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on International Finance |
| By: | Harald Anderson; Romain Veyrune; Annamaria Kokenyne; Karl Friedrich Habermeier |
| Abstract: | Since 1998, the staff of the International Monetary Fund has published a classification of countries' de facto exchange rate arrangements. Experience in operating this classification system has highlighted a need for changes. The present paper provides information on revisions to the system in early 2009. The changes are expected to allow for greater consistency and objectivity of classifications across countries, expedite the classification process, conserve resources, and improve transparency. |
| Keywords: | Cross country analysis , Currency boards , Currency pegs , Data collection , Data quality assessment framework , Exchange rate developments , Exchange rates , Floating exchange rates , Foreign exchange , Fund role , Publications , Transparency , |
| Date: | 2009–09–29 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/211&r=ifn |
| By: | Wallace, Frederick |
| Abstract: | Purchasing power parity has been the subject of many empirical studies. Much of this work has focused on recent history in developed countries. This paper reports results of tests for nonlinear, mean reversion of the real exchange rate for a less-developed country, Mexico, using a previously unexploited data set of monthly observations for 1930-1960. The test results provide weak support for PPP. |
| Keywords: | purchasing power parity; nonlinear unit root |
| JEL: | C20 F31 |
| Date: | 2009–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:18081&r=ifn |
| By: | Wallace, Frederick |
| Abstract: | In recent work Im, Lee, and Enders (2006) use stationary instrumental variables to test for cointegrating relationships. The advantage of their approach is that the t-statistics are asymptotically standard normal and the familiar critical values of the normal distribution may be used to assess significance. Thus, the test avoids the nuisance parameter problem in single equation regressions for cointegration. Using an updated version of the data set developed by Taylor (2002), the ILE test is compared to three single equation alternatives in testing for purchasing power parity: An error correction model, autoregressive distributed lag model, and the Engle-Granger two step procedure. The regressions with instruments provide evidence supportive of PPP for some countries but the empirical results differ across tests and the choice of instrument can affect the results. |
| Keywords: | Cointegration; purchasing power parity |
| JEL: | C20 F31 |
| Date: | 2009–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:18079&r=ifn |
| By: | Peijie Wang (University of Hull, IESEG School of Management) |
| Abstract: | Reverse shooting of the exchange rate has been put forward in this paper by scrutinizing the adjustment and evolution of the exchange rate towards its new long-run equilibrium level following a change in money supply. Joint and sequential effects of covered interest rate parity and the sticky price on the rise, from the short-term through the long-run horizon, result in a feature of reverse shooting of the exchange rate. Regardless of what the immediate response of the exchange rate to the change in money supply can be argued for, reverse shooting homogenizes the evolution path of exchange rate adjustment and movement from different views. |
| Keywords: | exchange rate, reverse shooting |
| JEL: | F31 F37 |
| Date: | 2009–04 |
| URL: | http://d.repec.org/n?u=RePEc:ies:wpaper:f200902&r=ifn |
| By: | Morley, Bruce |
| Abstract: | Using the ARDL bounds testing approach to cointegration this paper provides evidence of a stable long run relationship between the exchange rate and stock prices for the UK, Japan and Swiss currencies with respect to the US dollar. The resultant error correction models suggest a positive relationship between stock prices and the exchange rate, which in an out-of-sample forecast outperforms the random walk. We compare these results with a similar model incorporating interest rates, suggested by Solnik (1987), however this does not in general improve the results. |
| Keywords: | Exchange Rates; Stock Prices; Forecast; Cointegration |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:eid:wpaper:15973&r=ifn |
| By: | Mario J. Crucini; Hakan Yilmazkuday |
| Abstract: | We develop a model of cities each inhabited by two agents, one specializing in manufacturing, the other in retail distribution. The distribution sector represents the physical transformation of all internationally traded goods from the factory gate to the final consumer. Using a panel of micro-prices at the city level, we decompose the cross-sectional variance of long-run LOP deviations into the fraction due to distribution costs, trade costs and a residual. For the median good, trade costs account for 50 percent of the variance, distribution costs account for 10 percent with 40 percent of the variance unexplained. Since the sample of items in the data are heavily skewed toward traded goods, we also decompose the variance based on the median good on an expenditure-weighted basis. Now the tables turn, with distribution costs accounting for 43 percent, trade costs 36 percent and 21 percent of the variance unexplained. |
| Keywords: | Foreign exchange ; Pricing |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:38&r=ifn |
| By: | Pablo A. Guerron-Quintana |
| Abstract: | This paper investigates the extent to which technology and uncertainty contribute to fluctuations in real exchange rates. Using a structural VAR and bilateral exchange rates, the author finds that neutral technology shocks are important contributors to the dynamics of real exchange rates. Investment-specific and uncertainty shocks have a more restricted effect on international prices. All three disturbances cause short-run deviations from uncovered interest rate parity. |
| Keywords: | Foreign exchange ; Uncertainty ; Technological innovations |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:09-20&r=ifn |
| By: | Thierry Tressel; Lone Engbo Christiansen; Alessandro Prati; Luca Antonio Ricci |
| Abstract: | This paper offers a coherent empirical analysis of the determinants of the real exchange rate, the current account, and the net foreign assets position in low income countries. The paper focuses on indicators specific to low income countries, such as the quality of policies and institutions, the special access to official external financing, and the role of shocks. In addition to more standard factors, we find that domestic financial liberalization is associated with higher current account balances and net foreign asset positions, while capital account liberalization is associated with lower current account balances and net foreign asset positions and with more appreciated real exchange rates. Negative exogenous shocks tend to raise (reduce) the current account in countries with closed (opened) capital accounts. Finally, foreign aid is progressively absorbed over time through net imports, and is associated with a more depreciated real exchange rate in the long-run. |
| Keywords: | Capital account , Capital flows , Cross country analysis , Current account , External financing , External shocks , Financial assets , Foreign investment , Low-income developing countries , Real effective exchange rates , Terms of trade , Time series , |
| Date: | 2009–10–13 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:09/221&r=ifn |
| By: | Anthony Landry |
| Abstract: | This paper presents a two-country DSGE model with state-dependent pricing as in Dotsey, King, and Wolman (1999) in which firms price-discriminate across countries by setting prices in local currency. In this model, a domestic monetary expansion has greater spillover effects to foreign prices and foreign economic activity than an otherwise identical model with time-dependent pricing. In addition, the predictions of the state-dependent pricing model match the business-cycle moments better than the predictions of the time-dependent pricing model when driven by monetary policy shocks. |
| Keywords: | Pricing ; Foreign exchange rates ; Equilibrium (Economics) - Mathematical models ; Monetary policy ; Price discrimination |
| Date: | 2009 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:39&r=ifn |
| By: | Andre Minella; Alessandro Rebucci; Nelson Souza-Sobrino |
| Abstract: | This study provides a set of tools to analyze the monetary and exchange rate policy issues in the seven countries of the Inter-American Development Bank’s Caribbean region (The Bahamas, Barbados, Jamaica, Haiti, Guyana, Suriname, and Trinidad and Tobago). It then applies some of them to the analysis of the impact of the global turmoil on these economies in the last quarter of 2008. The paper also discusses, in light of both recent theoretical developments and key aspects of these economies, the monetary and exchange policy responses to the initial phase of the global turmoil. |
| Keywords: | Caribbean countries, Global crisis, Monetary policy |
| JEL: | F33 E52 |
| Date: | 2009–10 |
| URL: | http://d.repec.org/n?u=RePEc:idb:wpaper:4638&r=ifn |