scholarly journals Exchange rate dynamics, balance sheet effects, and capital flows. A Minskyan model of emerging market boom-bust cycles

2019 ◽  
Vol 51 ◽  
pp. 270-283
Author(s):  
Karsten Kohler
Keyword(s):  
Exchange Rate ◽  
Capital Flows ◽  
Emerging Market ◽  
Balance Sheet ◽  
Exchange Rate Dynamics ◽  
Balance Sheet Effects

Harinder S. Kohli (ed.). Growth and Development in Emerging Market Economies: International Private Capital Flows, Financial Markets and Globalisation. New Delhi: Sage Publication 2008. 369 pages. Hardbound. Indian Rs 695.00.

2008 ◽  
Vol 47 (3) ◽  
pp. 304-305
Author(s):  
Henna Ahsan
Keyword(s):  
Capital Flows ◽  
Growth And Development ◽  
Global Economy ◽  
Emerging Market ◽  
Balance Sheet ◽  
Emerging Market Economies ◽  
New Delhi ◽  
Infrastructure Development ◽  
Market Economies ◽  
Emerging Market Countries

The book discusses the different experiences in Asia and Latin America, while covering the closely related areas under the purview of Emerging Market Economies (EMEs). The first chapter, “Introduction and Overview” has written by Harinder S. Kohli gives an excellent review of the existing literature on the subject. The book discusses six related topics which include nine papers presented at the Emerging Markets Forum Meeting held in Jakarta, Indonesia, in September 2006. The book highlights the main factors of growth and development in Emerging Market Economies (EMEs) now closely related with international capital flows, development of financial market, the countries’ ability to integrate successfully with the global economy through trade and investment and their ability to forge public-private partnerships including infrastructure development. Chapter 2, of the book is an article titled “Global Imbalances, Oil Revenues and Capital Flows to Emerging Market Countries” by Jack Boorman explains the favourable global environment and its impact on capital flows to Emerging Market Countries (EMCs). The EMCs got advantage from this benign global economic environment, such as high economic growth rate, increase in exports, better national balance sheet and increase in foreign exchange reserves, but due to high oil prices the situation has been changed.

Currency Crises, Monetary Policy and Corporate Balance Sheets

2007 ◽  
Vol 8 (3) ◽  
pp. 309-343 ◽  
Author(s):  
Sylvester C. W. Eijffinger ◽  
Benedikt Goderis
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Currency Crises ◽  
Balance Sheet ◽  
Balance Sheets ◽  
Output Loss ◽  
Balance Sheet Effects ◽  
Loss Compensation ◽  
Exchange Rate Changes

Abstract This paper studies how the exposure of a country’s corporate sector to interest rate and exchange rate changes affects the probability of a currency crisis. To analyze this question, we present a model that defines currency crises as situations in which the costs of maintaining a fixed exchange rate exceed the costs of abandonment. The results show that a higher exposure to interest rate changes increases the probability of crisis through an increased need for output loss compensation and an increased efficacy of monetary policy in stimulating output. A higher exposure to exchange rate changes also increases the need for output loss compensation. However, it lowers the efficacy of monetary policy in stimulating output through the adverse balance sheet effects of exchange rate depreciation. As a result, its effect on the probability of crisis is ambiguous.

scholarly journals External Shocks and FX Intervention Policy in Emerging Economies

2021 ◽  
Author(s):  
Alex Carrasco ◽  
David Florián Hoyle
Keyword(s):  
Exchange Rate ◽  
Open Economy ◽  
Exchange Rate Regime ◽  
Emerging Market ◽  
Agency Problem ◽  
Small Open Economy ◽  
Balance Sheet ◽  
Policy Instrument ◽  
External Shocks ◽  
Intervention Policy

This paper discusses the role of sterilized foreign exchange (FX) interventions as a monetary policy instrument for emerging market economies in response to external shocks. We develop a model for a commodity-exporting small open economy in which FX intervention is considered as a balance sheet policy induced by a financial friction in the form of an agency problem between banks and their creditors. The severity of banks agency problem depends directly on a bank-level measure of currency mismatch. Endogenous deviations from the standard UIP condition arise at equilibrium. In this context, FX interventions moderate the response of financial and macroeconomic variables to external shocks by leaning against the wind with respect to real exchange rate pressures. Our quantitative results indicate that, conditional on external shocks, the FX intervention policy successfully reduces credit, investment, and output volatility, along with substantial welfare gains when compared to a free-floating exchange rate regime. Finally, we explore distinct generalizations of the model that eliminate the presence of endogenous UIP deviations. In those cases, FX intervention operations are considerably less effective for the aggregate equilibrium.

Exchange Rate Dynamics, Endogenous Risk Premium and the Balance Sheet Effect: An Effective Demand Model

2018 ◽  
Vol 7 (2) ◽  
pp. 212-239
Author(s):  
Moumita Basu ◽  
Jonaki Sengupta ◽  
Ranjanendra Narayan Nag
Keyword(s):  
Exchange Rate ◽  
Fiscal Policy ◽  
Interest Rate ◽  
Risk Premium ◽  
Balance Sheet ◽  
Endogenous Risk ◽  
Exchange Rate Dynamics ◽  
Tariff Liberalization ◽  
Foreign Bonds ◽  
Exchange Rate Depreciation

This article describes a macroeconomic framework for analysing the interaction between output, domestic interest rate and exchange rate in the presence of the endogenous risk premium and balance sheet effect of exchange rate depreciation on investment demand. Output is demand determined. There are three assets: money, domestic bonds and foreign bonds. Domestic bonds and foreign bonds are not perfect substitutes due to the presence of risk premium. The endogenous risk premium depends on certain macroeconomic fundamentals, namely budget deficit and current account balance. Using this framework, we will examine implications of monetary policy, fiscal policy, tariff liberalization and global interest rate hike for exchange rate dynamics and output. The balance sheet effect and the risk premium together explain how an expansionary fiscal policy may generate recession, while tariff liberalization may produce favourable macroeconomic outcomes. Moreover, the model shows that an increase in world interest rate may have contractionary effect on the domestic output level due to the presence of the balance sheet effect of exchange rate depreciation. JEL Classification: E27, E63, F13, F32

Modelling Sterilized Interventions and Balance Sheet Effects of Monetary Policy in a New Keynesian Framework

2018 ◽  
Author(s):  
Jaromir Benes ◽  
Andrew Berg ◽  
Rafael Portillo ◽  
David Vavra
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Inflation Targeting ◽  
Balance Sheet ◽  
New Keynesian ◽  
Balance Sheet Effects ◽  
Exchange Rate Management ◽  
Wide Range ◽  
The Exchange Rate

The authors study a wide range of hybrid inflation-targeting (IT) and managed exchange rate regimes, analysing their implications for inflation, output and the exchange rate in the presence of various domestic and external shocks. To this end, the chapter presents an open economy New Keynesian model featuring sterilized interventions in the foreign exchange (FX) market as an additional central bank instrument operating alongside the Taylor rule, and affecting the economy through portfolio balance sheet effects in the financial sector. The chapter shows that there can be advantages to combining IT with some degree of exchange rate management via FX interventions. Unlike ‘pure’ IT or exchange rate management via interest rates, FX interventions can help insulate the economy against certain shocks, especially shocks to international financial conditions. However, managing the exchange rate through FX interventions may also hinder necessary exchange rate adjustments, e.g., in the presence of terms of trade shocks.

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