|
on Central Banking |
| By: | W. Max Corden (Department of Economics, The University of Melbourne) |
| Abstract: | The international current account imbalance, where the United States has a vast deficit and several countries, notably Japan, China, Germany and the oil exporters have corresponding surpluses, is usually seen as a problem. The argument here is that current account imbalances simply indicate intertemporal trade – the exchange of goods and services for claims. There are likely to be gains from trade of that kind as from ordinary trade. What then are the problems? This paper considers several scenarios, notably one where net savings of the surplus countries decline so that the world real interest rate rises, and another where the US fiscal deficit is reduced, so that the world real interest rate falls and there could be a world wide aggregate demand problem, essentially caused by the high net savings of the surplus countries. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:iae:iaewps:wp2006n13&r=cba |
| By: | Andreas Schabert (University of Amsterdam); Sweder van Wijnbergen (University of Amsterdam) |
| Abstract: | Blanchard (2005) suggested that active interest rate policy might induce unstable dynamics in highly-indebted economies. We examine this in a dynamic general equilibrium model where Calvo-type price rigidities provide a rationale for inflation stabilization. Unstable dynamics can occur when the CB is aggressively raising the interest rate in response to higher expected inflation. The constraint on stabilizing interest rate policy is tighter the higher the primary deficit and the more open the economy is. If the government cannot borrow from abroad in its own currency, stability requires interest rate policy to be accommodating (passive). Inflation stabilization is nevertheless feasible if the CB uses an instrument not associated with default risk, e.g. money supply. |
| Keywords: | Fiscal-monetary policy interactions; sovereign default risk; foreign debt; inflation targeting; original sin |
| JEL: | E52 E63 F41 |
| Date: | 2006–05–17 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:uvatin:20060045&r=cba |
| By: | Pau Rabanal; Mario I. Bléjer; Alfredo Mario Leone; Gerd Schwartz |
| Abstract: | This paper argues that the IMF's traditional monetary conditionality-a ceiling on net domestic assets of the central bank and a floor on its net international reserves-should be adapted in IMF-supported adjustment programs with countries which have a framework of explicit inflation targets for the implementation of monetary policy. This adaptation should aim at enhancing correspondence and consistency between the monetary objectives of the central bank and the targets established under the IMF-supported adjustment program, as well as between the different instruments used to achieve the policy objectives and targets. The paper reviews various general options in this regard, and, using the case of Brazil as an example, demonstrates how these options may be implemented in practice. |
| Keywords: | Inflation targeting , Brazil , Monetary policy , Conditionality , Fund-supported adjustment programs , |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:01/31&r=cba |
| By: | Dennis P. J. Botman; Dirk Muir; Andrei Romanov; Douglas Laxton |
| Abstract: | We develop a New-Open-Economy-Macro model in which Ricardian equivalence does not hold because of (i) distortionary labor and corporate income taxation; (ii) limited asset market participation; and (iii) because the overlapping-generations structure results in a disconnect between current and future generations. We consider a permanent increase in government debt following a cut in labor or corporate income taxes in a small and large open economy. We analyze the sensitivity of the results to the key structural parameters of the model and argue that under plausible assumptions there will be significant crowding-out effects associated with permanent increases in government debt. |
| Keywords: | Fiscal policy , Taxes , Public debt , Economic models , |
| Date: | 2006–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/45&r=cba |
| By: | Aasim M. Husain |
| Abstract: | This paper proposes a template for assessing whether or not a country's economic and financial characteristics make it an appropriate candidate for a pegged exchange rate regime. The template employs quantifiable measures of attributes-trade orientation, financial integration, economic diversification, macroeconomic stabilization, credibility, and "fear-offloating" type effects-that have been identified in the literature as key potential determinants of regime choice. To illustrate, the template is applied to Kazakhstan and Pakistan. The results indicate a fairly strong case against a pegged regime in Pakistan. The implications for Kazakhstan are mixed, although changes in that economy in recent years strengthen the case against a peg. |
| Keywords: | Exchange rate regimes , Pakistan , Kazakhstan , |
| Date: | 2006–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/54&r=cba |
| By: | Piti Disyatat |
| Abstract: | This paper shows that the quality of banks within each country is one of the important factors that can account for the fact that developing economies tend to suffer more severe output contractions in the wake of a currency crisis than more mature economies. In particular, countries with a banking sector whose balance sheets are healthy, in terms of having high net worth and low foreign currency exposure, are much less likely to suffer a contraction in the wake of an unexpected depreciation. |
| Keywords: | Financial crisis , Banks , Financial sector , External debt , Economic models , |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:01/49&r=cba |
| By: | Luca Antonio Ricci; Ronald MacDonald |
| Abstract: | This paper investigates the impact of the distribution sector on the real exchange rate, controlling for the Balassa-Samuelson effect, as well as other macro variables. Long-run coefficients are estimated using a panel dynamic OLS estimator. The main result is that an increase in the productivity and competitiveness of the distribution sector with respect to foreign countries leads to an appreciation of the real exchange rate, similarly to what a relative increase in the domestic productivity of tradables does. This contrasts with the result that one would expect by considering the distribution sector as belonging to the non-tradable sector. One explanation may lie in the use of the services from the distribution sector in the tradable sector. Our results also contribute to explaining the so-called PPP puzzle. |
| Keywords: | Purchasing power parity , Exchange rates , Trade , Prices , Economic models , |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:01/38&r=cba |
| By: | C. Randall Henning (Institute for International Economics) |
| Abstract: | Scholarship on European integration has extensively debated the external character of the monetary union. The institutions of exchange rate policymaking bear substantially on the euro area’s role in international monetary conflict and cooperation. This working paper examines the institutional arrangements for foreign exchange intervention within the euro area and the policymaking surrounding the market operations of autumn 2000—the only case to date of euro area intervention in currency markets. Drawing on interviews of officials in finance ministries, central banks, European institutions, and international organizations, as well as public sources, the paper specifies the division of labor among the European Central Bank (ECB), Eurogroup, and other European actors and compares that arrangement with corresponding arrangements in the G-7 partners. It concludes, among other things, that (1) the interinstitutional understanding within the euro area gives substantial latitude to the ECB, greater latitude than held by central banks in its G-7 partners, (2) but the understanding is susceptible to renegotiation over time, and (3) economic divergence within the euro area potentially threatens the ability of the monetary union to act coherently externally. |
| Keywords: | Foreign Exchange Intervention, Exchange Rate Policy and Policymaking, Economic and Monetary Union, Euro-Dollar Exchange Rate, European Central Bank, Eurogroup, G-7 Cooperation, Transatlantic Monetary Relations, Political Economy of Exchange Rates |
| JEL: | F31 F32 F33 F42 |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:iie:wpaper:wp06-4&r=cba |
| By: | Carlo Altavilla; Ugo Marani |
| Abstract: | The paper investigates whether the policy framework adopted by the EMU participating countries might create recessive tendencies. First, we check the existence of a deflationary bias by separately analysing monetary and fiscal policy. The analysis of monetary policy focuses on a backward- and a forward-looking monetary rule. The reaction functions are estimated to capture the criteria that a centralized monetary authority should use in setting short-term interest rate. Second, a comparative analysis is made of the ability of different central banks to stabilize output and inflation. Precisely, we compare the strategy followed by the European Central Bank, the Deutsche Bundesbank and the US Federal Reserve. Then, a measure of fiscal bias is retrieved by estimating the impact that a change in the primary surplus to GDP ratio has on the real economy. Finally, we search for a quantitative assessment of the recessive propensity of the European economic policies by estimating an overall policy bias. The results suggest the EU institutional set-up might create and/or amplify the recessive tendencies. The policy constraints the EMU members face were dreamt when the Community was struggling with an inflationary legacy. The danger nowadays is not inflation but rather its opposite, deflation. As a consequence, the EU institutions need to be at least partially reformed |
| JEL: | E52 C52 |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:liu:liucej:17&r=cba |
| By: | Helge Berger; Michael Ehrmann; Marcel Fratzscher |
| Abstract: | Monetary policy in the euro area is conducted within a multicountry, multicultural, and multilingual context involving multiple central banking traditions. How does this heterogeneity affect the ability of economic agents to understand and to anticipate monetary policy by the European Central Bank (ECB)? Using a database of surveys of professional ECB policy forecasters in 24 countries, we find remarkable differences in forecast accuracy, and show that they are partly related to geography and clustering around informational hubs, as well as to country-specific economic conditions and traditions of independent central banking in the past. In large part, this heterogeneity can be traced to differences in forecasting models. While some systematic differences between analysts have been transitional and are indicative of learning, others are more persistent. |
| Keywords: | Monetary policy , Europe , European Central Bank , Economic forecasting , Data collection , Data analysis , |
| Date: | 2006–02–17 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/41&r=cba |
| By: | Østrup, Finn (Department of Finance, Copenhagen Business School) |
| Abstract: | The article examines how government spending is determined in a closed economy where the nominal wage is pre-set through contracts and the wage setters have perfect foresight regarding subsequent policy decisions. The monetary regime affects government spending because: (i) with a pre-set nominal wage, a given change in government spending has different effects on employment and inflation under different monetary regimes, and (ii) the authorities’ inclination to expand government spending is affected by the inflation rate which depends on the monetary regime. If the costs related to inflation are high, a comparison between monetary regimes suggests that welfare is highest under nominal income targeting where the nominal income target is determined to bring about price stability. |
| Keywords: | Monetary regimes; fiscal policy; monetary non-neutrality |
| JEL: | E42 E61 E62 |
| Date: | 2006–06–27 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cbsfin:2005_002&r=cba |
| By: | Siu, Henry |
| Abstract: | In this paper I characterize time consistent equilibrium in an economy with price rigidity and an optimizing monetary authority operating under discretion. Firms have the option to increase their frequency of price change, at a cost, in response to higher inflation. Previous studies, which assume a constant degree of price rigidity across inflation regimes, find two time consistent equilibria - one with low inflation, the other with high inflation. In contrast, when price rigidity is endogenous, the high inflation equilibrium ceases to exist. Hence, time consistent equilibrium is unique. This result depends on two features of the analysis: (1) a plausible quantitative specification of the fixed cost of price change, and (2) the presence of an arbitrarily small cost of inflation that is independent of price rigidity. |
| JEL: | E31 E52 E61 |
| Date: | 2006–06–15 |
| URL: | http://d.repec.org/n?u=RePEc:ubc:bricol:siu-06-06-15-02-39-39&r=cba |
| By: | Hélène Poirson |
| Abstract: | This paper investigates the determinants of exchange rate regime choice in 93 countries during 1990-98. Cross-country analysis of variations in international reserves and nominal exchange rates shows that (i) truly fixed pegs and independent floats differ significantly from other regimes and (ii) significant discrepancies exist between de jure and de facto flexibility. Regression results highlight the influence of political factors (political instability and government temptation to inflate), adequacy of reserves, dollarization (currency substitution), exchange rate risk exposure, and some traditional optimal currency area criteria, in particular capital mobility, on exchange rate regime selection. |
| Keywords: | Exchange rate regimes , Developing countries , Dollarization , Monetary unions , |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:01/46&r=cba |
| By: | Thomas I. Palley |
| Abstract: | The stability of the international financial system is in doubt. Analysis of the system has focused mainly on the sustainability of financing the U.S. trade deficit and has failed to understand the microeconomics of transactions within the system. According to this brief by Thomas I. Palley, the international financial system is unsustainable for reasons of demand, not supply. He recommends a global system of managed exchange rates to replace the current system before it crashes, along with the U.S. economy. East Asian economies are pursuing export-led growth and running huge trade surpluses with the United States by actively pursuing policies aimed at maintaining undervalued exchange rates. Their governments continue to accumulate U.S. financial assets in order to support and stabilize the international financial system.While East Asian policymakers are correct in their belief that they can improve economic outcomes through exchange rate intervention, the system is undermining the structure of income and aggregate demand and eroding U.S. manufacturing capacity. |
| Date: | 2006–06 |
| URL: | http://d.repec.org/n?u=RePEc:lev:levppb:ppb_85&r=cba |
| By: | Raa,Thijs ten; Shestalova,Victoria (Tilburg University, Center for Economic Research) |
| Abstract: | The four main approaches to the measurement of total factor productivity (TFP)-growth and its decomposition are (i) Solow's residual analysis, (ii) the Index Number Approach, (iii) Input-Output Analysis (IO), and (iv) Data Envelopment Analysis (DEA). The corresponding measures of TFP growth are based on different assumptions, which we expose and interrelate. The Solow Residual serves as the benchmark for our comparisons. The interrelationships between the alternative measures permit an interpretation of the differences among them. We consolidate the four alternative measures in a common framework. |
| Keywords: | TFP;Solow residual;Index numbers;Input-output;DEA |
| JEL: | O47 C67 |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:kubcen:200654&r=cba |
| By: | Østrup, Finn (Department of Finance, Copenhagen Business School) |
| Abstract: | The article analyses how government spending is determined under different exchange rate regimes in the context of a small open economy. Assuming nominal wage contracts which last for one period and assuming a benevolent government which determines government spending to optimise a representative individual’s utility, it is demonstrated that there are differences between exchange rate regimes with respect to the level of government spending. These differences arise first because a rise in government spending affects macroeconomic variables differently under different exchange rate regimes, and second because the government’s inclination to expand government spending is affected by inflation which depends on the exchange rate regime. At low rates of inflation, the government is inclined to set a higher level of government spending under a fixed exchange rate regime than under a floating exchange rate regime in which the monetary authority optimises preferences which include an employment target and an inflation target. As government spending affects the representative individual’s utility, the choice of exchange rate regime has an impact on welfare. |
| Keywords: | exchange rate regimes; fiscal policy; monetary union; inflation targeting |
| JEL: | E42 E61 E62 F33 |
| Date: | 2005–05–19 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:cbsfin:2005_001&r=cba |
| By: | Benedikt Braumann |
| Abstract: | Empirical data show that real wages fall sharply during periods of high inflation. This paper suggests a simple general equilibrium explanation, without relying on nominal rigidities. It presents an intertemporal two-sector model with a cash-in-advance constraint. In this setting, inflation reduces real wages through (1) a decline of the capital stock, and (2) a shift in relative prices. The two effects are additive and make the decline in real wages exceed the decline in per-capita GDP. This mechanism may contribute to rising poverty during periods of high inflation. |
| Keywords: | Inflation , Wages , Poverty , Economic models , |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:01/50&r=cba |
| By: | Sander Harald; Kleimeier Stefanie (METEOR) |
| Abstract: | We investigate the interest rate pass-through in the four Common Monetary Area (CMA) countries of the South African Customs Union (SACU). We employ an empirical pass-through model that allows for thresholds, asymmetric adjustment, and structural changes. We show that CMA bank lending markets exhibit quite some degree of homogenization as the pass-through is often fast and complete. Deposit markets are somewhat more heterogeneous by showing differing degrees of interest rate stickiness and asymmetric adjustment. Policy makers should therefore be concerned about imperfect competition which may be at the heart of the remaining cross-country differences in monetary transmission in the CMA. |
| Keywords: | monetary economics ; |
| Date: | 2006 |
| URL: | http://d.repec.org/n?u=RePEc:dgr:umamet:2006022&r=cba |
| By: | Vivek B. Arora; Olivier Jeanne |
| Abstract: | The Canadian experience with a floating exchange rate regime can shed some light on the question of whether A question of current interest in many parts of the world is whether with growing economic integration among groups of countries makes a fixed exchange rate, or even a common currency, becomes more desirable. This paper looks at the lessons that one may draw from tThe Canadian experience, with a floating exchange rate regime, especially since the inception of the 1989 U.S.-Canada Free Trade Agreement, suggests. We find that exchange rate flexibility has not prevented economic integration between Canada and the United States from increasing substantially, during the 1990s, and has played a useful role in buffering the Canadian economy against asymmetric external shocks. A fixed exchange rate thus does not seem to be a prerequisite for economic integration. It may, however, yield substantial have benefits for some countries that lack monetary credibility or that may be tempted by self-destructive beggar-thy-neighbor policies. |
| Keywords: | Exchange rate regimes , Canada , United States , Floating exchange rates , Trade , |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfpdp:01/1&r=cba |
| By: | Balázs Égert |
| Abstract: | This paper investigates the importance of the Balassa-Samuelson effect for two acceding countries (Bulgaria and Romania), two accession countries (Croatia and Turkey) and two CIS countries (Russia and Ukraine). The paper first studies the basic assumptions of the Balassa-Samuelson effect using yearly data, and then undertakes an econometric analysis of the assumptions on the basis of monthly data. The results suggest that for most of the countries, there is either amplification or attenuation, implying that any increase in the open sector's productivity feeds onto changes in the relative price of non-tradables either imperfectly or in an over-proportionate manner. With these results as a background, the size of the Balassa-Samuelson effect is derived. For this purpose, a number of different sectoral classification schemes are used to group sectors into open and closed sectors, which makes a difference for some of the countries. The Balassa-Samuelson effect is found to play only a limited role for inflation and real exchange rate determination, and it seems to be roughly in line with earlier findings for the eight new EU member states of Central and Eastern Europe |
| JEL: | O11 P17 E31 |
| Date: | 2005–12–07 |
| URL: | http://d.repec.org/n?u=RePEc:liu:liucej:21&r=cba |
| By: | Jean-Marc Figuet; Nikolay Nenovsky; |
| Abstract: | Despite their progress Bulgaria and Romania significantly differ from the EU economies. In this article, on the basis of the theoretical and empirical achievements of the theory of optimal and (endogenous) currency areas we study to what extent the two South European economies are able to adopt the common economic (and above all monetary) policy of the EU, and to what extent the convergence to the EU stimulates the economic development of these countries. Despite the similarities, the two countries now differ fundamentally in their choice of a monetary regime – while Romania uses inflation targeting and a flexible exchange rate, Bulgaria has adopted a currency board regime. For this purpose we analyze: (i) the degree of nominal, real and financial convergence and synchronization of the economic cycle with that of the European Union (using unconditional ß convergence approach). Income and price levels, inflation rate, interest rate, monetary aggregates, credit, productivity etc. are among the studied variables; (ii) the resistance to different external and internal shocks (using VAR model) as well as (iii) the mechanisms for balancing and absorption of these shocks. To give a better comparative picture we compose the panel including Hungary and Czech Republic. |
| Keywords: | convergence, shocks, EU enlargement, Bulgaria and Romania |
| JEL: | E3 F4 P2 |
| Date: | 2006–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2006-810&r=cba |
| By: | Lucjan Orlowski; Kryzstof Rybinski; |
| Abstract: | This study proposes an extension to the inflation targeting framework for Poland that takes into consideration the exchange rate stability constraints imposed by the obligatory participation in the ERM2 on the path to the euro. The modified policy framework is based on targeting the differential between the domestic and the implicit euro area inflation forecasts. The exchange rate stability objective enters the central bank reaction function and is treated as an indicator variable. Adjustments of interest rates respond to changes in the relative inflation forecast, while foreign exchange market intervention is applied for the purpose of stabilizing the exchange rate. The dynamic market equilibrium exchange rate is ascertained by employing the Johanssen cointegration tests and the threshold generalized autoregressive heteroscedasticity model with the in-mean extension and generalized error distribution (TGARCH-M-GED). |
| Keywords: | inflation targeting, monetary convergence, ERM2, euro, Poland, cointegration, GARCH |
| JEL: | E58 E61 F33 P24 |
| Date: | 2005–12–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2005-802&r=cba |
| By: | Tushar Poddar; Hasmik Khachatryan; Randa Sab |
| Abstract: | This paper examines monetary transmission in Jordan using the vector autoregressive approach. We find that the real 3-month CD rate, the Central Bank's operating target, affects bank retail rates and that monetary policy, measured by the spread between the 3-month CD rate and the U.S. Federal Funds rate, is effective in influencing foreign reserves. We do not find evidence of monetary policy affecting output. Output responds very little to changes in bank lending rates. Furthermore, equity prices and the exchange rate are not significant channels for transmitting monetary policy to economic activity. The effect of monetary policy on the stock market seems insignificant. |
| Keywords: | Monetary policy , Jordan , Bank rates , Foreign exchange reserves , Stock markets , Exchange rates , Economic models , |
| Date: | 2006–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/48&r=cba |
| By: | Gagik G. Aghajanyan |
| Abstract: | Several non-monetary (mainly supply) factors affect prices in the short-run. It is widely acknowledged that in countries (especially countries in transition), where the price level is highly volatile and seasonal, it is not expedient for central banks to use official inflation index while formulating monetary policy. For this reason, it is crucial for central banks to work out, study and follow the behavior of core inflation that enables to reflect long-run price movements. This paper presents the application of various methods of calculating core inflation to Armenian data (for 1996:1-2002:12). Each measure is calculated at monthly frequencies and evaluated by different criteria. The analysis shows that core inflation indices, calculated by trimming the distribution of prices at 10 or 15%, are the best and most effective indicators for monetary policy-makers in Armenia, since they capture inflation trends and are closely tied to monetary aggregates. However, the median seems to be the best predictor for forecasting inflation of all core inflation measures discussed in this paper |
| JEL: | P2 R5 E31 P3 |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:liu:liucej:16&r=cba |
| By: | Aghassi Mkrtchyan |
| Abstract: | This paper examines the impact of monetary policy and administrative price adjustments on price variability in a low inflation economy characterized by relatively frequent administrative price adjustments. Fluctuations of market determined prices, prices of agricultural goods in particular, are linked to poor synchronization between administrative price changes and monetary policy. If monetary policy does not account for expected changes in administrative prices, demand for free goods shifts, causing fluctuation of prices for agricultural goods, because the supply of these goods is highly inelastic in Armenia. The findings contribute to a better understanding of agricultural price variability during 1998-2002. The impact of macroeconomic policy and structural adjustments on income distribution and rural poverty incidence are also examined. This research has immediate policy implications, since Armenia will continue to undergo major upward price adjustments of regulated prices, which may have a negative impact on income distribution unless aggregate demand management is changed. |
| JEL: | E31 E65 E61 |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:liu:liucej:13&r=cba |
| By: | Hakob Zoryan |
| Abstract: | This paper attempts to estimate the actual (de facto) level of dollarization in Armenia. "Co-circulation" involves the regular use of two or more currencies within an economy. The existence of an unknown amount of foreign currency in circulation makes the outcome of domestic monetary policy uncertain. The volume of foreign currency deposits is easily obtained from the official statistics. However, it is very hard to determine the stock of foreign currency in circulation. The effective money supply may be much larger than the domestic money supply and is subject to behavioral responses which are very different than the movements of the presently measured money supply. The purpose of this paper is to assess the level of dollarization, that is, to evaluate the size and/or proportion of foreign currency in the total money stock of Armenia as a highly dollarized country. |
| JEL: | E5 E4 G21 P3 F3 P2 |
| Date: | 2005–06–01 |
| URL: | http://d.repec.org/n?u=RePEc:liu:liucej:14&r=cba |
| By: | BEN ALI Mohamed Sami; ; |
| Abstract: | Capital account liberalization and exchange rate regime choice, what scope for flexibility in Tunisia? This study evaluates within a game-theoretic framework the exchange rate regime from a welfare perspective. In a tradable-nontradable goods model framework, Tunisia’s exchange rate regime choice is cast in terms of strategic interactions between the monetary authority and domestic enterprises. The monetary authority is assumed to choose an optimal exchange rate regime according to a welfare-related criterion by minimising a loss function defined in terms of external competitiveness and domestic inflation. Simulations outcomes reveal that capital account liberalization in the Tunisian economic context is compatible with a flexible exchange rate regime. |
| Keywords: | Exchange rate regime, Liberalization, Convertibility, Capital Account, Welfare, Tunisia. |
| JEL: | F31 F32 F37 F47 |
| Date: | 2006–03–01 |
| URL: | http://d.repec.org/n?u=RePEc:wdi:papers:2006-815&r=cba |
| By: | Arto Kovanen |
| Abstract: | We use cross-section and time-series techniques to analyze pricing behavior in Sierra Leone. In cross-sectional data, we find that inflation volatility and product diversification are the main factors explaining differences in the frequency of price adjustments. We show that variance in the fraction of prices subject to change is a key determinant of inflation volatility in Sierra Leone, indicating that retail prices are sensitive to economic events. We explain variations in this fraction over time with past inflation and monetary growth, which are important policy variables. |
| Keywords: | Inflation , Sierra Leone , Price adjustments , |
| Date: | 2006–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:06/53&r=cba |
| By: | Paul R. Masson; Catherine A. Pattillo |
| Abstract: | Could a West African monetary union (either of the non-CFA countries, or all ECOWAS members) be an effective "agency of restraint" on fiscal policies? We discuss how monetary union could affect fiscal discipline and the arguments for explicit fiscal restraints considered in the European Monetary Union literature, and their applicability to West Africa. The empirical evidence, EMU literature, and CFA experience suggest that monetary union could create the temptation for fiscal profligacy through prospects of a bailout, or costs diluted through the membership. Thus, a West African monetary union could promote fiscal discipline only if the hands of the fiscal authorities are also tied by a strong set of fiscal restraints. |
| Keywords: | West African Monetary Union , Africa , Fiscal policy , CFA franc , Trade , |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:01/34&r=cba |