nep-mon New Economics Papers
on Monetary Economics
Issue of 2010‒10‒02
twenty-six papers chosen by
Bernd Hayo
Philipps-University Marburg

  1. Relative-Price Changes and Demand Factors in the Period of Quantitative Easing in Japan By Bernd Hayo; Hiroyuki Ono
  2. Macroeconomic and interest rate volatility under alternative monetary operating procedures By Petra Gerlach-Kristen; Barbara Rudolf
  3. A Monetary Policy Model Without Money for India By Michael Patra; Muneesh Kapur
  4. Rational Expectations And Inflation Targeting -An Analysis For Ten Countries By Fromlet, Pia
  5. Exchange Rate Asymmetry and Flexible Exchange Rates under Inflation Targeting Regimes: Evidence from Four East and Southeast Asian Countries By Pontines, Victor; Siregar, Reza Y.
  6. The Determinants and Stability of Real Money Demand in Vietnam, 1999-2009 By NGUYEN Huyen Diu; Wade D. Pfau
  7. Forecasting Monetary Policy Rules in South Africa By Ruthira Naraidoo; Ivan Paya
  8. India’s trilemma: financial liberalization, exchange rates and monetary policy By Hutchison, Michael; Sengupta, Rajeswari; Singh, Nirvikar
  9. Regional Inflation (Price) Behaviors: Heterogeneity and Convergence By Nagayasu, Jun
  10. Offshore markets for the domestic currency: monetary and financial stability issues By Dong he; Robert McCauley
  11. Impact of supply of money on food prices in India: A causality analysis By Tiwari, Aviral
  12. The Effect of Easing Monetary Policy in Regional Lending Markets in Japan By Nagano, Mamoru
  13. Bretton-Woods systems, old and new, and the rotation of exchange-rate regimes By Stephen Hall; George Hondroyiannis; P.A.V.B Swamy; George Tavlas
  14. Future of Central Banking under Globalization: Summary of the 2010 International Conference Organized by the Institute for Monetary and Economic Studies of the Bank of Japan By Shigenori Shiratsuka; Wataru Takahashi; Yuki Teranishi; Kozo Ueda
  15. The Case for Reforming Euro Area Entry Criteria By Zsolt Darvas
  16. The Effect of Monetary Policy on Credit Spreads By Tolga Cenesizoglu; Badye Essid
  17. How Well Does "Core" CPI Capture Permanent Price Changes? By Tara M. Sinclair; Dennis W. Jensen; Michael D. Bradley
  18. Rethinking the Liquidity Puzzle: Application of a New Measure of the Economic Money Stock By Logan Kelly; William Barnett; John Keating
  19. Still Minding the Gap - Inflation Dynamics during Episodes of Persistent Large Output Gaps By André Meier
  20. Asset Prices, Credit Growth, Monetary and Other Policies: An Australian Case Study By Paul Bloxham; Christopher Kent; Michael Robson
  21. European sovereign bond spreads: monetary unification, market conditions and financial integration. By Dimitris A. Georgoutsos; Petros Migiakis
  22. Modeling of Interest Rate Term Structures under Collateralization and its Implications By Masaaki Fujii; Yasufumi Shimada; Akihiko Takahashi
  23. Structural Change in Current Account and Real Exchange Rate Dynamics: Evidence from the G7 Countries By Masahiko Shibamoto; Shigeto Kitano
  24. A Cyclical Model of Exchange Rate Volatility By Evarist Stoja; Richard D. F. Harris; Fatih Yilmaz
  25. Analysis of the intraday effects of economic releases on the currency market By Rezania, Omid; Rachev, Svetlozar T.; Sun, Edward; Fabozzi, Frank J.
  26. Dedollarization By Romain Veyrune; Annamaria Kokenyne; Jeremy Ley

  1. By: Bernd Hayo (Philipps-University Marburg); Hiroyuki Ono (Philipps-University Marburg)
    Abstract: Concentrating on the period of quantitative easing in Japan, this paper reexamines the correlation between the asymmetry of sectoral relative-price changes and the aggregate inflation rate. This correlation is widely interpreted as evidence that short-run inflation is determined by supply-side factors; however, we study whether, in addition to the inflation rate, monetary environment and aggregate demand explain this correlation. Using producer price index data, we show, first, that the positive and significant effect of relative-price change asymmetries on inflation is not robust with respect to various indicators of asymmetry. Second, indicators of aggregate demand and monetary environment affect the measures of asymmetries, which raises doubt about whether they can be interpreted as pure supply-side indicators. Third, in addition to the indirect effect via measures of asymmetries, demand and monetary factors directly affect inflation. Thus, we reject the claim that the recent disinflation/deflation period can be understood as primarily a supply-side phenomenon.
    Keywords: Japan, supply side, inflation, deflation, price-change asymmetries, quantitative easing
    JEL: E20 E31 E52 E65 O53
    Date: 2010
  2. By: Petra Gerlach-Kristen; Barbara Rudolf
    Abstract: During the financial crisis of 2007/08 the level and volatility of interest rate spreads increased dramatically. This paper examines how the choice of the target interest rate for monetary policy affects the volatility of inflation, the output gap and the yield curve. We consider three monetary policy operating procedures with different target interest rates: a one-month market rate, a three-month market rate and an essentially riskless one-month repo rate. The implementation tool is the one-month repo rate for all three operating procedures. In a highly stylised model, we find that using a money market rate as a target rate generally yields lower variability of the macroeconomic variables. This holds under discretion as well as under commitment both in times of financial calm or turmoil. Whether the one month or three month rate procedure performs best depends on the maturity of the specific rate that enters the IS curve.
    Keywords: optimal monetary policy rules, monetary operating procedures, yield curve
    Date: 2010–09
  3. By: Michael Patra; Muneesh Kapur
    Abstract: A New Keynesian model estimated for India yields valuable insights. Aggregate demand reacts to interest rate changes with a lag of at least three quarters, with inflation taking seven quarters to respond. Inflation is inertial and persistent when it sets in, irrespective of the source. Exchange rate pass-through to domestic inflation is low. Inflation turns out to be the dominant focus of monetary policy, accompanied by a strong commitment to the stabilization of output. Recent policy actions have raised the effective policy rate, but the estimated neutral policy rate suggests some further tightening to normalize the policy stance.
    Date: 2010–08–04
  4. By: Fromlet, Pia (Department of Economics)
    Abstract: In this paper I evaluate inflation targeting for ten countries. The evaluation is based on unconditional as well as conditional measures of the variance of inflation around target. With strict inflation targeting, expectations of the future deviation from target given information about the deviation from the target today should be equal to zero. Using the Consumer Price Index (CPI) when calculating the inflation rate, I find that the null hypothesis can be rejected for six of ten countries. In an extended approach I add lagged output gap as an information variable for countries where data was available. I then get the result that rational expectations and strict inflation targeting can be rejected for five countries. Out of the ten countries, the United Kingdom has conducted in‡ation targeting most in line with the theory of rational expectations and strict inflation targeting, and Poland the least.
    Keywords: Inflation targeting; rational expectations; monetary policy
    JEL: E31 E52 E58
    Date: 2010–09–17
  5. By: Pontines, Victor; Siregar, Reza Y.
    Abstract: We demonstrate that the economies of Indonesia, Korea, Philippines and Thailand, which are among the first group of emerging markets to embrace the inflation targeting framework of monetary policy, tend to adopt a form of an asymmetrical exchange rate behaviour wherein appreciation pressures are restrained more substantially than depreciation pressures. In short, these four Asian economies exemplify aversion to appreciations such that greater flexibility is allowed only one side of the market. Formal econometric tests using the smooth transition autoregressive and the Markov regime switching models confirm this hypothesis of aversion to appreciation and show that the central banks of these four economies tend to tolerate more of depreciations than of appreciations of their local currencies against the US dollar.
    Keywords: Exchange Rate Asymmetry Inflation Targeting; Fear of Floating; Fear of Appreciation; Regime Switching Models.
    JEL: E58 F41 F31
    Date: 2010–08–28
  6. By: NGUYEN Huyen Diu (National Graduate Institute for Policy Studies); Wade D. Pfau (National Graduate Institute for Policy Studies)
    Abstract: Understanding the money demand function is highly important for monetary policy implementation, especially in a monetary targeting framework. The paper uses cointegration analysis and a reduced-form short-run error correction model to investigate the demand for money in Vietnam between 1999 and 2009. We find evidence for a cointegrating relationship between the real money demand, income, the foreign interest rate, and the real stock price. More importantly, statistical tests show that real money demand in Vietnam is stable in this period.
    Keywords: International Diversification, Utility Maximization, EPF, Hypothetical Worker, Modern Portfolio Theory, Sri Lanka
    JEL: E41 E58 C23
    Date: 2010–09
  7. By: Ruthira Naraidoo; Ivan Paya
    Abstract: This paper is the first one to: (i) provide in-sample estimates of linear and nonlinear Taylor rules augmented with an indicator of financial stability for the case of South Africa, (ii) analyse the ability of linear and nonlinear monetary policy rule specifications as well as nonparametric and semiparametric models in forecasting the nominal interest rate setting that describes the South African Reserve Bank (SARB) policy decisions. Our results indicate, first, that asset prices are taken into account when setting interest rates; second, the existence of nonlinearities in the monetary policy rule; and third, forecasts constructed from combinations of all models perform particularly well and that there are gains from semiparametric models in forecasting the interest rates as the forecasting horizon lengthens.
    Keywords: Taylor rules, nonlinearity, nonparametric, semiparametric, forecasting
    JEL: C14 C51 C52 C53 E52 E58
    Date: 2010
  8. By: Hutchison, Michael; Sengupta, Rajeswari; Singh, Nirvikar
    Abstract: A key challenge for macroeconomic policy in open economies is how to simultaneously manage exchange rates, interest rates and capital account openness—the trilemma. This paper calculates a trilemma index for India and investigates its evolution over time. We find that financial integration has increased markedly after the mid-2000s, with corresponding limitations on monetary independence and exchange rate stability. This tradeoff has been mitigated, however, with the rise of international reserves as a partially independent instrument of macroeconomic policy. In addition, we confirm that the weighted sum of the three indexes adds up to a constant, validating the notion that a rise in one trilemma variable should be traded-off with a drop of the weighted sum of the other two. Finally, we consider the implications of changes in the trilemma index for macroeconomic outcomes. We find some evidence that greater financial integration and corresponding loss of monetary autonomy and exchange rate stability has influenced inflation and inflation volatility, though not in a consistent manner.
    Keywords: Financial trilemma; Indian economy; International reserves; Foreign exchange intervention; Monetary policy
    JEL: F4 F3 E5 E4
    Date: 2010–09–22
  9. By: Nagayasu, Jun
    Abstract: It is generally thought that members in monetary union experience a similar level of inflation. This paper verifies this conventional belief. Using regional data, we present statistical evidence of heterogeneous inflation in Japan. Not only does the average inflation differ significantly across regions, but regional inflation responds differently to common economic and monetary factors. Furthermore, we show no evidence of price convergence in a group of entire regions although there is some evidence of convergence in subgroups. These results suggest that diversified regional inflation can exist within monetary union.
    Keywords: Regional inflation; monetary policy; factor models; convergence
    JEL: F3 E3
    Date: 2010–09
  10. By: Dong he; Robert McCauley
    Abstract: We show in this paper that offshore markets intermediate a large chunk of financial transactions in major reserve currencies such as the US dollar. We argue that, for emerging market economies that are interested in seeing some international use of their currencies, offshore markets can help to increase the recognition and acceptance of the currency while still allowing the authorities to retain a measure of control over the pace of capital account liberalisation. The development of offshore markets could pose risks to monetary and financial stability in the home economy which need to be prudently managed. The experience of the Federal Reserve and of the authorities of the other major reserve currency economies in dealing with the euromarkets shows that policy options are available for managing such risks.
    Keywords: offshore markets; currency internationalisation; monetary stability; financial stability
    Date: 2010–09
  11. By: Tiwari, Aviral
    Abstract: This study attempts to investigate the direction of casualty between food prices and money supply in the static and dynamic framework. We found that narrow measure of money supply (M1) Granger causes food inflation while broad measure of money supply (M3) does not in the static framework. This implies that money supply (M1) is not neutral in determining food prices in the long run in the Indian context. From the dynamic framework of analysis we found that any one innovation in the broad measure of money supply (M3) will have positive impact on the food inflation for next three years.
    Keywords: Food Prices. Money Supply. Granger-causality
    JEL: Q11 E51 C31
    Date: 2010–06–09
  12. By: Nagano, Mamoru
    Abstract: This paper investigates the factors that support a funding demand increase in regional economies under easing monetary conditions. The following results were empirically obtained on the basis of individual firms and the 47 regional data in the 2000s in Japan. The first result is that funding demand regionally increases where the relative size of private capital stock is large. This result suggests that industrial agglomeration complements easing monetary policy to induce regional funding demand. The second result is that regional banking soundness in lending markets also contributes to an increase in the funding demand. This suggests that another possible requirement of the money suppliers must be fulfilled to induce the regional funding demand.
    Keywords: Regional Policy; Regional Banking Market; Monetary Policy
    JEL: R13 R11 G21
    Date: 2010–02
  13. By: Stephen Hall (Leicester University); George Hondroyiannis (Bank of Greece and Harokopio University); P.A.V.B Swamy (Federal Reserve Board (retired)); George Tavlas (Bank of Greece)
    Abstract: A recent contribution to the literature argues that the present international monetary system in many ways operates like the Bretton-Woods system. Asia is the new periphery of the system and pursues an export-led development strategy based on undervalued exchange rates and accumulated foreign reserves. The United States remains the centre country, pursuing a monetary-policy strategy that overlooks the exchange rate. Under both regimes the United States does not take external factors into account in conducting monetary policy while the periphery does take external factors into account. We provide results of a test of this hypothesis. Then, we present a new method for decomposition of a seasonally adjusted series the business cycle and other components using a time-varying-coefficient technique that allows us to test the relationship between the cycle and macroeconomic policies under both regimes.
    Keywords: Revived Bretton-Woods system, asymmetry hypothesis, time-series, decomposition, time-varying-coefficient estimation
    JEL: C22 E32 F33
    Date: 2010–04
  14. By: Shigenori Shiratsuka (Associate Director-General, Head of Economic and Financial Studies Division, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: shigenori.shiratsuka; Wataru Takahashi (Director-General, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: wataru.takahashi; Yuki Teranishi (Deputy Director, Institute for Monetary and Economic Studies (currently, Financial Systems and Bank Examination Department), Bank of Japan (E-mail: yuuki.teranishi; Kozo Ueda (Director, Institute for Monetary and Economic Studies, Bank of Japan (E-mail: kouzou.ueda
    Date: 2010–09
  15. By: Zsolt Darvas (Bruegel, Hungarian Academy of Sciences, Corvinus University of Budapest)
    Abstract: The global economic and financial crisis has raised further concerns about the euro-entry criteria, in addition to other factors, such as the effective tightening of the criteria due to the enlargement of the EU from 12 to 27 members, the highly unfavourable property of business cycle dependence, the internal inconsistency of the criteria due to the structural price level convergence of Central and Eastern European countries, and the continuous violation of the criteria by euro-area members. The interest rate criterion became a highly volatile measure. Many US metropolitan areas would fail to qualify to be members of the US monetary union by applying the currently used inflation criterion to the US. It is time to reform the criteria and to strengthen their economic rationale within the legal framework of the EU treaty. A good solution would be to relate all criteria to the average of the euro area and simultaneously to extend the compliance period from the currently considered one year to a longer period.
    Keywords: Euro, EU institutions, financial crisis, Maastricht-criteria
    JEL: F33 F36 F53
    Date: 2010–09–15
  16. By: Tolga Cenesizoglu; Badye Essid
    Abstract: In this paper, we analyze the effect of monetary policy on yield spreads between corporate bonds with different credit ratings over changing conditions in the economy. Using futures data on the Fed funds rate, we distinguish between expected and unexpected changes in monetary policy. We find that unexpected changes in the Fed funds rate do not have a significant effect on changes in credit spreads when we do not control for different conditions in the economy. We then distinguish between three different cycles in the economy: business, credit and monetary policy cycles. In line with predictions of imperfect capital market theories, credit spreads widen (narrow) following an unexpected monetary policy tightening (easing) during periods of poor economic and credit market conditions. Several robustness tests suggest that our results are not due to possible endogeneity problems, lack of control variables or identification methodology or different cycles.
    Keywords: Business Cycle, Moody's Bond Indices, Fed Funds Rate Futures, Monetary Policy Surprises, Credit Spreads
    JEL: E44 E52
    Date: 2010
  17. By: Tara M. Sinclair (Department of Economics/Institute for International Economic Policy, George Washington University); Dennis W. Jensen (Department of Economics, Texas A&M University); Michael D. Bradley (Department of Economics, George Washington University)
    Abstract: We decompose core CPI and the food and energy CPI measures into permanent and transitory components using a correlated unobserved components model, to examine the behavior of core CPI when subject to shocks and to examine the claim that core CPI captures the persistent part of headline CPI. We find that the permanent component of core CPI is more volatile than core CPI, or that the permanent and transitory components are highly correlated. We find that the excluded food and energy components have important permanent components, and that core CPI has an important transitory component. We examine impulse response functions and find that headline CPI inflation responds more sharply to shocks than core CPI inflation, and after the first year the impact of shocks on headline inflation is less than the impact on core inflation.
    Keywords: unobserved components, CPI, price indices, inflation, core
    JEL: C32 E31
    Date: 2009–10
  18. By: Logan Kelly (University of Wisconsin, Department of Economics, River Falls, WI 54022); William Barnett (University of Kansas, Department of Economics, Lawrence, KS 66045); John Keating (University of Kansas, Department of Economics, Lawrence, KS 66045)
    Abstract: Historically, attempts to solve the liquidity puzzle have focused on narrowly defined monetary aggregates, such as non-borrowed reserves, the monetary base, or M1. Many of these efforts have failed to find a short-term negative correlation between interest rates and monetary policy innovations. More recent research uses sophisticated macroeconomic and econometric modeling. However, little research has investigated the role measurement error plays in the liquidity puzzle, since in nearly every case, work investigating the liquidity puzzle has used one of the official monetary aggregates, which have been shown to exhibit significant measurement error. This paper examines the role that measurement error plays in the liquidity puzzle by (i) providing a theoretical framework explaining how the official simple-sum methodology can lead to a liquidity puzzle, and (ii) testing for the liquidity effect by estimating an unrestricted VAR.
    Keywords: North-South, growth model, innovation assimilation
    JEL: E50 E43
    Date: 2010–04
  19. By: André Meier
    Abstract: This paper studies inflation dynamics during 25 historical episodes in advanced economies where output remained well below potential for an extended period. We find that such episodes generally brought about significant disinflation, underpinned by weak labor markets, slowing wage growth, and, in many cases, falling oil prices. Indeed, inflation declined by about the same fraction of the initial inflation rate across episodes. That said, disinflation has tended to taper off at very low positive inflation rates, arguably reflecting downward nominal rigidities and well-anchored inflation expectations. Temporary inflation increases during episodes were, in turn, systematically related to currency depreciation or higher oil prices. Overall, the historical patterns suggest little upside inflation risk in advanced economies facing the prospect of persistent large output gaps.
    Keywords: Production , Deflation , Disinflation , Exchange rates , Inflation rates , Labor markets , Oil prices ,
    Date: 2010–08–10
  20. By: Paul Bloxham (Reserve Bank of Australia); Christopher Kent (Reserve Bank of Australia); Michael Robson (Reserve Bank of Australia)
    Abstract: The long-running debate about the role of monetary policy in responding to rising asset prices has received renewed attention in the wake of the global financial crisis.This paper contributes to this debate by describing the Australian experience of a cycle in house prices and credit from 2002 to 2004, and discussing the role played by various policies during this episode. In particluar, it focuses on the efforts by the Reserve Bank of Australia to draw attention to the risks associated with large, ongoing increases in housing prices and household borrowing.
    Keywords: asset prices; credit growth; lending standards; monetary policy; regulatory policy
    JEL: E58 G28
    Date: 2010–09
  21. By: Dimitris A. Georgoutsos (Athens University of Economics & Business); Petros Migiakis (Bank of Greece)
    Abstract: In this paper we examine the dynamics of European sovereign bond yield spreads focusing on issues related to financial integration and market conditions. The finding of near-unit-root effects highlights the need for careful econometric specification. Thus we formulate sovereign bond yield spreads, for eleven EMU countries against the Bund for the period 1992:1-2009:12, as AR(1) processes, while allowing for regime switching effects, along the lines of a Markovian probabilistic specification. Specifically, by taking into account regime switching effects we examine, rather than assume, that monetary unification affected sovereign bond yield spreads, allowing for states of higher and lower interactions to be revealed. Next, we examine the effects of several exogenous explanatory variables. Our results indicate that European sovereign bonds achieved only partial integration even before the recent financial crisis, while financial integration and financial stability are found to be interconnected. Specifically, we find evidence of different effects exercised by the same deterministic factors on sovereign bond yield spreads even before the recent crisis. Additionally, it appears that a negative relation exists between low-volatility conditions and the magnitude of effects exercised by idiosyncratic risk factors on bond yield spreads.
    Keywords: financial integration; sovereign bond spreads; near unit root; regime shifts
    JEL: F21 G12 G32
    Date: 2010–06
  22. By: Masaaki Fujii (The University of Tokyo); Yasufumi Shimada (Shinsei Bank, Limited); Akihiko Takahashi (The University of Tokyo)
    Abstract: In recent years, we have observed dramatic increase of collateralization as an important credit risk mitigation tool in over the counter (OTC) market [6]. Combined with the significant and persistent widening of various basis spreads, such as Libor-OIS and cross currency basis, the practitioners have started to notice the importance of difference between the funding cost of contracts and Libors of the relevant currencies. In this article, we integrate the series of our recent works [1, 2, 4] and explain the consistent construction of term structures of interest rates in the presence of collateralization and all the relevant basis spreads, their no-arbitrage dynamics as well as their implications for derivative pricing and risk management. Particularly, we have shown the importance of the choice of collateral currency and embedded hcheapestto- deliverh (CTD) option in a collateral agreement.
    Date: 2010–09
  23. By: Masahiko Shibamoto (Research Institute for Economics and Business Administration, Kobe University); Shigeto Kitano (Research Institute for Economics and Business Administration, Kobe University)
    Abstract: Lee and Chinn (2006) and Chinn and Lee (2009) decomposed the current account and real exchange rate into temporary and permanent shocks, and argued that a temporary shock creates the combination of current account surplus (deficit) and real exchange rate depreciation (appreciation). This paper extends their framework by examining a possible structural break in the current account and real exchange rate dynamics. Using the data of the G7 countries during the period 1980--2007, we find structural changes in two-variable dynamics for all the countries during the mid 1990s. Since the mid 1990s, the temporary shocks have not been the main source of fluctuations in the current account. Our empirical results imply that the conventional mechanism has played a limited role in explaining the dynamics of the two variables.
    Keywords: Current account, Real exchange rate, Structural change, Global imbalances
    JEL: F31 F41
    Date: 2010–09
  24. By: Evarist Stoja; Richard D. F. Harris; Fatih Yilmaz
    Abstract: In this paper, we investigate the long run dynamics of the intraday range of the GBP/USD, JPY/USD and CHF/USD exchange rates. We use a non-parametric filter to extract the low frequency component of the intraday range, and model the cyclical deviation of the range from the long run trend as a stationary autoregressive process. We find that the long run trend is time-varying but highly persistent, while the cyclical component is strongly mean reverting. This has important implications for modelling and forecasting volatility over both short and long horizons. As an illustration, we use the cyclical volatility model to generate out-of-sample forecasts of exchange rate volatility for horizons of up to one year under the assumption that the long run trend is fully persistent. As a benchmark, we compare the forecasts of the cyclical volatility model with those of the two-factor intraday range-based EGARCH model of Brandt and Jones (2006). Not only is the cyclical volatility model significantly easier to estimate than the EGARCH model, but it also offers a substantial improvement in out-of-sample forecast performance.
    Keywords: Conditional volatility, Intraday range, Hodrick-Prescott filter
    JEL: C15 C22
    Date: 2010–10
  25. By: Rezania, Omid; Rachev, Svetlozar T.; Sun, Edward; Fabozzi, Frank J.
    Abstract: Using four years of second-by-second executed trade data, we study the intraday effects of a representative group of scheduled economic releases on three exchange rates: EUR/$, JPY/$ and GBP/$. Using wavelets to analyze volatility behavior, we empirically show that intraday volatility clusters increase as we approach the time of the releases, and decay exponentially after the releases. Moreover, we compare our results with the results of a poll that we conducted of economists and traders. Finally, we propose a wavelet volatility estimator which is not only more efficient than a range estimator that is commonly used in empirical studies, but also captures the market dynamics as accurately as a range estimator. Our approach has practical value in high-frequency algorithmic trading, as well as electronic market making. --
    Keywords: Foreign exchange,volatility estimation,economic release,wavelet,high frequency
    JEL: F31 G14 G15
    Date: 2010
  26. By: Romain Veyrune; Annamaria Kokenyne; Jeremy Ley
    Abstract: This paper provides a summary of the key policies that encourage dedollarization. It focuses on cases in which the authorities’ intention is to gain greater control of monetary policy and draws on the experiences of countries that have successfully dedollarized. Unlike previous work on the subject, this paper examines both macroeconomic stabilization policies and microeconomic measures, such as prudential regulation of the financial system. This study is also the first attempt to make extensive use of the foreign exchange regulation data reported in the IMF’s Annual Report on Exchange Arrangements and Exchange Restrictions. The main conclusion is that durable dedollarization depends on a credible disinflation plan and specific microeconomic measures.
    Date: 2010–07–21

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