scholarly journals Financial Stability, the Trilemma, and International Reserves

2010 ◽  
Vol 2 (2) ◽  
pp. 57-94 ◽  
Author(s):  
Maurice Obstfeld ◽  
Jay C Shambaugh ◽  
Alan M Taylor
Keyword(s):  
Exchange Rate ◽  
Financial Stability ◽  
Foreign Currency ◽  
Exchange Rate Policy ◽  
International Reserves ◽  
Short Term ◽  
Financial Openness ◽  
Stability Model ◽  
Rate Policy ◽  
Modern Era

The rapid growth of international reserves, a development concentrated in the emerging markets, remains a puzzle. In this paper, we suggest that a model based on financial stability and financial openness goes far toward explaining reserve holdings in the modern era of globalized capital markets. The size of domestic financial liabilities that could potentially be converted into foreign currency (M2), financial openness, the ability to access foreign currency through debt markets, and exchange rate policy are all significant predictors of reserve stocks. Our empirical financial-stability model seems to outperform both traditional models and recent explanations based on external short-term debt. (JEL E23, E43, E44, F31, F32, F34)

The New Drivers of Fear of Floating: Evidence from Latin America

2019 ◽  
Vol 0 (0) ◽  
Author(s):  
Jonathan Malagon ◽  
Camila Orbegozo
Keyword(s):  
Latin America ◽  
Exchange Rate ◽  
Latin American ◽  
Foreign Currency ◽  
Balance Sheet ◽  
Commodity Prices ◽  
Exchange Rate Policy ◽  
International Reserves ◽  
Lender Of Last Resort ◽  
Fear Of Floating

Abstract There exists a consensus in the literature that during the 90s the main reason for fear of floating in emerging economies was the excessive liabilities dollarization, both in private and public sectors, which resulted in central banks’ interventions over the exchange rate. The main objective of these interventions was preventing the negative balance sheet effects originated by currency depreciations. Latin America certainly fits in this description, as convincingly documented by Calvo and Reinhart (Calvo, Guillermo A., and Carmen M. Reinhart. 2002. “Fear of Floating.” Quarterly Journal of Economics 117 (2): 379–408.). However, Latin American economies have reduced their debt in foreign currency since the early 2000s. Moreover, these economies extensively increased their amount of international reserves in the last decade and some of them – like Colombia and Mexico – have even reached the IMF’s flexible credit line, which operates as an international lender of last resort. All these changes – lower liability dollarization, higher international reserves, and new collaterals – suggest that the fear of devaluating in Latin America should be lower. Nevertheless, floating has not been the decision in terms of exchange rate policy. Conversely, most of Latin American countries that announced free floating opted for managed floating regimes and discretional interventions, in what can be considered as a new era of fear of floating. This paper finds empirical evidence that the main motivation for fear of floating has changed during the recent boom in commodity prices, 2005–2013, when foreign exchange interventions under flexible regimes were focused on avoiding excessive currency appreciations and apparently preventing Dutch disease.

scholarly journals Relationships between exchange rate regime, real exchange rate volatility and currency structure of government bonds in emerging markets

2020 ◽  
Vol 20 (1) ◽  
pp. 3-22
Author(s):  
Viktar Dudzich
Keyword(s):  
Exchange Rate ◽  
Emerging Markets ◽  
Real Exchange Rate ◽  
Foreign Currency ◽  
Exchange Rate Regime ◽  
Exchange Rate Volatility ◽  
Exchange Rate Policy ◽  
Original Sin ◽  
Rate Policy ◽  
Real Exchange Rate Volatility

AbstractPublic foreign currency borrowing is a common problem of emerging markets. Scholars named it the original sin of foreign debt. It has a proven negative influence on economic growth and development, undermining financial stability, and increasing the probability of monetary crises. The roots of the original sin often lay in emerging markets’ institutional underdevelopment, with low-quality monetary policy, inappropriate exchange rate regime choice, and exchange rate mismanagement being stated among the most important causes. This paper evaluates the influence of the exchange rate policy on the emission of foreign currency sovereign bonds in emerging markets. The relationship is estimated using panel data and GMM approach, with exchange rate regime type (both de jure and de facto) and real exchange rate volatility serving as explanatory variables. The findings reveal that fixed exchange rate regime and high real exchange rate volatility is promoting the foreign currency borrowing. Thus countries that want to reduce the burden of the original sin should lean towards a more flexible exchange rate policy while maintaining their real exchange rate stable.

The Foreign Currency Exchange Rate Policy Up Until 1986

2020 ◽  
pp. 209-229
Author(s):  
Einar Lie
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Foreign Currency ◽  
Exchange Rate Regime ◽  
Exchange Rate Policy ◽  
International Exchange ◽  
Currency Exchange ◽  
Currency Exchange Rate ◽  
Rate Policy ◽  
The Government

This chapter studies how Norges Bank came to play a central, technical role in maintaining and defending a stable krone exchange rate during the years 1946–86. This role was reflected in how the bank advised on the basis of a loyal position to the fixed krone exchange rate regime and to binding international exchange rate cooperation. In 1978, Norway backed out of the European fixed exchange rate cooperation, and during 1976–86, the krone was devalued ten times. Even though Norges Bank officially came to contribute to both recommending and carrying out this policy, the policy defied the strong ideals and viewpoints of the organization. The exchange rate policy, and the problems it led to in relation to the central bank, caused the government, in the first half of the 1980s, to push Norges Bank completely aside when it came to the shaping of Norwegian exchange rate policy. Nevertheless, much of the policy was still shaped inside the walls of the institution.

Some Issues of Monetary and Exchange Rate Policy in Russia in 2000-2006 and in the Short-term Outlook

2007 ◽  
pp. 26-45 ◽  
Author(s):  
S. Drobyshevsky ◽  
P. Kadochnikov ◽  
S. Sinelnikov-Murylev
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Oil Prices ◽  
Macroeconomic Policy ◽  
Exchange Rate Policy ◽  
Economic Conditions ◽  
Short Term ◽  
Budgetary Policy ◽  
Rate Policy

The paper analyzes the problems of macroeconomic policy in Russia in 2000-2006. The authors estimate the trends of realization of monetary, credit, currency and budgetary policy under favorable and unfavorable external economic conditions. Different variants of government and central bank reaction to the oil prices conservation or decline are considered. Different scenarios of macroeconomic policy realization in 2007-2011 are modeled. The results of the computation are presented.

Fear of Free Floating or Forced Exchange Rate Fixing

2004 ◽  
pp. 112-122
Author(s):  
O. Osipova
Keyword(s):  
Exchange Rate ◽  
Financial Crisis ◽  
Exchange Rates ◽  
Inflation Targeting ◽  
Exchange Rate Policy ◽  
Float Exchange Rate ◽  
Floating Exchange Rate ◽  
Rate Policy ◽  
Exchange Rate Arrangements ◽  
Pass Through

After the financial crisis at the end of the 1990 s many countries rejected fixed exchange rate policy. However actually they failed to proceed to announced "independent float" exchange rate arrangement. This might be due to the "fear of floating" or an irreversible result of inflation targeting central bank policy. In the article advantages and drawbacks of fixed and floating exchange rate arrangements are systematized. Features of new returning to exchange rates stabilization and possible risks of such policy for Russia are considered. Special attention is paid to the issue of choice of a "target" currency composite which can minimize external inflation pass-through.

Exchange Rate Regimes and Economic Stability

2010 ◽  
pp. 29-43
Author(s):  
S. Smirnov
Keyword(s):  
Exchange Rate ◽  
Inflation Targeting ◽  
Exchange Rate Regime ◽  
Exchange Rate Policy ◽  
Real Sector ◽  
Economic Stability ◽  
Exogenous Shocks ◽  
Floating Exchange Rate ◽  
Rate Policy ◽  
Managed Floating

The Bank of Russia intends to introduce inflation targeting policy and exchange rate free floating regime in three years. Exogenous shocks absorption which stabilizes the real sector of economy is usually considered to be one of the advantages of free floating exchange rate policy. However, our research based on the analysis of 25 world largest economies exchange rates and industrial production during the crisis of 2008-2009 does not confirm this hypothesis. The article also analyzes additional risks associated with free floating exchange rate regime in Russia and presents some arguments in favor of managed floating exchange rate regime.

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.

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