Does Monetary Policy Stabilize the Exchange Rate Following a Currency Crisis? PDF Download
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Author: Mr.Ilan Goldfajn
Publisher: International Monetary Fund
ISBN: 1451846193
Category : Business & Economics
Languages : en
Pages : 33
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Book Description
This paper provides evidence on the relationship between monetary policy and the exchange rate in the aftermath of currency crises. It analyzes a large data set of currency crises in 80 countries for the period 1980-98. The main question addressed is: Can monetary policy increase the probability of reversing a postcrisis undervaluation through nominal appreciation rather than higher inflation? We find that tight monetary policy facilitates the reversal of currency undervaluation through nominal appreciation. When the economy also faces a banking crisis, the results are not robust: depending on the specification, tight monetary policies may not have the same effect.
Author: Mr.Ilan Goldfajn
Publisher: International Monetary Fund
ISBN: 1451846193
Category : Business & Economics
Languages : en
Pages : 33
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Book Description
This paper provides evidence on the relationship between monetary policy and the exchange rate in the aftermath of currency crises. It analyzes a large data set of currency crises in 80 countries for the period 1980-98. The main question addressed is: Can monetary policy increase the probability of reversing a postcrisis undervaluation through nominal appreciation rather than higher inflation? We find that tight monetary policy facilitates the reversal of currency undervaluation through nominal appreciation. When the economy also faces a banking crisis, the results are not robust: depending on the specification, tight monetary policies may not have the same effect.
Author: Mr.Taimur Baig
Publisher: International Monetary Fund
ISBN: 1451858396
Category : Business & Economics
Languages : en
Pages : 32
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Book Description
This paper evaluates monetary policy and its relationship with the exchange rate in five Asian crisis countries. The findings are compared with previous currency crises in recent history. The paper finds no evidence of overly tight monetary policy in the Asian crisis countries in 1997 and early 1998, nor evidence that high interest rates led to weaker exchange rates. The usual trade-off between inflation and output when raising interest rates suggested the need for a softer monetary policy in the crisis countries to combat recession. However, in some countries, corporate balance sheet considerations called for the reversal of overly depreciated currencies through firmer monetary policy.
Author: Mr. Taimur Baig
Publisher: International Monetary Fund
ISBN: 1451903642
Category : Business & Economics
Languages : en
Pages : 33
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Book Description
This paper evaluates monetary policy and its relationship with the exchange rate in five Asian crisis countries. The findings are compared with previous currency crises in recent history. The paper finds no evidence of overly tight monetary policy in the Asian crisis countries in 1997 and early 1998, nor evidence that high interest rates led to weaker exchange rates. The usual trade-off between inflation and output when raising interest rates suggested the need for a softer monetary policy in the crisis countries to combat recession. However, in some countries, corporate balance sheet considerations called for the reversal of overly depreciated currencies through firmer monetary policy.
Author: Ilan Goldfajn
Publisher:
ISBN:
Category :
Languages : es
Pages : 51
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Book Description
Author: Ms.Alicia García-Herrero
Publisher: International Monetary Fund
ISBN: 1451854684
Category : Business & Economics
Languages : en
Pages : 84
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Book Description
The experiences of seven countries that have undergone banking crises show that crises have significant implications for the short-run stability of the demand for money, the money multiplier, the transmission mechanism, and the signal variables of monetary policy. Monetary and credit instability, coupled with changes in the nature of the monetary and credit aggregates, complicate monetary management. These findings may require redesigning monetary instruments in favor of faster-reacting instruments, such as open market operations, and introducing additional indicators of the monetary stance, such as asset price and exchange rate movements. More frequent reviews of monetary programs may also be necessary.
Author: Ben Bernanke
Publisher: Princeton University Press
ISBN: 0691158738
Category : Business & Economics
Languages : en
Pages : 144
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Book Description
Collects a series of lectures the chairman of the U.S. Federal Reserve gave in 2012 about the Federal Reserve and the 2008 financial crisis.
Author: David Gould
Publisher:
ISBN:
Category : Monetary policy
Languages : en
Pages : 64
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Book Description
This paper addresses the impact of monetary policy on exchange rates during financial crises. Some observers have argued that a tightening of monetary policy is necessary to stabilize the exchange rate, restore confidence, and lay the groundwork for an eventual recovery of economic activity. Others have argued that by raising interest rates (which reduces the ability of borrowers to repay loans and thereby weakens the banking system), tightening may further reduce investor confidence and lead to further weakening--not strengthening--of domestic currencies. This debate, which became highly charged during the Asian financial crisis, remains unresolved. A key reason is that, because of the endogeneity of interest rates with respect to exchange rates and investor expectations, it is difficult to use statistical analysis to identify the impact of monetary policy on the exchange rate. In our research, we use measures of international credit spreads and of domestic stock prices as proxies for investor concerns about creditworthiness and country risk in order to better identify the impact of monetary policies on the exchange rate. Using weekly data from Indonesia, Korea, Malaysia, the Philippines, Thailand, and Mexico, we find that credit spreads and stock prices exert significant impacts on exchange rates during financial crises, but interest rates still are not estimated to have significant effects. We conclude that while monetary policy probably does exert an important influence over exchange rates, this most likely takes place slowly, as central banks attempt to establish credibility, and over longer periods of time than can be captured in our analysis.
Author: Sylvester C. W. Eijffinger
Publisher:
ISBN:
Category : Currency crises
Languages : en
Pages : 25
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Book Description
Author: R. Rajan
Publisher: Springer
ISBN: 0230234194
Category : Business & Economics
Languages : en
Pages : 258
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Book Description
This book concentrates on exchange rates and their macroeconomic consequences, analytical and empirical issues relating to currency crises and policy responses and monetary and financial cooperation in Asia. It is truely pan-Asia-focused with chapters on China, Japan, Korea, India and Southeast Asia.
Author: Mr.Alfredo Baldini
Publisher: International Monetary Fund
ISBN: 1475502842
Category : Business & Economics
Languages : en
Pages : 47
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Book Description
We develop a DSGE model with a banking sector to analyze the impact of the financial crisis on Zambia and the role of the monetary policy response. We view the crisis as a combination of three related shocks: a worsening in the terms of the trade, an increase in the country’s risk premium, and a decrease in the risk appetite of local banks. We characterize monetary policy as "stop and go": initially tight, subsequently loose. Simulations of the model broadly match the path of the economy during this period. We find that the initial policy response contributed to the domestic impact of the crisis by further tightening financial conditions. We study the factors driving the "stop" part of policy and derive policy implications for central banks in low-income countries.
