The Experts below are selected from a list of 324 Experts worldwide ranked by ideXlab platform
Charles M Engel - One of the best experts on this subject based on the ideXlab platform.
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expenditure switching vs real Exchange Rate stabilization competing objectives for Exchange Rate Policy
Journal of Monetary Economics, 2007Co-Authors: Michael B Devereux, Charles M EngelAbstract:This paper develops a view of Exchange Rate Policy as a trade-off between the desire to smooth fluctuations in real Exchange Rates so as to reduce distortions in consumption allocations, and the need to allow flexibility in the nominal Exchange Rate so as to facilitate terms of trade adjustment. We show that optimal nominal Exchange Rate volatility will reflect these competing objectives. The key determinants of how much the Exchange Rate should respond to shocks will depend on the extent and source of price stickiness, the elasticity of substitution between home and foreign goods, and the amount of home bias in production. Quantitatively, we find the optimal Exchange Rate volatility should be significantly less than would be inferred based solely on terms of trade considerations. Moreover, we find that the relationship between price stickiness and optimal Exchange Rate volatility may be non-monotonic.
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expectations and Exchange Rate Policy
National Bureau of Economic Research, 2006Co-Authors: Michael B Devereux, Charles M EngelAbstract:Both empirical evidence and theoretical discussion have long emphasized the impact of %u201Cnews%u201D on Exchange Rates. In most Exchange Rate models, the Exchange Rate acts as an asset price, and as such responds to news about future returns on assets. But the Exchange Rate also plays a role in determining the relative price of non-durable goods when nominal goods prices are sticky. In this paper we argue that these two roles may conflict with one another. If news about future asset returns causes movements in current Exchange Rates, then when nominal prices are slow to adjust, this may cause changes in current relative goods prices that have no efficiency rationale. In this sense, anticipations of future shocks to fundamentals can cause current Exchange Rate misalignments. Friedman%u2019s (1953) case for unfettered flexible Exchange Rates is overturned when Exchange Rates are asset prices. We outline a series of models in which an optimal Policy eliminates the effects of news on Exchange Rates.
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expenditure switching and Exchange Rate Policy
Nber Macroeconomics Annual, 2002Co-Authors: Charles M EngelAbstract:Nominal Exchange Rate changes can lead to 'expenditure switching' when they change relative international prices. A traditional argument for flexible nominal Exchange Rates posits that when prices are sticky in producers' currencies, nominal Exchange Rate movements can change relative prices between home and foreign goods. But if prices are fixed ex ante in consumers' currencies, nominal Exchange Rate flexibility cannot achieve any relative price adjustment. In that case nominal Exchange Rate fluctuations have the undesirable feature that they lead to deviations from the law of one price. The case for floating Exchange Rates is weakened if prices are sticky in this way. The empirical literature appears to support the notion that prices are sticky in consumers' currencies. Here, additional support for this conclusion is provided. We then review some new approaches in the theoretical literature that imply an important expenditure-switching role even when consumer prices are sticky in consumers' currencies. Further empirical research is needed to resolve the quantitative importance of the expenditure-switching role for nominal Exchange Rates.
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optimal Exchange Rate Policy the influence of price setting and asset markets
Journal of Money Credit and Banking, 2001Co-Authors: Charles M EngelAbstract:This paper examines optimal Exchange-Rate Policy in two-country sticky-price general equilibrium models in which households and firms optimize over an infinite horizon in an environment of uncertainty. The models are in the vein of the new open-economy macroeconomics' as exemplified by Obstfeld and Rogoff (1995, 1998, 2000). The conditions under which fixed or floating Exchange Rates yield higher welfare depend on the exact nature of price stickiness and on the degree of risk-sharing opportunities. This paper presents some preliminary empirical evidence on the behavior of consumer prices in Mexico that suggests failures of the law of one price are important. The evidence on price setting and risk-sharing opportunities is not refined enough to make definitive conclusions about the optimal Exchange-Rate regime for that country.
Andres Velasco - One of the best experts on this subject based on the ideXlab platform.
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balance sheets and Exchange Rate Policy
The American Economic Review, 2004Co-Authors: Luis Felipe Cespedes, Roberto Chang, Andres VelascoAbstract:We study the relation among Exchange Rates, balance sheets, and macroeconomic outcomes in a small open economy. Because liabilities are dollarized,' a real devaluation has detrimental effects on entreprenurial net worth, which in turn constrains investment due to financial frictions. But there is an offsetting effect, int hat devaluation expands home output and the return to domestic investment, which are also components of net worth. We show that the impact of an adverse foreign shock can be strongly magnified by the balance sheet effect of the associated real devaluation. But the fall in output employment, and investment is stronger under fixed Exchange Rates than under flexible Rates. Hence the conventional wisdom, that flexible Exchange Rates are better absorbers of real foreign shocks than are fixed Rates, holds in spite of potentially large balance sheet effects.
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Exchange Rate Policy for developing countries
The American Economic Review, 2000Co-Authors: Roberto Chang, Andres VelascoAbstract:According to the IMF, in the mid-1970’s approximately 85 percent of developing countries had pegged Exchange-Rate arrangements. Since then, the situation has changed drastically; today most developing countries have either managed floats or flexible Exchange Rates. Argentina, Hong-Kong, and a few others may persevere with their currency boards; additional nations may well imitate them. And movements toward common currencies, a la the European Union, may gain strength here and there. Nonetheless, it seems clear that the political and financial prerequisites to adopt such hard pegs are extremely stringent. New attempts are the exception, not the rule. The question for most emerging market economies is no longer “To float or not to float?” but “How to float?” In this note we review some key issues in defining the right answer to this question.
Samir Jahjah - One of the best experts on this subject based on the ideXlab platform.
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Exchange Rate Policy and sovereign bond spreads in developing countries
Journal of Money Credit and Banking, 2012Co-Authors: Samir JahjahAbstract:This paper empirically analyzes how Exchange Rate Policy affects the issuance and pricing of international bonds for developing countries. We find that countries with less flexible Exchange Rate regimes pay higher sovereign bond spreads and are less likely to issue bonds. Quantitatively, changing a free-floating regime to a fixed regime decreases the likelihood of bond issuance by 4.6% and increases the bond spread by 1.3% on average. Furthermore, countries with real Exchange Rate overvaluation have higher bond spreads and higher bond issuance probabilities. Moreover, such positive effects of real Exchange Rate overvaluation tend to be magnified for countries with fixed Exchange Rate regimes. Our results suggest that choosing a less flexible Exchange Rate regime in general leads to higher borrowing costs for developing countries, especially when their currencies are overvalued.
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Exchange Rate Policy and Sovereign Bond Spreads in Developing Countries
IMF Working Papers, 2004Co-Authors: Samir JahjahAbstract:We test the hypothesis of a link between Exchange Rate Policy and sovereign bonds. We analyze the effect of Exchange Rate policies on supply and credit spreads of sovereign bonds issued by developing countries. An Exchange Rate Policy is captured by the de facto Exchange Rate regime and the real Exchange Rate misalignment. The main findings are: (1) real Exchange Rate overvaluation significantly increases sovereign bond issue probability and raises bond spreads; (2) spreads and the likelihood of issuing bonds depend on the Exchange Rate regime; (3) Exchange Rate misalignment under a hard peg significantly increases bond spreads; (4) in time of debt crises, Exchange Rate Policy also greatly affects the sovereign bond market, especially through Exchange Rate overvaluation.
Jon Strand - One of the best experts on this subject based on the ideXlab platform.
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a risk allocation approach to optimal Exchange Rate Policy
Oxford Economic Papers, 2005Co-Authors: Gabriela B Mundaca, Jon StrandAbstract:We derive the optimal Exchange Rate Policy for a small open economy subject to terms-of-trade shocks. Firm owners and workers are risk averse but workers more so. Wages are given or partially indexed in the short run, and capital markets are imperfect. The government sets the Exchange Rate to allocate risk between workers and owners. With less risk-averse firms, and greater difference in risk aversion between workers and firms, the optimal Exchange Rate should vary little with pure terms-of-trade shocks but more with general shocks to prices. Optimal Exchange Rate variation is greater with indexed wages, but is smaller when firms behave monopolistically and when wage taxes (profit taxes) change procyclically (countercyclically) with export prices (import prices). The model gives Policy rules for determining optimal variations of the Exchange Rate, and indicates when it is, and is not, optimal to join a currency union with trading partners, implying zero Exchange Rate variation.
Barry Eichengreen - One of the best experts on this subject based on the ideXlab platform.
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the external impact of china s Exchange Rate Policy evidence from firm level data
National Bureau of Economic Research, 2011Co-Authors: Barry Eichengreen, Hui TongAbstract:We examine the impact of renminbi revaluation on firm valuations, considering two surprise announcements of changes in China's Exchange Rate Policy in 2005 and 2010 and data on 6,050 firms in 44 countries. Renminbi appreciation has a positive effect on firms exporting to China but little positive or even a negative impact on those providing inputs for China's processing exports. Stock prices rise for firms competing with China in their home market while falling for firms importing Chinese products with large imported-input content. Renminbi appreciation also reduces the valuation of financially-constrained firms, particularly in more financially integRated countries.
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the external impact of china s Exchange Rate Policy evidence from firm level data
IMF Working Papers, 2011Co-Authors: Barry Eichengreen, Hui TongAbstract:We examine the impact of renminbi revaluation on foreign firm valuations, considering two surprise announcements of changes in China’s Exchange Rate Policy in 2005 and 2010 and employing data on some 6,000 firms in 44 economies. Stock returns rise with renminbi revaluation expectations. This reaction appears to reflect a combination of improvements in general market sentiment and specific trade effects. Expected renminbi appreciation has a positive effect on firms exporting to China but a negative impact on those providing inputs for the country’s processing exports. Stock prices rise for firms competing with China in their home market but fall for firms importing Chinese products with large imported-input content. There is also some evidence that expected renminbi appreciation reduces the valuation of financially-constrained firms, presumably because appreciation implies reduced Chinese purchases of foreign securities. The results carry over when we consider ten instances of market-perceived changes in prospective Chinese currency Policy.
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monetary and Exchange Rate Policy in korea assessments and Policy issues
2004Co-Authors: Barry EichengreenAbstract:This Paper considers monetary and Exchange Rate Policy in Korea since the financial crisis of 1997-98. The Bank of Korea has adopted much of the apparatus of inflation targeting, with a band for target inflation and a Monetary Policy Report to the National Assembly. This regime has served the country well. But neither the Bank’s publications nor the statements of its Monetary Policy Committee make more than passing reference to the Exchange Rate. It would be surprising if in fact the Exchange Rate played little role in conduct of monetary Policy, for in an economy as open and sensitive to foreign trade and investment as Korea, currency movements contain information useful for forecasting inflation and the output gap. My findings suggest that the Bank of Korea does care about the Exchange Rate – and not only because it movements provide information relevant for the inflation forecast. In addition, the central bank responds to movements in the Exchange Rate for other reasons, like its implications for the balance of investment in traded and nontraded goods and its implications for financial stability. My recommendations are thus for more clarity on the role of the Exchange Rate in the formulation and conduct of monetary Policy. In particular, if the members of the Monetary Policy Committee are attentive to Exchange Rate movements, which is what is suggested by the evidence presented here, and especially if they care about such movements for reasons not limited to the utility of that variable for forecasting future inflation, then they should acknowledge this in their monthly press releases communicating the rationale for their decisions to the public and the markets.
