviet central planning, the new Russian state needs a stable, convertible Currency. Steve H. Hanke, Lars Jonung and Kurt Schuler propose that Russia establishes a Currency Board which would issue a Russian Currency fully convertible with international Currency, backed 100 per cent by international bonds. The international community would aid in establishing the Currency Board by providing the initial reserves. Early supplies of this new Russian Currency would be distributed free to Russian citizens. The authors give detailed explanations of how the Currency Board could be established and how it would work.
Francis T. Lui - One of the best experts on this subject based on the ideXlab platform.
-
Currency Board, Asian financial crisis, and the case for put options
Exchange Rate Regimes and Macroeconomic Stability, 2003Co-Authors: Francis T. Lui, Leonard K. Cheng, Yum K. KwanAbstract:The chapter reviews the circumstances under which speculative attacks on the Currency Board of Hong Kong occurred during the Asian financial turmoil. It is shown that the conventional defense mechanism via interest arbitrage has not functioned properly. An alternative approach of issuing put options to strengthen the Currency Board is evaluated. We show that the “technical” measures eventually undertaken by the Hong Kong Monetary Authority (HKMA) in September 1998 are functionally equivalent to issuing the put options, thereby providing a natural experiment of this idea. Based on credibility measures extracted from financial market data since the inception of the Board in 1983, we find that interest rate arbitrage had been working properly until the rule-bound Currency Board was eroded by central bank-like, discretionary policies pursued by the HKMA. However, after implementing the put options proposal, which effectively put the HKMA back onto the rule-bound track, interest rate arbitrage appeared to be effective again.
-
How Well Has the Currency Board Performed? Evidence from Hong Kong
1999Co-Authors: Yum K. Kwan, Francis T. LuiAbstract:The Currency Board system has sometimes been identified as the solution to the recent financial turmoil in many countries. Hong Kong, having the experience of abandoning and re-adopting the Currency Board, offers a natural opportunity to test its macroeconomic implications. We use the method of Blanchard and Quah (1989) to show that the structural equations and the characteristics of permanent and transitory shocks have significantly changed since re-adopting the regime in 1983. The evidence indicates that its Currency Board is less susceptible to supply shocks, but demand shocks can create greater volatility. Hong Kong’s decent performance is due mainly to the stable fiscal policy. Our analysis shows that two-thirds of the reduction in observed output and inflation volatility are explained by the adoption of the Currency Board, while the remainders are explained by changes in the external environment. The system does not rule out monetary collapse, however.
-
Hong Kong's Currency Board and Changing Monetary Regimes
National Bureau of Economic Research, 1999Co-Authors: Yum K. Kwan, Francis T. LuiAbstract:The paper discusses the historical background and institutional details of Hong Kong's Currency Board. We argue that its experience provides a good opportunity to test the macroeconomic implications of the Currency Board regime. Using the method of Blanchard and Quah (1989), we show that the parameters of the structural equations and the characteristics of supply and demand shocks have significantly changed since adopting the regime. Variance decomposition and impulse response analyses indicate Hong Kong's Currency Board is less susceptible to supply shocks, but demand shocks can cause greater short-term volatility under the system. The decent performance of Hong Kong's Currency Board is due mainly to the stable fiscal policy of its government. Counter-factual exercises also show that three-fourths of the reduction in observed output volatility and two-thirds of that in observed inflation volatility are explained by the adoption of the Currency Board, while the remainder is explained by changes in the external environment. The improvement in stability does not rule out the possibility of monetary collapse, however.(This abstract was borrowed from another version of this item.)
-
HONG KONG'S Currency Board AND CHANGING MONETARY REGIMES
1996Co-Authors: Yum K. Kwan, Francis T. LuiAbstract:The paper discusses the historical background and institutional details of Hong Kong's Currency Board. We argue that its experience provides a good opportunity to test the macroeconomic implications of the Currency Board regime. Using the method of Blanchard and Quah (1989), we show that the parameters of the structural equations and the characteristics of supply and demand shocks have significantly changed since adopting the regime. Variance decomposition and impulse response analyses indicate Hong Kong's Currency Board is less susceptible to supply shocks, but demand shocks can cause greater short-term volatility under the system. The decent performance of Hong Kong's Currency Board is due mainly to the stable fiscal policy of its government. Counter-factual exercises also show that three-fourths of the reduction in observed output volatility and two-thirds of that in observed inflation volatility are explained by the adoption of the Currency Board, while the remainder is explained by changes in the external environment. The improvement in stability does not rule out the possibility of monetary collapse, however.
Nai-fu Chen - One of the best experts on this subject based on the ideXlab platform.
-
the hong kong Currency Board during the 1997 8 crisis problems and solutions
International Review of Finance, 2003Co-Authors: Nai-fu ChenAbstract:The note-based Hong Kong Currency Board was ineffective in dealing with Currency speculations at the start of the Asian financial crisis in 1997. The makeshift modification implemented by the Hong Kong Monetary Authority imposed implicit controls on the capital outflow and produced high and volatile interest rates. There are simple solutions. We examine the merits and evidence related to the issuance of Currency put options by the monetary authority as a commitment against devaluation. Furthermore, a simple mechanism linking the domestic credit demand to the reserve Currency base will induce proper interest-rate dynamics for a Currency Board to function properly.
-
A Theory of Currency Board with Irrevocable Commitments
SSRN Electronic Journal, 2002Co-Authors: Nai-fu Chen, Alex W.h. ChanAbstract:Currency Boards are subject to runs if the foreign Currency reserve is insufficient to back the convertible money supply. We construct a simple model capturing the main features of a Currency Board to analyze a government's decision to maintain or abandon a Currency Board based on the costs and benefits. Furthermore, we show how pre-specified commitments can enhance the credibility of a Currency Board and avert runs, and determine what the optimal reserve commitment should be. If there exists asymmetric information on the government's resolve, the government can use commitments as a costly signal to induce a separating equilibrium. The model can be adapted to analyze other hard-fixed exchange rate systems such as dollarizations and monetary unions. We illustrate the implications of our model in terms of the recent success in Hong Kong and remedies for Argentina.
-
The Hong Kong Currency Board During the 1997–8 Crisis: Problems and Solutions
International Review of Finance, 2001Co-Authors: Nai-fu ChenAbstract:The note-based Hong Kong Currency Board was ineffective in dealing with Currency speculations at the start of the Asian financial crisis in 1997. The makeshift modification implemented by the Hong Kong Monetary Authority imposed implicit controls on the capital outflow and produced high and volatile interest rates. There are simple solutions. We examine the merits and evidence related to the issuance of Currency put options by the monetary authority as a commitment against devaluation. Furthermore, a simple mechanism linking the domestic credit demand to the reserve Currency base will induce proper interest-rate dynamics for a Currency Board to function properly.
-
An Intertemporal Currency Board
Pacific Economic Review, 1999Co-Authors: Alex W.h. Chan, Nai-fu ChenAbstract:The paper shows that the traditional wisdom of raising interest rates to defend a Currency enriches rather than punishes the speculators. Furthermore, using high interest rates as a Currency defense tool often produces the opposite effect in times of crisis. A new approach is proposed of using Hong Kong dollar “put” options as an explicit commitment by the government. The put option itself acts like an intertemporal Currency Board in keeping the linked exchange rate over time. This costly signaling produces a separating equilibrium that distinguishes the strength of the Hong Kong dollar from the other Asian currencies that were under pressure in 1997.
Alex W.h. Chan - One of the best experts on this subject based on the ideXlab platform.
-
The Currency Board in Hong Kong: Operational Weaknesses and A Proposed Refinement Scheme
Exchange Rate Regimes and Macroeconomic Stability, 2003Co-Authors: Alex W.h. ChanAbstract:It is generally thought that a strong Currency Board system was the key to successfully defend the Hong Kong dollar during the Asian financial crisis in 1997/1998. However, the actual operation of Hong Kong’s Currency Board system was perhaps very different from the general public’s perception. This chapter is to explore the major operational weaknesses of Hong Kong’s Currency Board system during the Asian financial crisis. Not only did those weaknesses make the Currency Board ineffectively utilize the huge foreign reserve to stabilize the HK$ exchange rate and interest rate, but also became a loophole in the financial system. This loophole enticed speculative attacks on the HK$ spot market, the HK$ forward market, and the stock market in Hong Kong. After exploring the operational weaknesses, we investigate a proposed refinement scheme to improve the operational weaknesses and discuss its improvements and implications.
-
A Theory of Currency Board with Commitments
2002Co-Authors: Alex W.h. ChanAbstract:Currency Boards are subject to runs if the foreign Currency reserve is insufficient to back the convertible money supply. We construct a simple model capturing the main features of a Currency Board to analyze a government’s decision to maintain or abandon a Currency Board based on the costs and benefits. We show how pre-specified commitments can enhance the credibility of a Currency Board and avert runs in times of uncertainty, and determine what the optimal reserve commitment should be. If there exists asymmetric information on the government’s resolve, the government can use commitments as a costly signal to induce a separating equilibrium. The model can be adapted to analyze other hard-fixed exchange rate systems such as dollarizations and monetary unions. We illustrate the implications of our model in terms of the recent success in Hong Kong and possible remedies for Argentina.
-
A Theory of Currency Board with Irrevocable Commitments
SSRN Electronic Journal, 2002Co-Authors: Nai-fu Chen, Alex W.h. ChanAbstract:Currency Boards are subject to runs if the foreign Currency reserve is insufficient to back the convertible money supply. We construct a simple model capturing the main features of a Currency Board to analyze a government's decision to maintain or abandon a Currency Board based on the costs and benefits. Furthermore, we show how pre-specified commitments can enhance the credibility of a Currency Board and avert runs, and determine what the optimal reserve commitment should be. If there exists asymmetric information on the government's resolve, the government can use commitments as a costly signal to induce a separating equilibrium. The model can be adapted to analyze other hard-fixed exchange rate systems such as dollarizations and monetary unions. We illustrate the implications of our model in terms of the recent success in Hong Kong and remedies for Argentina.
-
An Intertemporal Currency Board
Pacific Economic Review, 1999Co-Authors: Alex W.h. Chan, Nai-fu ChenAbstract:The paper shows that the traditional wisdom of raising interest rates to defend a Currency enriches rather than punishes the speculators. Furthermore, using high interest rates as a Currency defense tool often produces the opposite effect in times of crisis. A new approach is proposed of using Hong Kong dollar “put” options as an explicit commitment by the government. The put option itself acts like an intertemporal Currency Board in keeping the linked exchange rate over time. This costly signaling produces a separating equilibrium that distinguishes the strength of the Hong Kong dollar from the other Asian currencies that were under pressure in 1997.
