The Currency-plus-Commodity Basket

2019 ◽  
pp. 149-182 ◽  
Author(s):  
Jeffrey A. Frankel
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Exchange Rate Regime ◽  
Gulf Cooperation Council ◽  
Balance Of Payments ◽  
National Currency ◽  
Oil Market ◽  
Gcc Countries ◽  
High Inflation ◽  
Trading Partners

This chapter proposes an exchange rate regime for oil-exporting countries, designed to deliver monetary policy that accommodates rather than exacerbates the effects of oil market swings, yet offers the transparency and predictability of a currency peg. The proposal is called currency-plus-commodity basket (CCB). The plan is to peg the national currency to a basket that includes not only the currencies of major trading partners but also the export commodity (oil). The chapter provides evidence from six Gulf Cooperation Council (GCC) countries that times when their currencies were “undervalued” relative to the CCB alternative were periods of overheating, as reflected in high inflation, and external imbalance, as reflected in high balance-of-payments surpluses. Conversely, periods when the currencies were “overvalued” featured unusually low inflation and low balance of payments. This suggests the economy would have been more stable under CCB. Finally, the chapter offers a practical blueprint for implementation of the proposal.

scholarly journals On Complex Inflation Targeting and Modified Inflation Indicators (Experience of Georgia)

2019 ◽  
Vol 23 (3) ◽  
pp. 16-34
Author(s):  
V. Papava ◽  
V. Charaia
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Production Costs ◽  
National Currency ◽  
Quarter Century ◽  
New Approach ◽  
Trading Partners ◽  
Macroeconomic Indicators ◽  
The Exchange Rate

The paper analyzes inflation targeting which used in many countries as a tool for the monetary policy of central banks. The study of the experience of inflation targeting over the past quarter century shows a number of shortcomings. The important one is that inflation targeting is powerless in relation to import inflation. This problem is particularly acute for import-dependent countries. The authors summarize the failure of inflation targeting to influence the import of inflation regarding inflation caused by the increase in production costs. The problem is studied by the example of post-communist Georgia (that uses inflation targeting) and its major trading partners. The authors analyze various modifications of the inflation indicator, such as agflation, munflation, and imflation. It is shown that the first two reflect price fluctuations on the nutrition, medical care, medication and utilities. Imflation reflects the dynamics of import prices on the domestic market, in the formation of which the exchange rate of the national currency is of great importance. The indicators of agflation and munflation together with the traditional indicator of inflation should become one of the important macroeconomic indicators for governments that develop economic and social policies. The authors propose a new approach to monetary policy, called complex inflation targeting. In this case, monetary policy targets are not only inflation, but also imflation. As for the exchange rate of the national currency, it should be influenced by the actual level of the imflation indicator.

scholarly journals How Do Changing U.S. Interest Rates Affect Banks in the Gulf Cooperation Council (GCC) Countries?

2019 ◽  
Vol 2019 (268) ◽  
Author(s):  
Olumuyiwa Adedeji ◽  
Yacoub Alatrash ◽  
Divya Kirti
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Panel Data ◽  
Interest Rates ◽  
Gulf Cooperation Council ◽  
Bank Profitability ◽  
Gcc Countries ◽  
Pass Through ◽  
The Impact

Given their pegged exchange rate regimes, Gulf Cooperation Council (GCC) countries usually adjust their policy rates to match shifting U.S. monetary policy. This raises the important question of how changes in U.S. monetary policy affect banks in the GCC. We use bank-level panel data, exploiting variation across banks within countries, to isolate the impact of changing U.S. interest rates on GCC banks funding costs, asset rates, and profitability. We find stronger pass-through from U.S. monetary policy to liability rates than to asset rates and bank profitability, largely reflecting funding structures. In addition, we explore the role of shifts in the quantity of bank liabilities as policy rates change and the role of large banks with relatively stable funding costs to explain these findings.

On the Exchange Rate Policy

2010 ◽  
pp. 21-28
Author(s):  
K. Yudaeva
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Inflation Targeting ◽  
Exchange Rate Policy ◽  
Institutional Changes ◽  
Crisis Period ◽  
Local Currency ◽  
High Inflation ◽  
Rate Policy ◽  
The Exchange Rate

The level of trust in the local currency in Russia is very low largely because of relatively high inflation. As a result, Bank of Russia during crisis times can not afford monetary policy loosening and has to fight devaluation expectations. To change the situation in the post-crisis period Russia needs to live through a continuous period of low inflation. Modified inflation targeting can help achieve such a result. However, it should be amended with institutional changes, particularly development of hedging instruments.

Impact of external currency exposures on macroeconomic policies

2020 ◽  
pp. 23-40
Author(s):  
I. V. Prilepskiy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Positive Impact ◽  
Exchange Rate Regime ◽  
Macroeconomic Policies ◽  
Panel Regressions ◽  
Financial Account ◽  
Currency Exposure ◽  
Cross Country ◽  
The Impact

Based on cross-country panel regressions, the paper analyzes the impact of external currency exposures on monetary policy, exchange rate regime and capital controls. It is determined that positive net external position (which, e.g., is the case for Russia) is associated with a higher degree of monetary policy autonomy, i.e. the national key interest rate is less responsive to Fed/ECB policy and exchange rate fluctuations. Therefore, the risks of cross-country synchronization of financial cycles are reduced, while central banks are able to place a larger emphasis on their price stability mandates. Significant positive impact of net external currency exposure on exchange rate flexibility and financial account liberalization is only found in the context of static models. This is probably due to the two-way links between incentives for external assets/liabilities accumulation and these macroeconomic policy tools.

scholarly journals Public service privatization and crisis in Argentina

2005 ◽  
Vol 48 (3-4) ◽  
pp. 97-113
Author(s):  
Leopoldo Rodnguez-Boetsch
Keyword(s):  
Exchange Rate ◽  
Public Service ◽  
Public Services ◽  
Exchange Rate Regime ◽  
Regulatory Framework ◽  
Balance Of Payments ◽  
Regulatory Agencies ◽  
External Shocks ◽  
Se Asia ◽  
Privatized Firms

This article discusses the privatization of public services in Argentina in light of the severe crisis that afflicted the country between 1999 and 2002. An inadequate regulatory framework and the absence of effective regulatory agencies resulted in the exercise of monopolistic power over public service fees. The emergence of a series of external shocks, starting in 1997 with the SE Asia crisis, weakened the country's external accounts. In the context of a strict fixed exchange rate regime-rising public service fees and overseas obligations contracted by the privatized firms placed growing pressure on the balance of payments. Even though privatized firms were not directly responsible for the four-year recession or the balance of payments crisis, their actions contributed to the onset and prolongation of the difficulties faced by Argentina.

scholarly journals Liberia

2021 ◽  
Vol 21 (9) ◽  
Author(s):  
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Central Bank ◽  
Financial Management ◽  
Purchasing Power ◽  
Inclusive Growth ◽  
Public Financial Management ◽  
The Poor ◽  
Bank Financing ◽  
High Inflation

Restoring macroeconomic stability, providing a foundation for sustainable inclusive growth, and addressing weaknesses in governance remain the main objectives of this program. While allowing for a slight fiscal loosening to meet humanitarian needs during the COVID-19 pandemic, tight monetary policy, much improved public financial management, domestic revenue mobilization, and zero central bank financing have supported the administration’s efforts to achieve price and exchange rate stability. This has helped to preserve the purchasing power of the poor who were the most affected by the high inflation environment at the program’s inception. The authorities consider bringing the ECF-supported program back on track of utmost importance and are committed to their development plan, the Pro-Poor Agenda for Prosperity and Development (PAPD).

Monetary and Exchange Rate Policy in Fragile States

2021 ◽  
pp. 367-405
Author(s):  
Christopher Adam ◽  
James Wilson
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Exchange Rate Regime ◽  
Balance Of Power ◽  
Exchange Rate Policy ◽  
Fragile States ◽  
Policy Choices ◽  
Structural Fragility ◽  
Rate Policy ◽  
Proximate Causes

This chapter charts monetary and exchange rate policy aspects of countries’ descent into, and exit from, economic fragility and draws out some key normative policy lessons for fragile countries and their external partners. Choices around exchange rate regime and the conduct of monetary policy in fragile states will rarely be fundamental drivers of deep structural fragility, even though they may present as proximate causes. Nor are they likely to be decisive in driving the recovery from extreme fragility. However, monetary and exchange rate policy choices can and do play an important role in affecting movements into fragility as well as shaping potential exit paths. Moreover, choices in these domains affect the likely distribution of rents, including those generated by policy distortions themselves. In doing so, they alter the balance of power and can decisively shift the points of influence for policy, including by outside agents.

Capital Control and Monetary Policy in Asian Emerging Market Economies

2018 ◽  
Vol 17 (2) ◽  
pp. 111-134
Author(s):  
Yongseung Jung ◽  
Soyoung Kim ◽  
Doo Yong Yang
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Labor Market ◽  
Foreign Exchange ◽  
Exchange Rate Regime ◽  
Emerging Market ◽  
Elasticity Of Substitution ◽  
Price Stability ◽  
Emerging Market Economies ◽  
Capital Control

This paper explores two policy options in emerging market economies (EMEs) to cope with volatile capital flows due to external monetary policy shocks; capital control policy and choice of exchange rate regime. Both tools reinforce each other when a foreign exchange risk premium shock hits the economy. A contractionary U.S. monetary policy shock has significant real effects in EMEs. Conventional wisdom tells us that a free floating exchange rate with inflation targeting is better when a country faces foreign shocks. However, we show that a flexible exchange rate with less capital controls is not the best option in EMEs based on vector autoregression analysis. Moreover, we set up a small open economy new Keynesian model with real wage and price rigidities. It shows that the small economy with labor market frictions is more vulnerable to exogenous shocks such as a foreign exchange rate shock under a fixed exchange rate regime than under a flexible exchange regime. We show that maintaining price stability is not desirable when there are substantial frictions in the labor market and the intratemporal elasticity of substitution is high. Finally, the model shows that the welfare cost difference between a policy of maintaining purchasing power and a policy aimed at price stability reverses as the intratemporal elasticity of substitution between home and foreign goods increases.

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