Toward the Policy Maker’s Vade Mecum

2018 ◽  
Author(s):  
Atish R. Ghosh ◽  
Jonathan D. Ostry ◽  
Mahvash S. Qureshi
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Balance Sheet ◽  
Capital Controls ◽  
Policy Advice ◽  
Capital Inflows ◽  
Medium Term ◽  
Credit Growth ◽  
Monetary Authorities ◽  
Fx Market

This chapter provides concrete policy advice for dealing with capital inflows. In sum, once the monetary authorities have allowed the exchange rate to appreciate to a level that is not undervalued from a multilaterally consistent medium-term perspective, they may want to start intervening in the foreign exchange (FX) market to prevent further appreciation, sterilizing the intervention if there are inflationary pressures. If the economy shows signs of overheating, monetary and fiscal tightening might be necessary, together with macroprudential measures to contain excessive credit growth. To the extent these policies prove insufficient, the authorities need to consider bolstering them by imposing or tightening capital controls. At the same time, national authorities must be mindful of growing balance-sheet mismatches in the economy and should avail themselves of both prudential measures and capital controls to shift the composition of inflows toward less risky forms of liabilities.

Effectiveness of Policy Instruments

2018 ◽  
Author(s):  
Atish R. Ghosh ◽  
Jonathan D. Ostry ◽  
Mahvash S. Qureshi
Keyword(s):  
Foreign Exchange ◽  
Foreign Currency ◽  
Balance Sheet ◽  
Policy Instruments ◽  
Capital Controls ◽  
Credit Growth ◽  
Macroprudential Policies ◽  
Macroeconomic Imbalances ◽  
Domestic Credit ◽  
Sterilized Intervention

This chapter assesses evidence on the effectiveness of various policy tools—foreign exchange (FX) intervention, nondiscriminatory macroprudential policies, capital controls, and currency-based prudential measures. When it comes to macroeconomic imbalances, sterilized FX intervention can be used to mitigate currency-appreciation pressures, and both sterilized intervention and macroprudential measures to curb domestic credit growth. As regards financial fragilities, capital controls can be used to tilt the composition of external liabilities away from riskier flows and restrict excessive foreign borrowing by the financial sector. Conversely, to limit foreign currency-denominated lending in the economy, currency-based macroprudential measures are strongly effective, with capital controls on inflows a possible alternative. The chapter's findings also show a significant association between the economy's resilience during crises and residency-based capital controls or currency-based prudential measures that help prevent the buildup of balance-sheet vulnerabilities.

Hong Kong and Denmark will keep currency pegs

2015 ◽  
Keyword(s):  
Hong Kong ◽  
Exchange Rate ◽  
Foreign Exchange ◽  
Medium Term ◽  
Content Type ◽  
The Us ◽  
Exchange Rate Arrangements ◽  
Exchange Markets ◽  
Us Dollar ◽  
Currency Pegs

Subject The longevity and outlook for currency pegs. Significance The abandonment of the Swiss franc's three-year-old peg to the euro on January 15 put into question the longevity of pegged exchange rate arrangements. It also highlights how unusual such arrangements are today. Impacts The SNB will still have to continue to intervene in foreign-exchange markets to stabilise the Swiss franc. The SNB move will not cause Danish authorities to stop pegging the Danish krone to the euro. The near- and medium-term longevity of the Hong Kong dollar peg to the US dollar will not be questioned.

scholarly journals Real Exchange Rate Overshooting in Large Depreciations

2020 ◽  
Vol 20 (60) ◽  
Author(s):  
Alexander Culiuc
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Trade Openness ◽  
Balance Sheet ◽  
Relative Strength ◽  
Medium Term ◽  
Ex Post ◽  
Expenditure Switching ◽  
Output Losses ◽  
Exchange Rate Overshooting

The consequences of large depreciations on economic activity depend on the relative strength of the contractionary balance sheet and expansionary expenditure switching effects. However, the two operate over different time horizons: the balance sheet effect hits almost immediately, while expenditure switching is delayed by nominal rigidities and other frictions. The paper hypothesizes that the overshooting phase—observed early in the depreciation episode and driven by the balance sheet effect—is largely irrelevant for expenditure switching, which is more closely aligned with ex-post equilibrium depreciation. Given this, larger real exchange rate overshooting should signal a relatively stronger balance sheet effect. Empirical findings support this hypothesis: (i) overshooting is driven by factors associated with the balance sheet effect (high external debt, low reserves, low trade openness), (ii) overshooting-based measures of the balance sheet effect foreshadow post-depreciation output losses, and (iii) the balance sheet effect is strongest early on, while expenditure switching strengthens over the medium term.

Angolan oil sector reform will require innovation

2018 ◽  
Keyword(s):  
Exchange Rate ◽  
Foreign Exchange ◽  
Oil Price ◽  
Structural Reforms ◽  
Medium Term ◽  
Short Term ◽  
Sector Reform ◽  
Content Type ◽  
Oil Sector ◽  
Oil Company

Subject Sonangol priorities. Significance Early structural reforms by new President Joao Lourenco and more positive economic projections for 2018 suggest a potential uptick in Angola’s fiscal fortunes. Since assuming power in September, Lourenco has overhauled the leadership of state-owned oil company Sonangol and dismissed several prominent officials associated with his predecessor Jose Eduardo dos Santos. Separately, Lourenco has moved to tackle the overvalued kwanza. While this will raise debt-servicing costs, this will be partly ameliorated by the recent oil price of over 60 dollars per barrel. Impacts Scrapping the dollar currency peg will help ease the foreign exchange crisis and end payment constraints in the aviation and oil sectors. A more realistic exchange rate will fuel inflation in the short term but will likely improve medium-term economic prospects. Urban support for the People's Movement for the Liberation of Angola (MPLA) could decline further if reforms remain elite-focused.

scholarly journals Relationship between International Reserves and FX Rate Movements

2020 ◽  
Vol 12 (17) ◽  
pp. 6961
Author(s):  
Yeonjeong Lee ◽  
Seong-Min Yoon
Keyword(s):  
Hong Kong ◽  
Exchange Rate ◽  
Causal Relationship ◽  
Foreign Exchange ◽  
Tail Dependence ◽  
International Reserves ◽  
Causality Test ◽  
Monetary Authorities ◽  
Exchange Rate Movements ◽  
Significant Regression

This paper investigates the relationship between international reserves changes and foreign exchange rate movements for five Far Eastern countries (China, Japan, Taiwan, Hong Kong, and Korea) from January 1997 to May 2020. We use the quantile Granger causality test and the quantile autoregressive model to capture the monetary authorities’ motivations for intervention. The primary results of this study are as follows. First, in China and Hong Kong, we capture the mercantilists’ motive of accumulating their international reserves for the purpose of responding to the appreciation of currencies. Relatively speaking, the monetary authorities’ motivation for precautionary stabilizing their currencies is high in Korea and Japan. Second, we identify the asymmetric causal relationship between the variables. Considering the causal relationship with significant regression coefficients, these characteristics are found to be more evident in all countries. Last, we confirm the properties of the quantile- and tail-dependent relationship between the variables. In particular, Korea has a relatively stronger tail-dependence than other countries. That is, the causal relationship between the Korean foreign exchange reserves and the exchange rate is stronger at the rapid fluctuations of the variables, and this relationship is weakened at the moderate fluctuations of them.

Pengaruh Kebijakan Federal Reserve System (FED) terhadap Moneter Indonesia dan Dampaknya Terhadap Perbankan Di Indonesia

2018 ◽  
Vol 1 (2) ◽  
Author(s):  
Ardiansyah Japlani
Keyword(s):  
Exchange Rate ◽  
High Risk ◽  
Foreign Exchange ◽  
Federal Reserve ◽  
Foreign Exchange Reserves ◽  
Federal Reserve System ◽  
Credit Growth ◽  
Reserve System ◽  
Descriptive Method

This research aimed to examine the influence of the FED Policy to Indonesian Economic and its impact to Indonesian Banking . Analytical Descriptive Method is used to analyze the symptoms that happens in Indonesian Monetary Policy.The result of this study showed that an increase in the value of the dollars caused a high risk due to eroding the foreign exchange reserves and suppressing the rupiah exchange rate in Indonesia. It caused on reducing domestic liquidity and reducing credit growth. the level of banking ratio and credit position can be said to be relatively good due to the decreasing level of NPL.Penelitian ini bertujuan untuk menguji pengaruh Kebijakan FED terhadap Perekonomian Indonesia dan dampaknya terhadap Perbankan Indonesia. Metode Deskriptif Analitik digunakan untuk menganalisis gejala-gejala yang terjadi dalam Kebijakan Moneter Indonesia. Hasil penelitian ini menunjukkan bahwa peningkatan nilai dolar menyebabkan risiko tinggi sehingga mengikis cadangan devisa dan menekan nilai tukar rupiah di Indonesia. Hal ini dapat menyebabkan pengurangan likuiditas domestik dan mengurangi pertumbuhan kredit. tingkat rasio perbankan dan posisi kredit dapat dikatakan relatif baik karena tingkat NPL menurun. 

Recent Experiences in Managing Capital Inflows—Cross-Cutting Themes and Possible Policy Framework

Policy Papers ◽  
2011 ◽  
Vol 11 (07) ◽  
Author(s):  
Keyword(s):  
Financial Stability ◽  
Capital Controls ◽  
Policy Coordination ◽  
Policy Advice ◽  
Capital Inflows ◽  
Policy Framework ◽  
Recent Experience ◽  
Macroeconomic Policies ◽  
Macroprudential Policies ◽  
Growth Prospects

Emerging markets (EMs) are experiencing a surge in capital inflows, lifting asset prices and growth prospects. While inflows are typically beneficial for receiving countries, inflow surges can carry macroeconomic and financial stability risks. This paper reviews the recent experience of EMs in dealing with capital inflows and suggests a possible framework for IMF policy advice on the spectrum of measures available to policymakers to manage inflows, including macroeconomic policies, prudential measures and capital controls. Illustrative applications of this framework suggest that it may be appropriate for several countries, based on their current circumstances, to consider prudential measures or capital controls in response to capital inflows. The suggested framework is intended to inform staff policy advice to all Fund members with open capital accounts. It forms part of a broader effort to sharpen Fund surveillance, preserve evenhandedness, and foster greater global policy coordination. As indicated in the Supplement to this paper, this broader effort includes the development of “global rules of the game” on macroprudential policies, capital account liberalization, and reserve adequacy, and the preparation of spillover reports assessing spillovers from the five systemic economies—all of which will inform the current and broader framework being developed.

scholarly journals Real exchange of rate of balance and misalignments: Lesson from the model VAR-ECM in the case of Tunisia

2008 ◽  
Vol 55 (4) ◽  
pp. 439-464
Author(s):  
Marrakchi Charfi
Keyword(s):  
Exchange Rate ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Capital Controls ◽  
Capital Inflows ◽  
Real Effective Exchange Rate ◽  
The Us ◽  
Effective Exchange ◽  
In The Beginning ◽  
Effective Exchange Rate

Tunisia has experienced a performance when pursuing a constant real exchange rate rule. The limitations of this rule are beginning to emerge in the context of a more open economy, which desire to relax capital controls. This paper estimates the equilibrium real exchange rate of the dinar vis ? vis the euro and the $US from 1983 to 2000, using quarterly data, based on the following fundamental variables: terms of trade, net capital inflows and the differential of productivity. Results show that Tunisian dinar was overvalued before the 1986 devaluation, becomes close to its equilibrium value over the 90s'. In the beginning of this century (2000), authorities permit a larger fluctuation of the real effective exchange rate. .

scholarly journals Managing Foreign Exchange Inflows: An Analysis of Sterilisation in Pakistan

2005 ◽  
Vol 44 (4II) ◽  
pp. 777-792
Author(s):  
Asad Jan ◽  
Ather Elahi ◽  
M. A. Zahid
Keyword(s):  
Foreign Exchange ◽  
Capital Inflows ◽  
Exchange Market ◽  
Foreign Exchange Reserves ◽  
Local Currency ◽  
Monetary Authorities ◽  
Export Competitiveness ◽  
Capital Outflows ◽  
Trade And Exchange

A number of developing countries from Asia, Latin America and Eastern Europe have experienced surge in capital inflows during recent years.1 These inflows have potential effects on macroeconomic stability; export competitiveness, and inflation. If not properly managed, these inflows can induce appreciation of local currency leading to serious repercussions for the rest of the economy. Under these conditions, the proactive role of monetary authorities in the management of capital inflows was highly desirable, wherein they intervened in the domestic exchange market in order to contain volatility in exchange rate besides accumulation of foreign exchange reserves. The main instruments available to deal with the possible effects of large capital inflows include sterilised intervention, fiscal tightening, trade and exchange liberalisation including easing controls on capital outflows. The foreign exchange interventions are typically accompanied by active sterilisation policy to keep inflation under control.

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