Currency Boards And External Shocks

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Currency Boards And External Shocks

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Author : Guillermo Perry
language : en
Publisher: World Bank Publications
Release Date : 1997-01-01

Currency Boards And External Shocks written by Guillermo Perry and has been published by World Bank Publications this book supported file pdf, txt, epub, kindle and other format this book has been release on 1997-01-01 with Business & Economics categories.

Currency boards are institutions that replace central banks and ensure that a country's currency can be purchased at a given price (or exchange rate) upon demand, thus imposing a fixed exchange rate on international transactions. These systems have their advantages--they prohibit the use of liberal monetary policies that lead to high inflation--but they can also limit the ability of an economy to react to changes in international economic conditions if foreign currency reserves are depleted. Such threats to the stability of the financial sector may stem from economic events that originate outside the national economy (external shocks), such as the fallout from the Mexican peso devaluation in late 1994. This paper presents the proceedings of a World Bank roundtable discussion held in 1996 to examine the impact of external shocks and to address the challenges countries face when operating under a currency-board system of currency exchange, with a particular emphasis on how certain costs can be minimized while maximizing the gains. Special attention is given to the currency-board systems in Argentina and Hong Kong.

Institutional Arrangements Of Currency Boards Comparative Macroeconomic Analysis

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Author : Lubomira Anastassova
language : en
Publisher:
Release Date : 2009

Institutional Arrangements Of Currency Boards Comparative Macroeconomic Analysis written by Lubomira Anastassova and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2009 with categories.

This paper is concentrated on the comparative macroeconomic analysis of the differences stemming from the extent to which the institutional framework of the currency board arrangement is implemented in the legal and regulatory systems in the different countries. The main objective of taking into consideration and examining the currency board institutional arrangements is to distinguish between the impact that currency board countries and countries with pegged exchange rate have on different macroeconomic indicators. During the analysis of these two extreme representatives of the fixed exchange rate mechanism, a third group of countries naturally emerges, which consists of countries acting like currency boards but without official, legal implementation of this arrangement. Once the distinction among all 22 countries taken into consideration had been made, the main scope of the analysis concentrates on the econometric estimation of the currency boards' effects over inflation, nominal and real interest rates and economic growth in countries under currency board and all other pegged exchange rate economies. The main hypothesis to be tested is whether the implementation of currency board arrangement results in lower inflation, lower nominal and real interest rates and better economic growth. In the course of carrying out a thorough empirical research, the hypothesis turns out to be true as the currency board countries exhibit almost 3% lower annual inflation differential when putting them against the other pegged exchange rate systems, and 1% point advantage over the countries similar to currency boards. On average, countries with currency boards showed higher economic growth, fact that can be even surprising taking into consideration the inabilities of the monetary authorities to intervene heavily on the market and neutralise the negative effects of various external shocks.

Pros And Cons Of Currency Board Arrangements In The Lead Up To Eu Accession And Participation In The Euro Zone

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Author : Ms.Anne Marie Gulde
language : en
Publisher: International Monetary Fund
Release Date : 2000-02-01

Pros And Cons Of Currency Board Arrangements In The Lead Up To Eu Accession And Participation In The Euro Zone written by Ms.Anne Marie Gulde and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2000-02-01 with Business & Economics categories.

Historically, countries with currency board arrangements (CBAs) have experienced lower inflation and higher growth than those with other regimes. The experiences of three candidates for EU membership with CBAs (Estonia, Lithuania, and Bulgaria) have also been generally favorable. Can CBAs serve these transition countries well all the way up to the adoption of the euro? After considering the pros and cons, this paper provides an affirmative answer, but notes that to preserve the viability of their CBAs throughout the process, these countries need to maintain strict policy discipline and be prepared to deal with large capital inflows and asymmetric shocks.

Pricing Currency Risk

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Author : Sergio L. Schmukler
language : en
Publisher:
Release Date : 2002

Pricing Currency Risk written by Sergio L. Schmukler and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002 with Capital costs categories.

Hong Kong S Currency Board And Changing Monetary Regimes

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Author : Yum K. Kwan
language : en
Publisher:
Release Date : 1996

Hong Kong S Currency Board And Changing Monetary Regimes written by Yum K. Kwan and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 1996 with Currency boards categories.

The paper discusses the historical background and institutional details of Hong Kong's currency board. We argue that its experience provides a good opportunity to test the macroeconomic implications of the currency board regime. Using the method of Blanchard and Quah (1989), we show that the parameters of the structural equations and the characteristics of supply and demand shocks have significantly changed since adopting the regime. Variance decomposition and impulse response analyses indicate Hong Kong's currency board is less susceptible to supply shocks, but demand shocks can cause greater short-term volatility under the system. The decent performance of Hong Kong's currency board is due mainly to the stable fiscal policy of its government. Counter-factual exercises also show that three-fourths of the reduction in observed output volatility and two-thirds of that in observed inflation volatility are explained by the adoption of the currency board, while the remainder is explained by changes in the external environment. The improvement in stability does not rule out the possibility of monetary collapse, however.

Hyperinflation Currency Board And Bust

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Author : Jutta Maute
language : en
Publisher: Peter Lang Publishing
Release Date : 2006

Hyperinflation Currency Board And Bust written by Jutta Maute and has been published by Peter Lang Publishing this book supported file pdf, txt, epub, kindle and other format this book has been release on 2006 with Currency boards categories.

Originally presented as the author's thesis (doctoral)--Universiteat Hohenheim, 2006.

Lithuania

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Author : International Monetary Fund
language : en
Publisher: International Monetary Fund
Release Date : 2002-08-01

Lithuania written by International Monetary Fund and has been published by International Monetary Fund this book supported file pdf, txt, epub, kindle and other format this book has been release on 2002-08-01 with Business & Economics categories.

The paper examines the evolution of the institutional setup of Lithuania's Currency Board Arrangement (CBA) and competitiveness from 1994 through 2001, with a view to determining the resilience of the Lithuanian CBA to external shocks in 2002-03. First, several indicators of competitiveness are analyzed in the context of productivity gains and flexibility of the labor market and prices are considered. Then, the equilibrium exchange rate and misalignments of the actual rate from it are estimated in a cointegration framework. The paper concludes that, under current policies, the CBA would be able to cope with sizable external shocks during 2002-03 provided supporting policies remain in place.

Currency Board System

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Author :
language : en
Publisher: Board of Commissioners of Currency Singapore
Release Date : 1997

Currency Board System written by and has been published by Board of Commissioners of Currency Singapore this book supported file pdf, txt, epub, kindle and other format this book has been release on 1997 with Currency boards categories.

Comparative Studies On The Currency Board Regime And Its Impact On Hong Kong S Economy

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Author : Kwo Ping Tam
language : en
Publisher:
Release Date : 2010

Comparative Studies On The Currency Board Regime And Its Impact On Hong Kong S Economy written by Kwo Ping Tam and has been published by this book supported file pdf, txt, epub, kindle and other format this book has been release on 2010 with Currency boards categories.

My thesis attempts to search evidence on the performance of the currency board regime and its impact on Hong Kong's economy. Three sets of related questions have been set up and carefully investigated in my empirical models. Chapter 2 investigates output growth and inflation rate in order to compare the historical performance of free-floating and currency board regimes for Hong Kong. I apply some advanced econometrics tools to identify my structural VAR models and offer appropriate analysis. My first empirical model suggests that output returns to a steady state much faster in a flexible exchange rate regime than in a fixed exchange rate regime after an aggregate demand shock. My evidence offers an essential answer to the question on why the recovering process of Hong Kong from the Asian financial crisis lasted longer compared with the other Asian countries with a flexible exchange rate regime. Furthermore, my counter-factual analysis suggests that a free-floating regime may generate much smaller output variance in Hong Kong and deliver higher output and price levels to Hong Kong. Chapter 3 investigates the currency board regime from 1984 to 2007, by considering some important variables which have significant impacts on Hong Kong's economy. For instance my empirical models attempt to examine the economic relationships with the US economy under the currency board regime and the close economic relationships with China under a Closer Economic Partnership Agreement with Mainland China. My models emphasises the importance of entrepot trade for Hong Kong's economy. Evidence shows that those exogenous variables have significant impacts on Hong Kong's economy, and they are one of the important factors when considering the choice of exchange rate regimes. My empirical evidence indicates some new findings which contradict existing studies which conclude that the Chinese economy is much less significant than the US economy in explaining Hong Kong's output variance. Chapter 4 examines the real effective exchange rate misalignment of the two economies, Hong Kong and Singapore, and offers new policy implications on the choice of exchange rate regimes. Entrepot trades are essential to both economies. While the literature has paid little attention to such an important character and shown evidence of larger scale REER misalignment in Hong Kong compared with Singapore, my model reveals that including such an important variable has remarkably improved the model and offered strikingly different conclusions. I have applied Vector Error Correction Modelling and the Johansson Method in identifying the empirical models. Evidence suggests that Hong Kong performs well in terms of small real exchange rate misalignment even under its currency broad regime. My thesis indicates that although there are limitations in the currency broad regime in terms of relatively slow recovery from external demand shocks and relatively larger output variance, the regime is still a preferable choice for Hong Kong, especially when we consider the close economic link with Mainland China and the United States. Moreover, there is no evidence in my models to suggest that the real exchange rate misalignment was significantly larger in the case of Hong Kong's currency board regime.

Currency Boards In Retrospect And Prospect

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Author : Holger C. Wolf
language : en
Publisher: MIT Press
Release Date : 2008

Currency Boards In Retrospect And Prospect written by Holger C. Wolf and has been published by MIT Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 2008 with Business & Economics categories.

Employing economic theory, cross-country empirical comparison and case studies, this work analyses the effect of currency boards on inflation, output growth and macroeconomic performance. The case studies come from Argentina, Estonia Lithuania, Bulgaria and Bosnia and Herzegovina.