scholarly journals The Swiss National Bank’s fear of float

2019 ◽  
Vol 8 (2) ◽  
pp. 51-64
Author(s):  
Kristin Berthold ◽  
Georg Stadtmann
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Small Open Economy ◽  
Rate System ◽  
Floating Exchange Rate ◽  
Exchange Rate System ◽  
Relative Ppp ◽  
The Empirical Analysis

Abstract We theoretically examine under which assumptions the impossible trinity holds. We also focus on the most recent Swiss experience and ask whether the SNB gained monetary independence by switching from a fixed to a floating exchange rate system in January 2015. The theoretical examination shows that the impossible trinity holds under the following assumptions: Equality of domestic and foreign real interest rates, the quantity theory of money holds, and that the relative PPP is fulfilled. The empirical analysis reveals that relative PPP does not hold for the Swiss case and it was necessary for the SNB to adopt its monetary policy in accordance with the ECB’s expansionary monetary policy. We show that for a small open economy, such as Switzerland, whether the central bank implements a fixed or a floating exchange rate system does not play a role in its monetary policy independence.

scholarly journals SUATU PENDEKATAN MONETER TERHADAP PERTUMBUHAN EKONOMI PADA PEREKONOMIAN TERBUKA KECIL DENGAN KONTROL MODAL: STUDI KASUS INDONESIA 2010.1-2014.12

2016 ◽  
Vol 13 (2) ◽  
pp. 141
Author(s):  
Aris Soelistyo
Keyword(s):  
Economic Growth ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Capital Mobility ◽  
Small Open Economy ◽  
Rate System ◽  
Exchange Rate System ◽  
The Interest Rate

The purpose of this study is to formulate the monetary model of the economic growth in a small open economy (small open economy) with a free exchange rate system (flexible exchange rate system) and capital mobility is not perfect (imperfect capital mobility), as well as the factors that influence economic growth, exchange rates and interest rates with monetary approach (mathematically and empirically).This study uses a structural analysis approach to vector autoregresion with monthly data Indonesia in 2010-2014. The empirical results reveal that changes in the money supply is a significant negative effect on economic growth 0.1008 Indonesia. Moreover, economic growth is affected by the magnitude of the previous period of economic growth significantly by 0.391825, where the magnitude of the effect is determined by the strength of the exchange rate in response to changes in interest rates Indonesia, the greater the exchange rate response to changes in interest rates, the weakening influence of the period of economic growth prior to economic growth. For a small open economy (small open economy) with a free exchange rate system (flexible exchange rate system), then the value of the rupiah per dollar exchange rate is influenced significantly by the amount of money in circulation (0.063318), the exchange rate value of the last period (0.746), and the interest rate the previous period (0.3424), the interest rate two previous periods (-0.305848).For situations of capital mobility is not perfect, then the variable interest rate is treated as endogenous variables, the empirical results show that the level of BI rate significantly influenced only by the BI rate the previous month (1.4526) and the interest rate of the previous two months (0.524) 

FINANCING RESOURCE DEVELOPMENT AFTER CAMPBELL

1982 ◽  
Vol 22 (1) ◽  
pp. 153
Author(s):  
G. A. Gloster
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Financial Markets ◽  
Interest Rates ◽  
Resource Development ◽  
Bank Lending ◽  
Access To Finance ◽  
Rate System ◽  
Financial Activity ◽  
Exchange Rate System

The paper deals briefly with the basic nature of financial activity and markets and of the intermediaries, including banks, within these markets. It is argued that efforts by the authorities to affect monetary policy through controls on bank lending (quantitative and interest rates) are inefficient and only lead to circumvention. To the degree that prices (interest rates) are kept down in one area, they will be higher in another, and supply of credit reduced from one source will encourage a greater supply from another. The Campbell Committee's recommendations, if implemented, are likely to result in freer financial markets and to improve the resource development sector's access to finance. Clear examples would be the removal of foreign exchange restrictions and the setting up of a market-oriented exchange rate system. However, in one sense this access may be narrowed as the extension of bank-type prudential controls to bank subsidiaries and to all 'deposit-taking institutions' may impede the free functioning of financial markets as well as further entrenching the 'safeguarded deposit' concept over the community's savings.

scholarly journals Dynamic Effects of Changes in the Exchange Rate System

2016 ◽  
Vol 33 (1) ◽  
pp. 111-161 ◽  
Author(s):  
Naoyuki Yoshino ◽  
Sahoko Kaji ◽  
Tamon Asonuma
Keyword(s):  
Exchange Rate ◽  
Interest Rates ◽  
Open Economy ◽  
Transition Period ◽  
Exchange Rate Regime ◽  
Small Open Economy ◽  
Rate System ◽  
Transition Analysis ◽  
Dynamic Stochastic ◽  
The Exchange Rate

We propose a new dynamic transition analysis on the basis of a small open economy dynamic stochastic general equilibrium model. Our proposed analysis differs from existing static and conventional dynamic analyses in that shifts from a fixed exchange rate regime to a basket peg or a floating regime are explicitly explored. We apply quantitative analysis, using data from the People's Republic of China and Thailand, and find that both economies would be better off shifting from a dollar peg to a basket peg or a floating regime over the long run. Furthermore, the longer the transition period, the greater the benefits of shifting to a basket peg regime from a dollar peg regime owing to limited volatility in interest rates. Regarding sudden shifts to a desired regime, the welfare gains are larger under a shift to a basket peg if the exchange rate fluctuates significantly.

scholarly journals Debt, Growth, and Poverty in the International Monetary System (The Quaid-i-Azam Memorial Lecture)

2001 ◽  
Vol 40 (4I) ◽  
pp. 283-314
Author(s):  
Robert A. Mundell
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
International Monetary System ◽  
Memorial Lecture ◽  
Rate System ◽  
Currency Area ◽  
Monetary System ◽  
Fixed Exchange Rate ◽  
Floating Exchange Rate ◽  
Exchange Rate System

This paper explores the relationship between debt, growth, and poverty and the international monetary system. With a well-functioning international monetary system, economic policy works well, instruments are assigned to targets appropriately, and discipline is maintained. The fixed exchange rate is contrasted with alternative monetary rules. The monetary rule is the weakest system; monetary targeting has failed in every country in which it has been tried. An advantage of the fixed exchange rate is the clue it provides to the price level, interest rate, and future monetary policy. Other things being equal, the use of a currencies basket is inferior to a single currency peg, while a freely floating exchange rate system puts itself at the mercy of speculators. The paper points out the conditions for a successful currency area as a consensus on a common inflation rate; a common basket of goods with which to measure inflation; exchange rate that must be locked; member countries must adopt a common monetary policy; and a formula must be devised for distributing and using the seigniorage profits from monetary expansion. There is a need to study the possibility of an Asian currency area and the links between the APEC and the SAARC. Regular and mutual surveillance on monetary, fiscal, and exchange rate convergence, and policies that minimise exchange rate uncertainty and work towards a currency club area based on a common anchor— initially the dollar—are needed. Setting up of an Asian Monetary Fund is also suggested, one that is closely modelled on the original IMF articles of agreement and will provide an anchored fixed exchange rate system.

THE MONETARY APPROACH TO THE BALANCE OF PAYMENTS: AN APPLICATION TO BARBADOS

2002 ◽  
Vol 47 (02) ◽  
pp. 213-228
Author(s):  
MICHAEL HOWARD ◽  
NLANDU MAMINGI
Keyword(s):  
Exchange Rate ◽  
Open Economy ◽  
Small Open Economy ◽  
Balance Of Payments ◽  
Credit Expansion ◽  
Rate System ◽  
Fixed Exchange Rate ◽  
Monetary Approach ◽  
Monetary Authorities ◽  
Exchange Rate System

This paper examines the monetary approach to the balance of payments in Barbados, a small open economy with a fixed exchange rate system. We use an error correction mechanism (ECM) approach which shows that the monetary approach applies to Barbados. Such an ECM approach has not been previously employed in other related studies. Our analysis has implications for monetary policy since it confirms that excessive credit expansion leads to balance of payments deficits in fixed exchange rate systems, and the monetary authorities need to hold high levels of reserves in small open economy systems to protect the exchange rate.

scholarly journals A Theory of Foreign Exchange Interventions

2021 ◽  
Author(s):  
Sebastián Fanelli ◽  
Ludwig Straub
Keyword(s):  
Exchange Rate ◽  
Central Bank ◽  
Interest Rates ◽  
Open Economy ◽  
Small Open Economy ◽  
Bond Markets ◽  
Pecuniary Externality ◽  
Optimal Intervention ◽  
The Exchange Rate ◽  
Intervention Policy

Abstract We study a real small open economy with two key ingredients (1) partial segmentation of home and foreign bond markets and (2) a pecuniary externality that makes the real exchange rate excessively volatile in response to capital flows. Partial segmentation implies that, by intervening in the bond markets, the central bank can affect the exchange rate and the spread between home- and foreign-bond yields. Such interventions allow the central bank to address the pecuniary externality, but they are also costly, as foreigners make carry trade profits. We analytically characterize the optimal intervention policy that solves this trade-off: (1) the optimal policy leans against the wind, stabilizing the exchange rate; (2) it involves smooth spreads but allows exchange rates to jump; (3) it partly relies on “forward guidance,” with non-zero interventions even after the shock has subsided; (4) it requires credibility, in that central banks do not intervene without commitment. Finally, we shed light on the global consequences of widespread interventions, using a multi-country extension of our model. We find that, left to themselves, countries over-accumulate reserves, reducing welfare and leading to inefficiently low world interest rates.

Exchange Rate and Industry-Level Energy Import

2021 ◽  
pp. 71-86
Author(s):  
Abdul Sahib ◽  
Sergey Prosekov
Keyword(s):  
Exchange Rate ◽  
Supply And Demand ◽  
Exchange Rate Volatility ◽  
Trade Flows ◽  
Level Energy ◽  
Rate System ◽  
Domestic Prices ◽  
Floating Exchange Rate ◽  
Exchange Rate System ◽  
The Impact

After the Bretton Woods exchange rate system in 1973, the free-floating exchange rate, the rate determined by the forces of supply and demand, began, which developed an interest in the area of many researchers to investigate, theoretically and empirically, the impact of exchange rate volatility on the world trade flows. There are two channels, direct and indirect, through which the change in exchange rate affects domestic prices. Under the direct channel, a fall in exchange rate leads to increase in imports as well as increases the prices of inputs in domestic currency. Secondly, under the indirect channel, a decline in the exchange rate triggers the availability of domestic goods to foreign buyers at a cheaper rate, and the demand for domestic products increased. Thus, the change in exchange rate affects trade flows either positively or negatively.

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