The stabilization properties of fixed and floating exchange rate regimes

2004 ◽  
Vol 9 (2) ◽  
pp. 113-123 ◽  
Author(s):  
Keith Pilbeam
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Regimes ◽  
Floating Exchange Rate

scholarly journals EXOGENOUS INTEREST RATE AND EXCHANGE RATE DYNAMICS UNDER ELASTIC EXPECTATIONS

2021 ◽  
Vol 80 (318) ◽  
pp. 3
Author(s):  
Franklin Serrano ◽  
Ricardo Summa ◽  
Gabriel Aidar
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Exchange Rate Regimes ◽  
Nominal Exchange Rate ◽  
Exchange Rate Dynamics ◽  
Policy Variable ◽  
Nominal Exchange Rates ◽  
Floating Exchange Rate ◽  
Short Run

<div class="WordSection1"><h1 align="center"><strong style="font-size: 10px;">ABSTRACT</strong></h1></div><p>A theory analyzing the short run dynamics of nominal exchange rates under exogenous interest rates and free imperfect international capital markets is presented. Introducing elastic exchange rate expectations leads to cumulative changes in the spot and forward exchange rates in the same direction. We find that free floating exchange rate regimes are intrinsically unstable, as the nominal exchange rate is an institutional or policy variable that has no ‘fundamental equilibrium’ level. Implications for monetary policy and exchange market interventions of this potential instability are derived. Our results help to explain both the empirical prevalence of dirty floating exchange rate regimes and some aspects of the uncovered interest parity ‘failure’.</p><p> </p><p align="center">TASA DE INTERÉS EXÓGENA Y DINÁMICA DEL TIPO DE CAMBIO CON EXPECTATIVAS ELÁSTICAS</p><p align="center"><strong>RESUMEN </strong></p><p>Presentamos un análisis teórico de la dinámica de corto plazo de los tipos de cambio nominales con tasas de interés exógenas y libres e imperfecta movilidad internacional de capitales. La introducción de expectativas de tipo de cambio elásticas conduce a variaciones acumulativas en los tipos de cambio <em>spot</em> y <em>forward</em> en la misma dirección. Los regímenes de tipo de cambio de flotación libre son intrínsicamente inestables, dado que el tipo de cambio nominal es una variable institucional o de política que no tiene un nivel de “equilibrio fundamental”. Derivamos implicaciones de esta inestabilidad potencial para la política monetaria y las intervenciones en los mercados cambiarios. Los resultados ayudan a explicar la prevalencia de tipos de cambio de flotación sucia y aspectos de la “falla” de la paridad de tasas de interés descubierta.</p>

HOW THE EXCHANGE RATE REGIME AFFECTS ADJUSTMENT TO LARGE OIL PRICE SWINGS IN OIL EXPORTING COUNTRIES

2021 ◽  
Author(s):  
MAJED S. ALMOZAINI
Keyword(s):  
Exchange Rate ◽  
Money Supply ◽  
Government Spending ◽  
Exchange Rate Regime ◽  
Exchange Rate Regimes ◽  
Oil Price ◽  
Fixed Exchange Rate ◽  
Floating Exchange Rate ◽  
The Exchange Rate

The aim of this study is to analyze how oil price shocks affect the economic growth of floating exchange rate regimes and fixed exchange rate regimes in oil-exporting countries with a ratio of oil exports to total exports exceeding 70%. Also, this study seeks to determine what monetary and fiscal policies both regimes apply in order to curb business cycles and reduce inflationary and recessionary gaps. The analytical study uses panel data for the period from 1991 to 2019, covering 24 oil-exporting countries, from the World Economic Outlook (WEO) database and World Bank. The econometric model is estimated by applying a panel VECM to examine the short- and long-term interdependencies in the macroeconomic variables. The results demonstrate that when there is a negative shock to the oil price, the exchange rate of the floating exchange rate regimes depreciates, money supply increases, and government spending decreases. In contrast, the exchange rate of the fixed exchange rate regimes fluctuates slightly; the money supply slightly decreases in the near, medium, and long term; and government spending decreases.

Exchange Rate Regimes and Economic Performance in Resource-Dependent Economies

2019 ◽  
pp. 183-217
Author(s):  
Bassem Kamar ◽  
Raimundo Soto
Keyword(s):  
Exchange Rate ◽  
Economic Performance ◽  
Oil And Gas ◽  
Exchange Rate Regimes ◽  
Lower Growth ◽  
Resource Rents ◽  
Floating Exchange Rate ◽  
Negative Effect ◽  
High Level ◽  
Long Term Performance

This chapter presents empirical findings on the relationship between resource rents, alternative exchange rate regimes, and economic performance. It shows that resource abundance leads to higher growth, while oil dependency, captured by a high level of export concentration and/or being an oil exporter, reduces economic growth relative to diversified and/or non-oil exporters. Resource rents, including oil and gas, lead to higher inflation, while oil dependence has a dampening effect. The results confirm that exchange regimes matter for the long-term performance of a resource-rich economy (RRE). Countries with floating exchange regimes tend to have lower growth and higher inflation than those with intermediate exchange rate systems but being an oil exporter helps mute the inflationary effect of floating exchange rate regimes. On the other hand, while fixed exchange rates do not have a significant direct effect on growth, they help dampen the negative effect of inflation on growth and lead to lower inflation.

In Search of Lost Time

2019 ◽  
Vol 19 (230) ◽  
Author(s):  
Antonio David ◽  
Carlos Eduardo Gonçalves
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Regime ◽  
Exchange Rate Regimes ◽  
Flexible Exchange Rate ◽  
Output Growth ◽  
Sudden Stops ◽  
Sudden Stop ◽  
Large Panel ◽  
Floating Exchange Rate ◽  
Lost Time

This paper investigates what factors affect the duration of sudden stops in capital flows using quarterly data for a large panel of countries. We find that countries with floating exchange rate regimes tend to experience shorter sudden stop episodes and that fixed exchange rate regimes are associated with longer periods of low output growth following sudden stops. These effects are quantitatively large: having a flexible exchange rate regime increases the probability of exiting the sudden stop state by between 50 to 80 percent. Flexible exchange rate regimes significantly shorten the duration of output decelerations following sudden stops by over 30 percent. Positive variations in terms of trade also abbreviate the duration of sudden stops. In terms of policies, identification is trickier, but the evidence suggests that monetary policy tightening shortens the duration of sudden stops. Changes in capital account restrictions do not seem to matter.

scholarly journals Implications of New Keynesian Theory for Benchmarking of Monetary Efficiency

2016 ◽  
Vol 3 (2) ◽  
pp. 76 ◽  
Author(s):  
Oghenovo Adewale Obrimah
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Cross Section ◽  
Exchange Rate Regime ◽  
Exchange Rate Regimes ◽  
Balance Of Payments ◽  
New Keynesian ◽  
Keynesian Theory ◽  
Floating Exchange Rate

Relative to free floating exchange rate regimes, I find the adoption of a hybrid exchange rate regime induces alternate monetary policy responses within the context of new Keynesian theory. Specifically, while the efficiency with which an economy is managed can be derived from comparisons of effects of inflation or balance of payments on exchange rates within a cross-section of countries that run free floating exchange rate regimes, this is not the case within a cross-section of countries that operate hybrid exchange rate regimes. In countries that operate hybrid exchange rate regimes, the efficiency with which an economy is managed is derived from comparisons of the effects of exchange rates on inflation or balance of payments situations. In so far as measurement of economic distortions are concerned, while relations between deposit or lending interest rates and inflows of Foreign Direct Investment (FDI) into countries with hybrid exchange rate regimes yield insights into the extent to which inflows of foreign capital induce distortionary effects on price equilibriums, these relations do not yield similar insights within a cross-section of countries that run free floating exchange rate regimes. These findings, generated within the context of new Keynesian theory, identify theoretically appropriate differences in benchmarking of economic efficiency conditional on differences in exchange rate regimes.

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