Choosing the Right Exchange Rate Regime for Small and Open Economies in East Asia

2003 ◽  
pp. 83-107
Keyword(s):  
Exchange Rate ◽  
East Asia ◽  
Exchange Rate Regime ◽  
Open Economies ◽  
The Right

Exchange Rate Regime Preferences and Budget Deficits in Open Economies

2021 ◽  
pp. 65-89
Author(s):  
Mustafa Kiziltan
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Regime ◽  
Trade Openness ◽  
Open Economies ◽  
Demographic Factors ◽  
Generalized Least Squares ◽  
Budget Deficits ◽  
Fiscal Discipline ◽  
Exchange Rate Shocks ◽  
High Level

This study investigates the impacts of exchange rate regime (ERR) choice, economic, institutional, and demographic factors on the budget deficit. The recent literature states that fiscal discipline is affected by the ERR preferences in open economies. In this study, the effect of de facto ERR preferences on fiscal discipline were analyzed between 1995 and 2016 for 76 countries classified into income groups. The estimates by Feasible Generalized Least Squares and Panel Corrected Standard Errors estimators show that flexible ERRs provide much more fiscal discipline. The findings highlight the importance of institutional quality, demographic factors, and inflation to ensure fiscal discipline. A country with a high level of trade openness is more vulnerable to exchange rate shocks, which leads to uncertainty in the fiscal policy. The results confirm that ERR preferences affect countries' fiscal disciplines differently, depending on the countries' characteristics.

SEMI-NONPARAMETRIC ESTIMATES OF CURRENCY SUBSTITUTION BETWEEN THE CANADIAN DOLLAR AND THE U.S. DOLLAR

2009 ◽  
Vol 14 (1) ◽  
pp. 29-55 ◽  
Author(s):  
Apostolos Serletis ◽  
Guohua Feng
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange Market ◽  
Exchange Rate Regime ◽  
The United States ◽  
Microeconomic Theory ◽  
Regularity Conditions ◽  
Bank Of Canada ◽  
Nonparametric Estimates ◽  
The Right ◽  
Monetary Assets

In this paper we investigate the issue of whether a floating currency is the right exchange rate regime for Canada or whether Canada should consider a currency union with the United States. In the context of the framework recently proposed by James L. Swofford, we use a semi-nonparametric flexible functional form—the asymptotically ideal model (AIM), introduced by William A. Barnett and A. Jonas—and pay explicit attention to the theoretical regularity conditions of neoclassical microeconomic theory, following the suggestions of William A. Barnett and William A. Barnett and Meenakshi Pasupathy. Our results indicate that U.S. dollar deposits are complements to domestic (Canadian) monetary assets, suggesting that Canada should continue the current exchange rate regime, allowing the exchange rate to float freely with no intervention in the foreign exchange market by the Bank of Canada.

scholarly journals IS EAST ASIA AS PREPARED AS EUROZONE FOR MONETARY UNION?

2012 ◽  
Vol 13 (3) ◽  
pp. 471-488 ◽  
Author(s):  
Chee-Heong Quah
Keyword(s):  
Exchange Rate ◽  
East Asia ◽  
Monetary Union ◽  
Exchange Rate Regime ◽  
Monetary Integration ◽  
Interesting Observation ◽  
The Us ◽  
Recent Developments ◽  
Optimum Currency ◽  
Reference Country

Based on optimum currency areas (OCA) theory and recent developments in the exchange rate regime literature, this paper evaluates the level of preparedness of East Asia for monetary integration by using the EMU as benchmark. Ten macroeconomic dimensions are explored in which the first five facets are measured relative to a reference country, namely the US, Japan, or China whilst the remaining five facets are measured in absolute terms, over the most recent years. In some ways, the exercise does signify the relative economic dominance of the three largest economies to the region. Results suggest that East Asia might be fairly prepared for a monetary integration especially when the reference country is the US. Another interesting observation is that amongst the eurozone founding members, Ireland has shown the lowest degree of conformity in a number of the criteria.

GLOBAL FINANCIAL INTEGRATION AND CENTRAL BANK POLICIES IN SMALL, OPEN ECONOMIES

2017 ◽  
Vol 62 (01) ◽  
pp. 135-146 ◽  
Author(s):  
MÁR GUDMUNDSSON
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Foreign Exchange ◽  
Capital Flows ◽  
Financial Integration ◽  
Exchange Rate Regime ◽  
Open Economies ◽  
Policy Instruments ◽  
Small Open Economies

Global financial integration intensified in the period leading up to the Great Financial Crisis, as was witnessed by the growth of cross-border banking, capital flows, and gross external capital positions. For small, open economies (SOEs) that have lifted restrictions on capital movements, global financial integration seems to have undermined the scope for independent monetary policy, even if these countries had adopted a flexible exchange rate regime. Monetary policy transmission was weakened through the interest rate channel, as long-term rates in SOEs became increasingly correlated with long rates in large, advanced countries. The exchange rate channel was unstable, however, with exchange rates diverging from fundamentals as uncovered interest rate parity failed to hold over relevant periods and capital flows were volatile. These tendencies can contribute to monetary and financial instability when they interact badly with other economic and financial risks that can face small, open, and financially integrated economies. This was the case in Iceland. A fundamental rethinking of policy frameworks and tools has been underway in SOEs in the wake of the crisis. Potential policy instruments include foreign exchange intervention, enhanced prudential rules on foreign exchange risks, macroprudential tools, better alignment of fiscal and monetary policy, and even selective capital flow management tools.

scholarly journals The Costs of Implementing a Unilateral One-Sided Exchange Rate Target Zone

2016 ◽  
Vol 67 (1) ◽  
Author(s):  
Markus Hertrich
Keyword(s):  
Exchange Rate ◽  
Exchange Rate Regime ◽  
Central Banks ◽  
Exchange Rate Policy ◽  
Target Zone ◽  
Ex Ante ◽  
National Bank ◽  
Rate Policy ◽  
Recent Financial Crisis ◽  
The Right

AbstractIn the aftermath of the recent financial crisis, the central banks of small open economies such as the Swiss National Bank (SNB) implemented a unilateral one-sided exchange rate target zone vis-à-vis the euro currency to counteract deflationary pressures. Recently, the SNB abandoned its minimum exchange rate regime, arguing that after having analyzed the costs and benefits of this non-standard exchange rate policy measure, it was no longer sustainable. This paper proposes a model that allows central banks and policymakers to estimate ex-ante the costs of implementing and maintaining a unilateral one-sided target zone (in terms of the expected size of foreign-exchange interventions) and to monitor these costs during the period in which it is enforced. The model also offers central banks a tool to identify the right timing for the discontinuation of a minimum exchange rate regime. An empirical application to the Swiss case shows the ex-ante estimated size of these costs and reveals that these costs might have been substantial without the abandonment of the minimum exchange rate regime, which accords with the official statements of the SNB.

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