Twin Fallacies about Exchange Rate Policy in Emerging Markets PDF Download
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Author: Carmen M. Reinhart
Publisher:
ISBN:
Category : Foreign exchange administration
Languages : en
Pages : 48
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Book Description
Two assertions about exchange rate regimes circulate with some frequency in policy circles. The first, the hypothesis of the excluded middle, holds that authorities must either choose perfectly floating exchange rates (preferably anchored by an inflation target for the central bank) or a hard (preferably irrevocable) peg. The second, seemingly unrelated, argues that the inability of emerging market economies to exercise monetary independence owes to the severe mistrust that they are perceived with by global investors because of the economic failures of prior governments. This paper argues that the theories of the excluded middle and original sin are twin and related fallacies that are contrary to theory and evidence. This paper will provide a model in which the government can choose policies consistent with either a pure float anchored by a constant money stock or a pure peg but, under certain circumstances, fail to find exchange rate stability at either corner. The problem is that the potential for regime change implies that the current government's successors may behave less admirably, which will weigh on investors' current behavior. The difficulties imparted by this expectation channel in an otherwise standard model of optimizing agents endowed with rational expectations shows both why looking back to explain credibility problems is looking the wrong way and why the excluded middle is, in fact, so crowded.
Author: Carmen M. Reinhart
Publisher:
ISBN:
Category : Foreign exchange administration
Languages : en
Pages : 48
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Book Description
Two assertions about exchange rate regimes circulate with some frequency in policy circles. The first, the hypothesis of the excluded middle, holds that authorities must either choose perfectly floating exchange rates (preferably anchored by an inflation target for the central bank) or a hard (preferably irrevocable) peg. The second, seemingly unrelated, argues that the inability of emerging market economies to exercise monetary independence owes to the severe mistrust that they are perceived with by global investors because of the economic failures of prior governments. This paper argues that the theories of the excluded middle and original sin are twin and related fallacies that are contrary to theory and evidence. This paper will provide a model in which the government can choose policies consistent with either a pure float anchored by a constant money stock or a pure peg but, under certain circumstances, fail to find exchange rate stability at either corner. The problem is that the potential for regime change implies that the current government's successors may behave less admirably, which will weigh on investors' current behavior. The difficulties imparted by this expectation channel in an otherwise standard model of optimizing agents endowed with rational expectations shows both why looking back to explain credibility problems is looking the wrong way and why the excluded middle is, in fact, so crowded.
Author: Giovanni Piersanti
Publisher: Oxford University Press
ISBN: 0199653127
Category : Business & Economics
Languages : en
Pages : 407
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Book Description
An overview of the causes and consequences of speculative attacks on domestic currency and international financial turmoil. It provides a comprehensive treatment of the existing theories of exchange rate crises and of financial market runs.
Author: I. Moosa
Publisher: Springer
ISBN: 0230504426
Category : Business & Economics
Languages : en
Pages : 285
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Book Description
This book explores the exchange rate regime choice and the role played by the exchange rate in the economy. Approaching the classification of exchange rate regimes from theoretical, practical and historical perspectives, the book discusses pertinent case studies, including the choice of exchange rate regime in the post-conflict case of Iraq.
Author: Benjamin M. Friedman
Publisher: Newnes
ISBN: 0444534709
Category : Business & Economics
Languages : en
Pages : 1729
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Book Description
How have monetary policies matured during the last decade? The recent downturn in economies worldwide have put monetary policies in a new spotlight. In addition to their investigations of new tools, models, and assumptions, they look carefully at recent evidence on subjects as varied as price-setting, inflation persistence, the private sector's formation of inflation expectations, and the monetary policy transmission mechanism. They also reexamine standard presumptions about the rationality of asset markets and other fundamentals. Stopping short of advocating conclusions about the ideal conduct of policy, the authors focus instead on analytical methods and the changing interactions among the ingredients and properties that inform monetary models. The influences between economic performance and monetary policy regimes can be both grand and muted, and this volume clarifies the present state of this continually evolving relationship. Presents extensive coverage of monetary policy theories with an eye toward questions raised by the recent financial crisis Explores the policies and practices used in formulating and transmitting monetary policies Questions fiscal-monetary connnections and encourages new thinking about the business cycle itself Observes changes in the formulation of monetary policies over the last 25 years
Author: Peter Isard
Publisher: Cambridge University Press
ISBN: 9780521605076
Category : Business & Economics
Languages : en
Pages : 388
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Book Description
Economic globalization has given rise to frequent and severe financial crises in emerging market economies. Other countries are also unsuccessful in their efforts to generate economic growth and reduce poverty. This book provides perspectives on various aspects of the international financial system that contribute to financial crises and growth failures, and discusses the remedies that economists have proposed for addressing the underlying problems. It also sheds light on a central feature of the international financial system that remains mysterious to many economists and most non-economists: the activities of the International Monetary Fund and the factors that influence its effectiveness. Dr Isard offers policy perspectives on what countries can do to reduce their vulnerabilities to financial crises and growth failures, and a number of general directions for systemic reform. The breadth of the agenda provides grounds for optimism that the international financial system can be strengthened considerably without revolutionary change.
Author: Benjamin M. Friedman
Publisher: Elsevier
ISBN: 0444534547
Category : Business & Economics
Languages : en
Pages : 971
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Book Description
"What tools are available for setting and analyzing monetary policy? World-renowned contributors examine recent evidence on subjects as varied as price-setting, inflation persistence, the private sector's formation of inflation expectations, and the monetary policy transmission mechanism. Stopping short of advocating conclusions about the ideal conduct of policy, the authors focus instead on analytical methods and the changing interactions among the ingredients and properties that inform monetary models. The influences between economic performance and monetary policy regimes can be both grand and muted, and this volume clarifies the present state of this continually evolving relationship." [source : 4e de couv.].
Author: Pascal Salin
Publisher: Edward Elgar Publishing
ISBN: 1786430304
Category : Business & Economics
Languages : en
Pages : 272
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Book Description
The international monetary system, and the disparate systems that make it up, are complex and there are many fallacies surrounding the ways in which they work. This book provides a clear and rigorous understanding of these systems and their possible consequences.
Author: José Antonio Ocampo
Publisher: Oxford University Press
ISBN: 019871811X
Category : Business & Economics
Languages : en
Pages : 296
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Book Description
This volume provides an analysis of the global monetary system and proposes a comprehensive yet evolutionary reform of the system aimed at creating better monetary cooperation for the twenty-first century.
Author:
Publisher:
ISBN:
Category : Economics
Languages : en
Pages : 528
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Book Description
Author: Willem H. Buiter
Publisher:
ISBN:
Category : Budget
Languages : en
Pages : 84
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Book Description
It is not common for an entire scholarly literature to be based on a fallacy, that is, 'on faulty reasoning; misleading or unsound argument'. The 'fiscal theory of the price level', recently re-developed by Woodford, Cochrane, Sims and others, is an example of a fatally flawed research programme. The source of the fallacy is an economic misspecification. The proponents of the fiscal theory of the price level do not accept the fundamental proposition that the government's intertemporal budget constraint is a constraint on the government's instruments that must be satisfied for all admissible values of the economy-wide endogenous variables. Instead they require it to be satisfied only in equilibrium. This economic misspecification has implications for the mathematical or logical properties of the equilibria supported by models purporting to demonstrate the properties of the fiscal approach. These include: overdetermined (internally inconsistent) equilibria; anomalies like the apparent ability to price things that do not exist; the need for arbitrary restrictions on the exogenous and predetermined variables in the government's budget constraint; and anomalous behaviour of the equilibrium' price sequences, including behaviour that will ultimately violate physical resource constraints. The issue is of more than academic interest. Policy conclusions could be drawn from the fiscal theory of the price level that would be harmful if they influenced the actual behaviour of the fiscal and monetary authorities. The fiscal theory of the price level implies that a government could exogenously fix its real spending, revenue and seigniorage plans, and that the general price level would adjust the real value of its contractual nominal debt obligations so as to ensure government solvency. When reality dawns, the result could be painful fiscal tightening, government default, or unplanned recourse to the inflation tax.
