scholarly journals Exchange Rate Determination: The Portfolio-Balance Approach

2020 ◽  
pp. 19-40
Author(s):  
Ioannis N. Kallianiotis
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Jel Classification ◽  
Exchange Rate Determination ◽  
Portfolio Balance ◽  
Balance Approach ◽  
The Exchange Rate ◽  
Foreign Bonds

The portfolio-balance approach to exchange rate determination is part of the Asset Market Models and is largely attributed to economists after 1973 when the exchange rate became flexible (market determined). This article first introduces the setting of the model embedded in the portfolio balance approach that encompasses two assets (money and bonds), which deviates a little from the models and approaches used for the monetary approach to the balance of payment, the overshooting model, and from the associated market equilibria. The effects of monetary policy, of current account, and of wealth under the portfolio-balance approach are examined, here, theoretically and empirically. The current econometric results show that the exchange rate is determined by the foreign bonds, the domestic interest rate, and the foreign interest rate. JEL classification numbers: F31, F47, E52, E41, C52, E21, E43. Keywords: Foreign Exchange, Forecasting and Simulation, Monetary Policy, Demand for Money, Model Evaluation and Testing, Consumption and Saving, Interest Rates.

The Role of Different Channels in Transmitting Monetary Policy into Output and Price in Vietnam

2015 ◽  
pp. 20-40
Author(s):  
Vinh Nguyen Thi Thuy
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Money Supply ◽  
Monetary Transmission ◽  
Impulse Response Functions ◽  
Short Run ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Interest Rate Channel

The paper investigates the mechanism of monetary transmission in Vietnam through different channels - namely the interest rate channel, the exchange rate channel, the asset channel and the credit channel for the period January 1995 - October 2009. This study applies VAR analysis to evaluate the monetary transmission mechanisms to output and price level. To compare the relative importance of different channels for transmitting monetary policy, the paper estimates the impulse response functions and variance decompositions of variables. The empirical results show that the changes in money supply have a significant impact on output rather than price in the short run. The impacts of money supply on price and output are stronger through the exchange rate and credit channels, but however, are weaker through the interest rate channel. The impacts of monetary policy on output and inflation may be erroneous through the equity price channel because of the lack of an established and well-functioning stock market.

scholarly journals Komparasi Jalur Moneter untuk Stabilitas Harga Dalam Kerangka Inflation Targeting Framework (Studi kasus pada interest rate, exchange rate dan credit channel)

2019 ◽  
Vol 8 (3) ◽  
pp. 181
Author(s):  
Setyo Tri Wahyudi ◽  
Rinny Apriliany Zakaria ◽  
Nurul Badriyah
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Error Correction ◽  
Inflation Targeting ◽  
Correction Term ◽  
Secondary Data ◽  
Credit Channel ◽  
The Right

The monetary policy transmission mechanism has many ways in influencing inflation. This method became known as the monetary path. The use of appropriate channels in monetary policy will affect whether or not the objectives of the monetary policy are achieved. This study aims to determine which monetary path is appropriate for Indonesia, which is a developing country with an open economic system. The data used are secondary data taken from Bank Indonesia for the period 2005 to 2016. The research variables include inflation, BI-rate, credit interest rates (SBB), gross domestic product (GDP), exchange rate, bank reserve (BBR), and the amount of credit extended. This study focuses on the path of interest rates, exchange rates and bank credit using the Error Correction Model (ECM). The results of this study indicate that the right monetary path for Indonesia is the credit channel. This is because the value of the Error Correction Term (ECT) coefficient on the ECM model shows that the coefficient of the credit channel is smaller than the interest rate and exchange rate channel, which means that the imbalance that occurs can be resolved more quickly with the credit channel.

scholarly journals Impacts of the monetary policy on the exchange rate: case study of Vietnam

2019 ◽  
Vol 26 (2) ◽  
pp. 220-237
Author(s):  
Van Anh Pham
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Real Effective Exchange Rate ◽  
Content Type ◽  
Effective Exchange ◽  
Quantitative Results ◽  
The Exchange Rate ◽  
The Interest Rate ◽  
Effective Exchange Rate

Purpose The purpose of this paper is to evaluate and analyze impacts of the monetary policy (MP) – money aggregate and interest rate – on the exchange rate in Vietnam. Design/methodology/approach The study uses data over the period of 2008–2018 and applies the vector autoregression model, namely recursive restriction and sign restriction approaches. Findings The main empirical findings are as follows: a contraction of the money aggregate significantly leads to the real effective exchange rate (REER) depreciating and then appreciating; a tightening of the interest rate immediately causes the REER appreciating and then depreciating; and both the money aggregate and the interest rate strongly determine fluctuations of the REER. Originality/value The quantitative results imply that the MP affects the REER considerably.

An Expanded Graphical Representation of the Portfolio Balance Model of Exchange Rate Determination

1994 ◽  
Vol 38 (2) ◽  
pp. 52-57 ◽  
Author(s):  
Joachim Zietz
Keyword(s):  
Exchange Rate ◽  
Graphical Representation ◽  
Balance Model ◽  
Exchange Rate Determination ◽  
Portfolio Balance ◽  
Foreign Bonds ◽  
Diagram Representation

The traditional one-diagram representation of the portfolio balance model gets high marks for conciseness and efficiency but falls short in providing an intuitive understanding of the forces that drive the model. This paper offers an expanded graphical representation of the model. It features a diagram for each of the three assets considered by the portfolio balance model, domestic bonds, foreign bonds, and domestic money. The purpose is to make the economic adjustments that are taking place in the model's markets more intuitively obvious.

Chapter I. The Home Economy

1990 ◽  
Vol 133 ◽  
pp. 7-23
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rates ◽  
The Third ◽  
Exchange Rate Mechanism ◽  
Significant Fall ◽  
The Exchange Rate ◽  
Rate Mechanism

We start our forecast this time with an exchange rate 9½ per cent higher in the third quarter of this year than we anticipated in May. The main reason for the appreciation of sterling was probably a reassessment by the market of the likely course of UK monetary policy over the next year or two. The likelihood of an early and significant fall in interest rates has receded, as forecasts of the underlying rate of inflation have been revised up. At the same time the commitment to join the exchange-rate mechanism has become firmer, and the Chancellor has been interpreted as wishing to ‘talk the rate up’.

scholarly journals PERANAN KEBIJAKAN MONETER DALAM MENJAGA STABILITAS PEREKONOMIAN INDONESIA SEBAGAI RESPON TERHADAP FLUKTUASI PEREKONOMIAN DUNIA

2007 ◽  
Vol 9 (2) ◽  
pp. 145-177
Author(s):  
M. Maulana Al Arif ◽  
Achmad Tohari
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Open Economy ◽  
Small Open Economy ◽  
Monthly Data ◽  
Vector Autoregressive ◽  
The World ◽  
The Exchange Rate ◽  
The Impact

This paper analyzes the impact of the inflation and the world interest rate on the Indonesian economy and the effectiveness of the Indonesian central bank policy to adopt the domestic macroeconomic fluctuation.Assuming Indonesia as a small-open economy, the Stuctural Vector Autoregressive Model is utilized on the monthly data during the periode of 1999: 1 – 2004: 12 covering the main domestic macroeconomic indicator (output, price, money supply, interest rate and the exchange rate) and the world oil price and world interest rate as the disturbance source.The analysis provides 2 main results, first, the international variables do have impacts on the domestic variables fluctuation, implying the fragility of the domestic economy due to the external shock, second, the monetary policy is effective on supporting the economic growth and stabilizing the price level. However, the Bank Indonesia policy to stabilize the international shock via the exchange rate channel, contributes to a higher impact of the international shock on domestic interest rate.Keywords: monetary policy, business cycle, SVARJEL Classification: E52, E32, C32, F41

scholarly journals Effectiveness of Monetary Policy in Morocco: Stability and Implications

2020 ◽  
Vol 3 (1) ◽  
pp. 14-28
Author(s):  
MERYEM ERRAITEB
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Central Bank ◽  
Narrow Sense ◽  
New Approach ◽  
Monetary Authorities ◽  
Aggregate Growth ◽  
The Exchange Rate ◽  
Effectiveness Of Monetary Policy

The purpose of this study is evaluating the effectiveness of monetary policy in Morocco. The results suggest that the monetary authorities must get out of the narrowness of logic monetarist by adopting a new approach which explicitly privileges the targeting of inflation as the ultimate goal, while referring to a multitude of indicators likely to guide the Central Bank in the conduct of its monetary policy as the exchange rate and interest rate next to the M3 aggregate growth rule. Thus, monetary authorities should out of the narrow sense monetarist by adopting a new approach that focuses explicitly targeting inflation as the ultimate goal, while referring to a multitude of indicators to guide the central bank in the conduct of monetary policy as exchange rate and Interest rate ET and this, alongside the growth rule M3.  

scholarly journals Conducting Monetary Policy in South Asian Economies: An Investigation

2016 ◽  
Vol 55 (3) ◽  
pp. 161-190 ◽  
Author(s):  
Muhammad Arshad Khan ◽  
Ather Maqsood Ahmed
Keyword(s):  
Monetary Policy ◽  
Interest Rate ◽  
Sri Lanka ◽  
Interest Rates ◽  
South Asian ◽  
Central Banks ◽  
Jel Classification ◽  
Monetary Authorities ◽  
Asian Economies ◽  
Exchange Rate Movements

Monetary policy which until recently aimed at targeting monetary aggregates has quietly given way to adjusting interest rates. Most of the Central Banks now focus on money reaction function that directly targets inflation or price level. This paper examines the way monetary policy is being conducted in the four major South Asian economies, namely, Bangladesh, India, Pakistan and Sri Lanka. The analysis is based on a variant of the Taylor rule framework. Using quarterly data over the period 1990Q1 to 2012Q4, the study finds that the monetary authorities in India, Pakistan and Sri Lanka have accommodated some degree of inflationary pressure, whereas Bangladesh has continuously smoothened interest rate while setting its monetary policy. Besides pursuing a mild monetary policy stance against inflation, India, Pakistan and Sri Lanka are also giving importance to foreign interest rate and real exchange rate movements to justify their relevance in monetary policy setting. However, the same has not been found to be true for Bangladesh. JEL Classification: E52, E58, E60 Keywords: Monetary Policy Rule, Central Banks, SAARC Countries

scholarly journals ANALISIS KEBIJAKAN MONETER DALAM MENGENDALIKAN INFLASI DI INDONESIA

2012 ◽  
Vol 1 (2) ◽  
pp. 103
Author(s):  
Suriani Suriani
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Interest Rate ◽  
Interest Rates ◽  
Granger Causality ◽  
Unit Root Test ◽  
Good Choice ◽  
Causality Test ◽  
Long Run ◽  
Short Run

The objective of this research is to analize the effects of the variables interest rate, and exchange as one of monetary mecanisme for controlling inflation. The correlation among those variables is cointgration in the long run and short run equilibrium analyzed. In Indonesia, the monetary policy is run by monetary instruments (i.e. interest rates or monetary aggregates) to achieve price stability. This research used Unit Root Test , Cointegration Test, Granger causality and VECM (Vector Error Correction Model) Test. The results of estimation showed that have cointegration among interest rate, exchange rate and inflation in the long run. Granger causality test showed that between inflation and interest rate have no causality relationship, but for inflation and exchange rate have two directions relationship of causality. It’s means, monetary of mecanisme transmition through exchange rate channel can be good choice in making monetary policy to control inflation in Indonesia.

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