nep-ifn New Economics Papers
on International Finance
Issue of 2005‒06‒27
three papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Purchasing Power Parity: Granger Causality Tests for the Yen- Dollar Exchange Rate By Gunther Schnabl; Dirk Baur
  2. Capital account Liberalization and exchange rate regime choice, What Scope for flexibility in Tunisia ? By Ben Ali Mohamed Sami
  3. Derivative Markets' Impact on Colombian Monetary Policy By Esteban Gómez; Diego Vásquez; Camilo Zea

  1. By: Gunther Schnabl (Tuebingen University); Dirk Baur (Tuebingen University)
    Abstract: The paper analyses the causality between the Japanese-US relative export prices and the yen-dollar exchange rate. It explains why the Japanese yen proved strong even during the economic slump of the 1990s. The paper suggests that the appreciation of the Japanese yen forced the Japanese enterprises into price reductions and productivity increases, which put a floor under the high level of the yen and thus initiated rounds of appreciation. This corresponds to the conjecture of a vicious (virtuous) circle of appreciation and price adaptation.
    Keywords: yen, yen-dollar exchange rate, purchasing power parity, Granger causality test
    JEL: F31
    Date: 2005–06–15
  2. By: Ben Ali Mohamed Sami (CADRE, Université de Lille, France)
    Abstract: Capital account liberalization and exchange rate regime choice, what scope for flexibility in Tunisia? The adoption by Tunisia of structural reforms of its economy in a context of gradual opening since 1986, had allowed the instauration in January 1993 of the convertibility of its current account. The total convertibility of the Tunisian Dinar remains a top priority in the immediate future like finality of a more close integration of the Tunisian economy to the world economy. The capital account liberalization in Tunisia poses the problematic of the prospective choice of its appropriate exchange rate regime. 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.
    JEL: C7 D8
    Date: 2005–06–15
  3. By: Esteban Gómez; Diego Vásquez; Camilo Zea
    Abstract: Derivatives are contingent claims that complete financial markets. Their use allow agents and firms to ameliorate the impact over con- sumption, production and investment given a change in relative prices induced by an active monetary policy. In this sense, derivatives gene- rate in some cases a loss in the effectiveness of the traditional monetary transmission channels in the short run, and in others, they promote an increase in the speed of transmission itself. Using an investment model, the impact of the use of interest rate and exchange rate derivatives in the dilution of colombian monetary channels is verified. Empirical exercises suggest that monetary policy has lost effectiveness in the short run.In spite of the surprise this result may offer given the relative im- matureness of domestic derivative markets, the marginal effect of these instruments appears to be significant, in the face of local financial mar- kets' imperfections. In addition, not only the hedge directly taken by firms with access to this instruments matter; there could be hedging spill-overs whenever commercial banks use derivatives, which allow for a more stable and cheap credit supply for firms with no access to those markets. The natural recommendation deriving from this conclusion suggests an urgent analysis of the derivatives impact over the speed of monetary transmission in Colombia.
    Keywords: Derivatives; Monetary Policy Transmission Channels;Investment
    JEL: E22 E52 G11

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