External Shocks Policies And Tail Shifts In Real Exchange Rates

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External Shocks Policies And Tail Shifts In Real Exchange Rates

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Author : Mr. Nicolas E Magud
language : en
Publisher: International Monetary Fund
Release Date : 2023-06-23

External Shocks Policies And Tail Shifts In Real Exchange Rates written by Mr. Nicolas E Magud 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 2023-06-23 with Business & Economics categories.

We use panel quantile regressions to study extreme (rather than average) movements in the distribution of the real effective exchange rate (REER) of small open economies. We document that global uncertainty (VIX) and global financial conditions (U.S. monetary policy) shocks have a strong impact on the distribution of the REER changes, with larger impacts in the tails of the distribution, and especially in economies with shallower FX markets, lower central bank credibility, and higher credit risk (i.e., weaker macro fundamentals). Foreign exchange intervention (FXI) partially offsets the impact of these shocks, especially in the left tail (large depreciations) and particularly in economies with weaker fundamentals but, more importantly, when FXI is used sporadically. Thus, our results highlight the importance of deepening FX markets, improving central bank credibility, and strengthening macro fundamentals against the potential dynamic trade-offs of overreliance on a policy that would exacerbate the previously mentioned frictions. While our results point to low effectiveness of capital flow management in preventing large REER movements, they seem to enable more impactful foreign exchange intervention in the immediate aftermath of shocks.

External Shocks And Inflation In Developing Countries Under A Real Exchange Rate Rule

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Author : Mr.Peter Montiel
language : en
Publisher: International Monetary Fund
Release Date : 1992-09-01

External Shocks And Inflation In Developing Countries Under A Real Exchange Rate Rule written by Mr.Peter Montiel 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 1992-09-01 with Business & Economics categories.

This paper shows that the response of inflation to external shocks is very different when the authorities target the real exchange rate than when they follow a fixed exchange rate or a preannounced crawling peg. Specifically, shocks that would have no effect on the steady-state inflation rate under a fixed exchange rate are either inflationary or deflationary under a real exchange rate rule. Moreover, irrespective of the degree of capital mobility, the authorities will find it difficult to mitigate the destabilizing effects of real shocks on the price level by using monetary policy, except possibly in the very short run.

Targeting The Real Exchange Rate

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Author : Guillermo Calvo
language : en
Publisher: International Monetary Fund
Release Date : 1994-02

Targeting The Real Exchange Rate written by Guillermo Calvo 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 1994-02 with Business & Economics categories.

This paper presents a theoretical and empirical analysis of policies aimed at setting a more depreciated level of the real exchange rate. An intertemporal optimizing model suggests that, in the absence of changes in fiscal policy, a more depreciated level of the real exchange can only be attained temporarily. This can be achieved by means of higher inflation and/or higher real interest rates, depending on the degree of capital mobility. Evidence for Brazil, Chile, and Colombia supports the model’s prediction that undervalued real exchange rates are associated with higher inflation.

Bank Balance Sheets And External Shocks In Asia The Role Of Fxi Mpms And Cfms

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Author : Zefeng Chen
language : en
Publisher: International Monetary Fund
Release Date : 2021-01-15

Bank Balance Sheets And External Shocks In Asia The Role Of Fxi Mpms And Cfms written by Zefeng Chen 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 2021-01-15 with Business & Economics categories.

In emerging Asia, banks constitute the dominant source of financing consumption and investment, and bank balance sheets comprise large gross FX assets and liabilities. This paper extends the DSGE model of Gertler and Karadi (2011) to incorporate these key features and estimates a panel vector autoregression on ten Asian economies to understand the role of the banking sector in transmitting spillovers from the global financial cycle to small open economies. It also evaluates the effectiveness of foreign exchange intervention (FXI) and other macroeconomic policies in responding to external financing shocks. External financial shocks affect net external liabilities of banks and the exchange rate, leading to changes in credit supply by banks and investment. For example, a capital outflow shock leads to a deprecation that reduces the net worth and intermediation capacity of banks exposed to foreign currency liabilities. In such cases, the exchange rate acts as shock amplifier and sterilized FXI, often deployed by Asian economies, can help cushion the economy. By contrast, with real shocks, the exchange rate serves as a shock absorber, and any FXI that weakens that function can be costly. We also explore the effectiveness of the monetary policy interest rate, macroprudential policies (MPMs) and capital flow management measures (CFMs).

Exchange Rate Policy In Developing Countries

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Author : Mr.Mohsin S. Khan
language : en
Publisher: International Monetary Fund
Release Date : 1991-05-15

Exchange Rate Policy In Developing Countries written by Mr.Mohsin S. Khan 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 1991-05-15 with Business & Economics categories.

This paper addresses analytical aspects of exchange rate policy and emphasizes the relationship among exchange rate flexibility, financial discipline, and international competitiveness.

One Shock Many Policy Responses

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Author : Rui Mano
language : en
Publisher: International Monetary Fund
Release Date : 2020-01-17

One Shock Many Policy Responses written by Rui Mano 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 2020-01-17 with Business & Economics categories.

Policymakers have relied on a wide range of policy tools to cope with capital flow shocks. And yet, the effects and interaction of these policies remain under debate, as does the motivation for using them. In this paper, quantile local projections are used to estimate the entire distribution of future policy responses to portfolio flow shocks for 20 emerging markets and understand the variety of policy choices across the sample. To assuage endogeneity concerns, estimates rely on the fact that global capital flows are exogenous from the viewpoint of any one of these countries. The paper finds that: (i) policy responses to capital flow shocks are heterogeneous across countries, fat-tailed—“extreme” responses tend to be more elastic than “typical” responses—and asymmetric—“extreme” responses tend to be more elastic with respect to outflows than to inflows; (ii) country characteristics are linked to policy choices—with cross-country differences in forex intervention relating to the size of balance sheet vulnerabilities and the depth of the forex market; (iii) the use of targeted macroprudential policy and capital flows management measures can help “free the hands” of monetary policy by allowing it to focus more squarely on domestic cyclical developments.

Unveiling The Effects Of Foreign Exchange Intervention

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Author : Gustavo Adler
language : en
Publisher: International Monetary Fund
Release Date : 2015-06-23

Unveiling The Effects Of Foreign Exchange Intervention written by Gustavo Adler 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 2015-06-23 with Business & Economics categories.

We study the effect of foreign exchange intervention on the exchange rate relying on an instrumental-variables panel approach. We find robust evidence that intervention affects the level of the exchange rate in an economically meaningful way. A purchase of foreign currency of 1 percentage point of GDP causes a depreciation of the nominal and real exchange rates in the ranges of [1.7-2.0] percent and [1.4-1.7] percent respectively. The effects are found to be quite persistent. The paper also explores possible asymmetric effects, and whether effectiveness depends on the depth of domestic financial markets.

Shocks And Capital Flows

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Author : GASTON. SAHAY GELOS (RATNA.)
language : en
Publisher: International Monetary Fund
Release Date : 2023

Shocks And Capital Flows written by GASTON. SAHAY GELOS (RATNA.) 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 2023 with categories.

Real And Nominal Exchange Rates In The Long Run

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Author : Mr.Bankim Chadha
language : en
Publisher: International Monetary Fund
Release Date : 1991-06-01

Real And Nominal Exchange Rates In The Long Run written by Mr.Bankim Chadha 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 1991-06-01 with Business & Economics categories.

This paper decomposes longer-run movements in (major) dollar real exchange rates into components associated with changes in nominal exchange rates and price levels, and their comovements. Though the decompositions suggest some permanent movements, they imply that there are large transitory components in real exchange rates. These transitory components in real exchange rates are found to be closely associated with those in nominal exchange rates. A stochastic version of Dornbusch’s overshooting model—configured with representative parameter values for the United States and subjected to permanent nominal shocks—can rationalize these transitory comovements of nominal and real exchange rates as well as several other features of the decompositions.

Exchange Rate Policy And Interdependence

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Author : Reuven Glick
language : en
Publisher: Cambridge University Press
Release Date : 1994-08-26

Exchange Rate Policy And Interdependence written by Reuven Glick and has been published by Cambridge University Press this book supported file pdf, txt, epub, kindle and other format this book has been release on 1994-08-26 with Business & Economics categories.

This book focuses on the conduct of exchange rate and monetary policies in the Pacific Basin.