scholarly journals Real Exchange Rate Variability under Pegged and Floating Nominal Exchange Rate Systems: An Equilibrium Theory

10.3386/w2565 ◽  
1988 ◽  
Author(s):  
Alan Stockman
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Equilibrium Theory ◽  
Nominal Exchange Rate ◽  
Exchange Rate Variability

scholarly journals External and internal macroeconomic shocks in case of small economy with the currency board

2021 ◽  
Vol 18 (2) ◽  
pp. 39-62
Author(s):  
Jelena Vitomir ◽  
Đorđe Lazić
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Real Exchange Rate ◽  
Money Supply ◽  
Unemployment Rate ◽  
Nominal Exchange Rate ◽  
Currency Board ◽  
High Unemployment Rate ◽  
Small Economy

External and internal economic shocks can threaten the macroeconomic stability of a small economy. In the currency board regime, there is no role for the Central Bank as a macroeconomic stabilizer in the event of an external or internal shock. In this paper, the research is based on the analysis of eight countries with small economies with currency boards or discretionary monetary policy. The impact and connections between changes in EURIBOR, interest rates, inflation measured by the GDP deflator, money supply and GDP in the period 1997-2015 are analyzed. The paper proves that in countries with a currency board, whose regimes have a harmonized relationship with the European Central Bank and EURIBOR, interest rate shocks are less pronounced. The analysis of the links between EURIBOR, interest rates, money supply, inflation and GDP is not statistically significant in the "experiment" countries. In the control sample of countries with a variable exchange rate, the situation is heterogeneous for individual countries, but statistical significance has been determined in relation to EURIBOR and inflation. We conclude that EURIBOR may be one of the generators of exogenous shocks. In the case of Bosnia and Herzegovina (B&H), there are much more significant internal transmission mechanisms that lead to macroeconomic imbalances. The growth of deposits was preceded by the growth of loans and money supply. This led to a fall in interest rates which the Central Bank of BiH (CBB&H) could not influence due to the currency board. However, the fall in interest rates did not yield the expected results. GDP has shrunk, inflation is falling, while at the same time the high unemployment rate has remained unchanged. The nominal exchange rate of the domestic currency was determined by law, but there was an appreciation of the real exchange rate, which affected the increase in the foreign trade imbalance. The result of the currency board is price stability, nominal exchange rate stability and money supply growth. Negative results are: appreciation of the real exchange rate, faster growth of imports and maintaining a very high unemployment rate. Macroeconomic developments in the BiH economy do not always have the right course that can be expected in mature economies. The achievements and applicability of standard macroeconomic policies are very limited.

scholarly journals Monetary Policy and the Predictability of Nominal Exchange Rates

2020 ◽  
Author(s):  
M S Eichenbaum ◽  
B K Johannsen ◽  
S T Rebelo
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Real Exchange Rates ◽  
Nominal Exchange Rate ◽  
Medium Size ◽  
Inflation Rates ◽  
Nominal Exchange Rates

Abstract This article studies how the monetary policy regime affects the relative importance of nominal exchange rates and inflation rates in shaping the response of real exchange rates to shocks. We document two facts about inflation-targeting countries. First, the current real exchange rate predicts future changes in the nominal exchange rate. Second, the real exchange rate is a poor predictor of future inflation rates. We estimate a medium-size, open-economy DSGE model that accounts quantitatively for these facts as well as other empirical properties of real and nominal exchange rates. The key estimated shocks that drive the dynamics of exchange rates and their covariance with inflation are disturbances to the foreign demand for dollar-denominated bonds.

Real and nominal exchange rate variability

Empirica ◽  
1989 ◽  
Vol 16 (2) ◽  
pp. 147-160 ◽  
Author(s):  
Richard C. Marston
Keyword(s):  
Exchange Rate ◽  
Nominal Exchange Rate ◽  
Exchange Rate Variability

Properties of the fundamental equilibrium exchange rate in the Treasury model

1999 ◽  
Vol 169 ◽  
pp. 96-104 ◽  
Author(s):  
Keith B. Church
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Nominal Exchange Rate ◽  
Equilibrium Exchange Rate ◽  
Natural Rate ◽  
The Real ◽  
Long Run ◽  
Equilibrium Exchange ◽  
The Uk ◽  
Fundamental Equilibrium Exchange Rate

This article calculates the equilibrium real exchange rate for the UK economy. The long-run trade and supply side relationships from HM Treasury's model are used to estimate the level of the real exchange rate consistent with the UK economy growing at its ‘natural’ rate while achieving a sustainable current account position. The model shows that the real exchange rate associated with macroeconomic equilibrium lies well below the actual rate for most of the 1990s. This result has important implications for possible UK participation in the single European currency as, once the nominal exchange rate is fixed, overvaluation can only be corrected by holding UK inflation lower than that elsewhere. Achieving this may be costly in terms of jobs and output.

scholarly journals Real exchange rate variability and monetary disturbances

1987 ◽  
Vol 123 (3) ◽  
pp. 430-448 ◽  
Author(s):  
Paul De Grauwe ◽  
Marc Rosiers
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Exchange Rate Variability
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