nep-ifn New Economics Papers
on International Finance
Issue of 2009‒01‒10
three papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. Mexico's integration into NAFTA markets: a view from sectoral real exchange rates By Rodolphe Blavy; Luciana Juvenal
  2. Fiscal Storms: Inflation Targeting and Real Exchange Rates in Emerging Markets By Joshua Aizenman; Michael Hutchison; Ilan Noy
  3. Macroeconomic Stability: Transition Towards the Nominal Exchange Rate Stability By Frantisek Brazdik Author-Name: Juraj Antal

  1. By: Rodolphe Blavy; Luciana Juvenal
    Abstract: Using a self-exciting threshold autoregressive model, we confirm the presence of nonlinearities in sectoral real exchange rate (SRER) dynamics across Mexico, Canada and the US in the pre-NAFTA and post-NAFTA periods. Measuring transaction costs using the estimated threshold bands, we find evidence that Mexico still faces higher transaction costs than their developed counterparts. Trade liberalization is associated with reduced transaction costs and lower relative price differentials among countries. Other determinants of transaction costs are distance and nominal exchange rate volatility. Our results show that the half-lives of SRERs shocks, calculated by Monte Carlo integration, imply much faster adjustment in the post-NAFTA period.
    Keywords: Foreign exchange rates ; North American Free Trade Agreement ; Mexico
    Date: 2008
  2. By: Joshua Aizenman (Department of Economics, University of California, Santa Cruz); Michael Hutchison (Department of Economics, University of California, Santa Cruz); Ilan Noy (Department of Economics, University of Hawaii at Manoa)
    Abstract: We examine the inflation targeting (IT) experiences of emerging market economies, focusing especially on the roles of the real exchange rate and the distinction between commodity and non-commodity exporting nations. In the context of a simple empirical model, estimated with panel data for 17 emerging markets using both IT and non-IT observations, we find a significant and stable response running from inflation to policy interest rates in emerging markets that are following publically announced IT policies. By contrast, central banks respond much less to inflation in non-IT regimes. IT emerging markets follow a “mixed IT strategy” whereby both inflation and real exchange rates are important determinants of policy interest rates. The response to real exchange rates is much stronger in non-IT countries, however, suggesting that policymakers are more constrained in the IT regime—they are attempting to simultaneously target both inflation and real exchange rates and these objectives are not always consistent. We also find that the response to real exchange rates is strongest in those countries following IT policies that are relatively intensive in exporting basic commodities. We present a simple model that explains this empirical result.
    Keywords: Inflation targeting, real exchange rate, commodity exporters, emerging markets
    JEL: E52 E58 F3
    Date: 2008–12–01
  3. By: Frantisek Brazdik Author-Name: Juraj Antal
    Abstract: The novelty of this work is in the presentation of a theoretical frame work that allows the modeling of an announced switch of the monetary regime. In our experiment, the monetary authority announces stabilization of the nominal exchange rate after the announced number of periods. We analyze the effects of the monetary policy regime for the macroeconomic stability over the transition period. For our analysis, we consider representative forms of standard monetary regimes. Moreover, we rank the examined regimes in terms of loss functions.
    Keywords: New Keynesian models, small open economy, monetary regime switch.
    JEL: E17 E31 E52 E58 E61 F02 F41
    Date: 2008–10

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