An Intertemporal Model of the Real Exchange Rate, Stock Market, and International Debt Dynamics PDF Download
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Author: Saziye Gazioglu
Publisher:
ISBN:
Category :
Languages : en
Pages : 20
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Book Description
This paper develops an open economy intertemporal optimising model that seeks to analyse the effect of bill financed government expenditure on several key financial markets. The main results suggest that an increase in bill financed government expenditure leads to a rise in net international debt, a fall in the domestic real exchange rate and a fall in the stock market value. Furthermore, due to the presence of non-linearities in the model, reversing the deficit financing policy doesn't restore the initial net international credit, high stock market value state. Instead, the country finds itself stuck in an international debt and low stock market value trap.
Author: Saziye Gazioglu
Publisher:
ISBN:
Category :
Languages : en
Pages : 20
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Book Description
This paper develops an open economy intertemporal optimising model that seeks to analyse the effect of bill financed government expenditure on several key financial markets. The main results suggest that an increase in bill financed government expenditure leads to a rise in net international debt, a fall in the domestic real exchange rate and a fall in the stock market value. Furthermore, due to the presence of non-linearities in the model, reversing the deficit financing policy doesn't restore the initial net international credit, high stock market value state. Instead, the country finds itself stuck in an international debt and low stock market value trap.
Author: Benoît Mercereau
Publisher: International Monetary Fund
ISBN: 1451853238
Category : Business & Economics
Languages : en
Pages : 37
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Book Description
The paper presents an N-country model with stock markets, in which a closed-form solution for the real exchange rate is derived. Risky asset prices and allocation of risky assets among countries are determined endogenously. Such a framework allows an analysis of how fundamental parameters, such as the variance and covariance of the risky assets or demographic variables, affect the real exchange rate. The predictions of the model are contrasted with the Balassa-Samuelson effect. A new transmission channel of the real exchange rate for parameters such as income on net foreign assets, risk aversion, and risk-hedging opportunities is also explored.
Author: Mr.Jerome L. Stein
Publisher: International Monetary Fund
ISBN: 1451955146
Category : Business & Economics
Languages : en
Pages : 46
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Book Description
The IMF Working Papers series is designed to make IMF staff research available to a wide audience. Almost 300 Working Papers are released each year, covering a wide range of theoretical and analytical topics, including balance of payments, monetary and fiscal issues, global liquidity, and national and international economic developments.
Author: Mr. Santiago Acosta Ormaechea
Publisher: International Monetary Fund
ISBN: 151357728X
Category : Business & Economics
Languages : en
Pages : 32
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Book Description
This guide presents the analytical underpinnings and a user manual for the Excel-based Public Debt Dynamics Tool (DDT).
Author: Camila Casas
Publisher: International Monetary Fund
ISBN: 1484330609
Category : Business & Economics
Languages : en
Pages : 62
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Book Description
Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.
Author: M. Ayhan Kose
Publisher: World Bank Publications
ISBN: 1464815453
Category : Business & Economics
Languages : en
Pages : 403
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Book Description
The global economy has experienced four waves of rapid debt accumulation over the past 50 years. The first three debt waves ended with financial crises in many emerging market and developing economies. During the current wave, which started in 2010, the increase in debt in these economies has already been larger, faster, and broader-based than in the previous three waves. Current low interest rates mitigate some of the risks associated with high debt. However, emerging market and developing economies are also confronted by weak growth prospects, mounting vulnerabilities, and elevated global risks. A menu of policy options is available to reduce the likelihood that the current debt wave will end in crisis and, if crises do take place, will alleviate their impact.
Author:
Publisher:
ISBN:
Category :
Languages : en
Pages : 0
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Book Description
Until now, thinking on open economy macroeconomics has been largely schizophrenic. When it comes to analyzing exchange rate dynamics, an empirically-minded economist abandons modern current account models which, while theoretically coherent, fail to address the awkward reality of sticky nominal prices. In this paper we develop an analytically tractable two-country model that marries a full account of dynamics to a supply framework based on monopolistic competition and sticky prices. It offers simple and intuitive predictions about exchange rates and current accounts that sometimes differ sharply from those of either modern flexible-price intertemporal models, or traditional sticky-price Keynesian models. The model also leads to a novel perspective on the international welfare spillovers of monetary and fiscal policies.
Author: Mr.Steven Phillips
Publisher: International Monetary Fund
ISBN: 1484346785
Category : Business & Economics
Languages : en
Pages : 68
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Book Description
The External Balance Assessment (EBA) methodology has been developed by the IMF’s Research Department as a successor to the CGER methodology for assessing current accounts and exchange rates in a multilaterally consistent manner. Compared to other approaches, EBA emphasizes distinguishing between the positive empirical analysis and the normative assessment of current accounts and exchange rates, and highlights the roles of policies and policy distortions. This paper provides a comprehensive description and discussion of the 2013 version (“2.0”) of the EBA methodology, including areas for its further development.
Author: John Caramichael
Publisher: International Monetary Fund
ISBN: 1513579010
Category : Business & Economics
Languages : en
Pages : 34
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Book Description
We isolate a U.S. dollar currency premium by comparing corporate bonds issued in the dollar and the euro by firms o utside t he U .S. a nd e uro a rea. We make s everal empirical observations that dissect the perceived advantage of borrowing in the dollar. First, while the dollar dominates global debt issuance, borrowing costs in the dollar are more expensive without a currency hedge and about the same with a currency hedge when compared to the euro. This observed parity in currency-hedged corporate borrowing stands in contrast to the persistent deviation from covered interest parity in risk-free rates. Second, we observe a dollar safety premium in relative hedged borrowing costs, found in the subset of bonds with high credit ratings and short maturities, attributes similar to those of safe sovereigns. Finally, we find that firms flexibly adjust the currency mix of their debt issuance depending on the relative borrowing cost between dollar and euro debt. In sum, the disproportionate demand for U.S. dollar debt is reflected in higher issuance volumes that drive up the currency hedged dollar borrowing costs such that at the margin they equate to euro borrowing costs.
Author: Mr.Marco Airaudo
Publisher: International Monetary Fund
ISBN: 1475523165
Category : Business & Economics
Languages : en
Pages : 65
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Book Description
We analyze coordination of monetary and exchange rate policy in a two-sector model of a small open economy featuring imperfect substitution between domestic and foreign financial assets. Our central finding is that management of the exchange rate greatly enhances the efficacy of inflation targeting. In a flexible exchange rate system, inflation targeting incurs a high risk of indeterminacy where macroeconomic fluctuations can be driven by self-fulfilling expectations. Moreover, small inflation shocks may escalate into much larger increases in inflation ex post. Both problems disappear when the central bank leans heavily against the wind in a managed float.
