Free-floating tenge will not stop Kazakhstani downturn

Subject Kazakhstan's exchange rate regime. Significance On August 19, the National Bank of Kazakhstan (NBK) announced it was relinquishing control of the exchange rate, thereby triggering a 23% decline in the tenge to a record 257.21/dollar. The tenge has since strengthened slightly to 241/dollar, as of September 2. The previous month, on July 15, the NBK had eased the corridor within which the tenge had been allowed to fluctuate against the dollar -- upwards by 13 points, from 170 to 198/dollar. While this exchange rate band was initially expected to last at least until 2016, a combination of fundamental market factors has prompted Kazakhstan's government to shift to a free-floating rate. Impacts Past and forthcoming cuts in public spending will contribute to the slowdown of economic growth and increase the risk of a recession. Kazakhstan's move to abandon pegging the tenge could prompt competitive devaluations in other parts of Central Asia. Socioeconomic volatility could lead to political instability as the president has yet to designate a successor.

O que motiva a realização de intervenções cambiais? Análise das atuações do Banco Central do Brasil no mercado BRL/USD

In this paper we study what drives buy-side and sell-side probabilities of intervention by the Brazilian Central Bank (BCB) on the USD/BRL spot market between 1999 and 2010. BCB’s forex interventions seem to be related to the exchange rate returns and volatility as well as to the spread between domestic and foreign interest rates. Lagged interventions also appear to have an effect on current interventions. Our findings suggest that the operation of the policymaker in the forex market may serve as a signaling of a possible coordination between BCB’s foreign and monetary policies along with the possibility of an unofficial adoption of an exchange rate band.

Die EWU als Club: Implikationen für die Beitrittstrategie(n) mittel- und osteuropäischer Reformstaaten

The present paper examines the choice of an appropriate exchange rate policy for selected economies in transition (Czech Republic, Hungary, Estonia, Slovenia and Poland) which are interested in becoming soon members of EMU. The approach chosen draws on positive and normative hints from club theory. The paper provides an analytical approach to determine ex-ante the optimal size (“number of participants”) and the optimal monetary conditions (“inflation rate”) of a monetary union. Also, we depart from the incentive structure of the old members to acquire new ones and of the hypothetical candidates to become new members. From this thinking, we have derived criteria (costs and benefits of accession) for the optimal exchange rate strategy approaching the EURO: the idea we come up with ultimately, is to create a new “snake in the tunnel” with a small exchange rate band within the group of candidates, but a large band of the snake vis-a-vis the EURO.

Estimating the fundamental equilibrium exchange rate for the czech economy

When currency turbulences hit the CZK in May 1997, the research presented in this paper had been nearly finished. It tried to contribute to the discussion of sustainability of external development of the Czech economy by comparing signals given by a set of indicators to signals implied by the estimates of fundamental equilibrium exchange rate (FEER) for the CZK.<p> Interestingly, the method of indicators did not give an unambiguous answer. Specifically, when applied to the Czech data, debt as well as solvency indicators did not imply a danger of external crisis. Financial indicators with a shorter-time horizon did send some warning signals. Indicators of competitiveness watched by large international investors considered the CZK to be overvalued since 1995.<p> In order to gain more decisive conclusion concerning the danger of external crisis, the structural approach was employed. The model simulations of the FEER indicated that the CZK became overvalued in 1996 with respect to the central parity of the exchange-rate band. This conclusion was quite robust taking into account behavior of both the real economy as well as decisive external financial flows. The Czech experience with currency turbulences provided an unintentional measure on how good the warning indicators were. The FEER methodology was able to conclude that there was a need for a policy shift in the end of 1996 although it did not give the clear warning that the exchange-rate regime itself was not sustainable.