scholarly journals The Mirage of Fixed Exchange Rates

1995 ◽  
Vol 9 (4) ◽  
pp. 73-96 ◽  
Author(s):  
Maurice Obstfeld ◽  
Kenneth Rogoff
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Capital Markets ◽  
Global Capital ◽  
Speculative Attack ◽  
Fixed Exchange Rates ◽  
Monetary Authorities ◽  
Very High ◽  
Dynamic Interplay

This paper discusses the profound difficulties of maintaining fixed exchange rates in a world of expanding global capital markets. Contrary to popular wisdom, industrialized-country monetary authorities easily have the resources to defend exchange parities against virtually any private speculative attack. But if their commitment to use those resources lacks credibility with markets, the costs to the broader economy of defending an exchange-rate peg can be very high. The dynamic interplay between credibility and commitment is illustrated by the 1992 Swedish and British crises and the 1994-95 Mexican collapse. The authors also discuss the small number of successful fixers.

How it all began: the monetary and financial architecture of Europe during the first global capital markets, 1648–1815

2000 ◽  
Vol 7 (2) ◽  
pp. 117-140 ◽  
Author(s):  
LARRY NEAL
Keyword(s):  
Exchange Rates ◽  
Capital Markets ◽  
Free Movement ◽  
Financial Architecture ◽  
Global Capital ◽  
Monetary Regimes ◽  
Fixed Exchange Rates ◽  
Monetary Independence ◽  
War Finance ◽  
Financial Capitalism

Larry Neal, How it all began: the monetary and financial architecture of Europe during the first global capital markets, 1648–1815The Treaty of Westphalia created the modern nation-state system of Europe and set the stage for the long-term success of financial capitalism. The new sovereign states experimented with competing monetary regimes during their wars over the next century and two-thirds while they extended and perfected the financial innovations in war finance developed during the Thirty Years War. The Dutch maintained fixed exchange rates, the French insisted on exercising monetary independence, while the English placed priority on free movement of international capital. In struggling with the trilemma of choosing among the goals of maintaining fixed exchange rates, monetary independence and free movement of capital, the governments of early modern Europe learned many valuable lessons. By the time of the Napoleonic wars, the innovations that emphasised reliance on financial markets rather than on financial institutions proved their superiority.

Exchange Rates and the Effectiveness of Actual and Oral Official Interventions: A Survey on Findings, Issues and Policy Implications

2010 ◽  
Vol 10 (4) ◽  
pp. 1850213 ◽  
Author(s):  
Nevin Cavusoglu
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Policy Implications ◽  
Consistent Finding ◽  
Macroeconomic Variables ◽  
Explanatory Variables ◽  
Monetary Authorities ◽  
Exchange Rate Movements ◽  
Exchange Markets

Monetary authorities of many open economies have been regularly intervening in foreign exchange markets for years to limit volatility in exchange rates and/or push exchange rates back to some desired level. Such interventions have taken the form of actual and oral official interventions. Review of studies investigating the effectiveness of interventions reveals one major issue, related to the assumption that interventions are mostly sterilized. This assumption might lead to unreliable results when changes in interest rates and interventions are both used as explanatory variables for exchange rates. One major consistent finding is that intervention has a significant but short-lasting effect on exchange rates. Studies have reached this conclusion by investigating whether intervention has been effective in turning around the exchange rate over the few days, weeks or months following intervention(s). Only a few studies have investigated and provided evidence that intervention has been effective in limiting long swings in exchange rates. Studies testing for the effectiveness of interventions specifically through the signaling channel also provide evidence on the importance of macroeconomic variables for exchange rates. The significance of official intervention and official communication for exchange rate movements combined with the importance of macroeconomic variables for exchange rates provide a role for official intervention and parity announcement to influence exchange rate movements and limit the magnitude of exchange rate swings.

Löhne, Wechselkurse und Beschäftigung

1997 ◽  
Vol 46 (1) ◽  
Author(s):  
Ulrich van Suntum
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
International Competitiveness ◽  
Currency Union ◽  
Wage Level ◽  
Wage Policy ◽  
Labour Costs ◽  
Fixed Exchange Rates ◽  
Unit Labour Costs ◽  
The Impact

AbstractIn recent time it has been argued that Germanys international competitiveness had suffered more from the strong D-Mark than from the national wage level. As a proof it has been pointed to the relative impact of these two factors on the level of German unit labour costs, measured in terms of international currency.It is shown that neither the real exchange rate nor international unit labour costs are an unambiguous indicator of international competitiveness. On the other hand, the seemingly naive indicator of the rise in unit labour costs in national currency is by far more relevant in evaluating the impact of the wage level on national employment, at least in the long run. This is true in case of flexible as well as in the case of fixed exchange rates and also in case of a currency union. Moreover, it is argued that a flexible exchange rate will never do the job of outweighing the negative effects on employment caused by a rise in wages which is in excess of the rise in productivity. Hence with flexible exchange rates national real wage policy must bee eaqually aware of employment needs like with fixed exchange rates or in case of a currency union.

The Stabilization of an Open Economy with Capital Controls: An Analysis Using Malaysian Data

2003 ◽  
Vol 2 (3) ◽  
pp. 63-83 ◽  
Author(s):  
Naoyuki Yoshino ◽  
Sahoko Kaji ◽  
Yoko Ibuka
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Open Economy ◽  
Exchange Rate Volatility ◽  
Capital Controls ◽  
Loss Functions ◽  
Economic Welfare ◽  
Real Gdp ◽  
Net Exports ◽  
Fixed Exchange Rates

The purpose of this paper is to analyze the effectiveness of capital controls and fixed exchange rates in improving economic welfare. We apply Malaysian data to our theoretical model and derive the following results for the period of our estimation. High exchange rate volatility negatively affects Malaysian net exports and real GDP. By stabilizing the exchange rate and recovering monetary policy autonomy, capital controls and fixed exchange rates can lead to lower values of loss functions. This beneficial effect is stronger, the more open the Malaysian economy.

Analysis of Long-Term Memory in the Mexican Exchange Market Using a Fuzzy Hurst Exponent: Does Intervention Matter?

2018 ◽  
Vol 26 (Suppl. 1) ◽  
pp. 71-92
Author(s):  
Klender Cortez ◽  
Martha Del Pilar Rodríguez
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rates ◽  
Hurst Exponent ◽  
The Other ◽  
Long Term Memory ◽  
Exchange Market ◽  
Term Memory ◽  
Monetary Authorities

The following article aims to detect if long-term memory exists in the Mexican exchange rate market. This research was conducted between 1992 and 2016, during which time different intervention mechanisms were presented. The interventions were divided as follows: a) crawling bands (01/1992–12/1994), b) free flotation in crisis (01/1995–07/1996), c) mixed operations with purchases and sales of dollars by the Central Bank (08/1996–06/2001), d) free flotation (07/2001–04/2003), e) accumulation of international reserves (05/2003–02/2009, f) mixed auctions (03/2009–02/2016), and g) free flotation with interest rate increases (03/2016–12/2016). To detect the presence of long-term memory in the peso–dollar exchange rates, we proposed a fuzzy Hurst exponent. The results evidenced distinct types of behaviors depending on the grade of intervention. Compared to a free-floating regime, persistence and fuzzy Hurst values decreased when the Central Bank intervened in the exchange market. On the other hand, uncertainty increased when monetary authorities imposed a mechanism for buying and selling dollars without an exchange rate target.

scholarly journals Adjustments of Capital Account Restrictions and Exchange Rate Regimes in East Asia

2015 ◽  
Vol 06 (03) ◽  
pp. 1550015 ◽  
Author(s):  
Naoyuki Yoshino ◽  
Sahoko Kaji ◽  
Tamon Asonuma
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
East Asia ◽  
Exchange Rate Regimes ◽  
Capital Account ◽  
Policy Options ◽  
Costs And Benefits ◽  
Asian Countries ◽  
Monetary Authorities ◽  
Transition Policy

This paper discusses adjustments of capital account restrictions and exchange rate regimes in East Asia. Monetary authorities have two options for these adjustments: Gradual adjustments and rapid adjustments. We analyze the costs and benefits for both adjustment options in each area, i.e., capital account restrictions and exchange rate regimes. The paper provides prominent country cases for each adjustment option to emphasize the benefits for policymakers. We then propose four transition policy options for East Asian countries aiming to relax capital account restrictions and increase flexibility in exchange rates from fixed regimes with capital account controls.

Political System Transparency and Monetary Commitment Regimes

2002 ◽  
Vol 56 (4) ◽  
pp. 861-887 ◽  
Author(s):  
J. Lawrence Broz
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Exchange Rates ◽  
Political System ◽  
Political Process ◽  
The Political ◽  
Political Systems ◽  
Fixed Exchange Rates ◽  
Government Interference ◽  
The Government

Central bank independence (CBI) and fixed exchange rates are alternative monetary commitments that differ in transparency. While CBI is opaque and difficult to monitor, a commitment to a fixed exchange rate is easily observed. Political systems also vary in terms of transparency. I argue that the transparency of monetary commitments and the transparency of political systems are substitutes. Where political decision making is opaque (autocracies), governments must look to a commitment that is more transparent and constrained (fixed exchange rates) than the government itself. The transparency of the monetary commitment substitutes for the transparency of the political system to engender low inflation. Where the political process is transparent (democracies), a formal commitment to CBI can produce lower inflation because private agents and the political opposition are free to detect and punish government interference with the central bank. Statistical results indicate that (1) autocracies are more likely to adopt exchange-rate pegs than democracies, and (2) CBI is effective in limiting inflation in nations with high levels of political transparency.

The Policy Assignment Principle with Wage Indexation

2002 ◽  
Vol 46 (2) ◽  
pp. 80-87
Author(s):  
Wen-Ya Chang ◽  
Ching-Chong Lai
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Capital Mobility ◽  
Supply Side ◽  
Foreign Reserves ◽  
Fixed Exchange Rates ◽  
Managed Floating ◽  
Wage Indexation

This paper is the first attempt to examine the role of alternative wage indexation schemes in coordination between fiscal and exchange rate policies to achieve given desirable macroeconomic targets under fixed exchange rates with perfect capital mobility. By introducing an explicit specification of the supply side similar to Sachs (1980) and Pitchford (1990) into the Mundell (1963) framework, we show that the crucial factor determining whether the mixture of fiscal and exchange rate policies will successfully work to stabilize output and official foreign reserves is the degree of wage indexation. Furthermore, we also show that such a finding under fixed exchange rates is robust when the analysis shifts to the system of a managed floating regime.

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