Exchange rate regime

FAOUZI GSOUMA ET HASSAN AYOUB Total factor productivity and competitiveness : the Tunisian case L'objectif de cet article est d'étudier l'impact de la conjoncture internationale et la modification des facteurs exogènes sur les exportations. Les résultats économétriques montrent l'importance de la P.G.F. comme facteur permettant une réduction des coûts de production, et par la suite améliorant la compétitivité.

This is an empirically study to investigate the exchange rate volatility and it impacts on bilateral exports growth: evidence from Bangladesh. The countries are considered to determine based on the bilateral relationship between Bangladesh and the other countries under a range of regional economic blocks such as North America, Western Europe, Eastern Europe, SAARC, ASEAN, and Asia-Pacific regions. To establish the empirical relationship between exchange rate volatility and impact on exports growth, cointegration and error correction techniques are used by considering the data from 2003 to 2008. From the investigation, the result shows that the exchange rate volatility has a negative and major effect both in short run and long run with important trading partners, which are Western European and North American countries. Similar pattern was also experienced in case of few countries such as Singapore, Japan, Malaysia and China where the volume of trade with Bangladesh is comparatively consistent and less volatile. The relationship between exchange rate volatility and growth of export for India and Pakistan is observed only in long run perspective. However, there is no empirical relationship being observed of exchange rate volatility and it impacts on export growth between Bangladesh and Iran and other s Gulf countries.

Though the real exchange rate is a key price for most economies, our understanding of its determinants is still incomplete. This paper studies the implications of status competition in the marriage market for the real exchange rate. In theory, a rise in the sex ratio (increasing relative surplus of men) can generate a decline in the real exchange rate (RER) through both a savings channel and an effective labor supply channel. The effects can be quantitatively large if the biological desire for a marriage partner is strong. Empirically, we show that within China, those regions with a faster increase in the sex ratio also exhibit a faster decline in the RER (the relative price of nontradables). Furthermore, across countries, those with a high sex ratio tend to have a low real exchange rate, beyond what can be explained by the Balassa-Samuelson effect, financial underdevelopment, dependence ratio, and exchange rate regime classifications. As an application, the estimation suggests that these structural factors can account for the Chinese exchange rate almost completely.

Though the real exchange rate is a key price for most economies, our understanding of its determinants is still incomplete. This paper studies the implications of status competition in the marriage market for the real exchange rate. In theory, a rise in the sex ratio (increasing relative surplus of men) can generate a decline in the real exchange rate (RER) through both a savings channel and an effective labor supply channel. The effects can be quantitatively large if the biological desire for a marriage partner is strong. Empirically, we show that within China, those regions with a faster increase in the sex ratio also exhibit a faster decline in the RER (the relative price of nontradables). Furthermore, across countries, those with a high sex ratio tend to have a low real exchange rate, beyond what can be explained by the Balassa-Samuelson effect, financial underdevelopment, dependence ratio, and exchange rate regime classifications. As an application, the estimation suggests that these structural factors can account for the Chinese exchange rate almost completely.

La dolarización es un fenómeno de larga data en Venezuela que por
años se expresó como sustitución de la moneda local por otra más fuerte y segura como reserva de valor. Con el advenimiento de la hiperinflación el
dólar comenzó a funcionar como unidad de cuenta o de marcaje de precios y como medio de pago. En este ensayo presentamos los aspectos críticos que encontramos en la literatura sobre la conveniencia o no de pasar de una dolarización parcial a una dolarización plena. Por lo demás se discuten las acciones de política, esencialmente regulatorias, que intentan revertir el proceso. Se concluye que la desdolarización está ligada a la evolución de la demanda de dinero de curso legal y como tal es una decisión de los agentes privados. La con-fianza de cualquier moneda soberana, al final del día, está atada a la fortaleza de la economía, el buen manejo de las políticas públicas y la calidad de las instituciones.

Snahou následujícího pfiíspûvku je ukázat na spojitosti mezi standardními finaãními v˘kazy centrální banky (tj. její bilancí a v˘sledovkou) a konceptem tzv. raÏebného z ekonomické literatury. Zamûfiíme se na dvû nej-jednodu‰‰í definice raÏebného, které mají pfiímou souvislost s finanãními v˘kazy centrální banky. První ãást ãlánku se zab˘vá "monetárním raÏeb-n˘m" ve vztahu k bilanci centrální banky. Druhá ãást je pak vûnována ana-l˘ze tzv. "raÏebného v podobû nákladÛ u‰lé pfiíleÏitosti", které má svÛj odraz v hospodáfiském v˘sledku centrální banky. Teoretické poznatky jsou v obou ãástech aplikovány na konkrétním pfiíkladu âNB v letech 1993-99. Tfietí ãást ãlánku je vûnována ‰ir‰ím definicím raÏebného na bázi hotovostního toku (cash-flow) -tzv. "fiskální raÏebné", "celkové raÏebné" apod. Na vyvinutí a empirickou aplikaci tûchto ‰ir‰ích konceptÛ raÏebného se bûhem 90. let soustfiedila svûtová ekonomická literatura (v ãele s M. Neumannem) i nûkteré pfiíspûvky v ãeské literatufie. Hlavní cíl tohoto ãlánku je v‰ak pfiesnû opaãn˘ -ukázat, Ïe tyto ‰ir‰í koncepty raÏebného lze povaÏovat za teoreticky málo opodstatnûné a matoucí. âtvrtá ãást ãlánku shrnuje hlavní poznatky. Finance a úvûr, 51, 2001, ã. 1 * âeská národní banka; FSV UK Praha; V•E Praha Tento pfiíspûvek vyjadfiuje osobní názory autora, které se nemusejí shodovat s názory uvede-n˘ch institucí. Autor dûkuje za poskytnutí nûkter˘ch pramenÛ E. Stavrevovi z âNB a za cenné podnûty a pfiipomínky M. âihákovi z MMF, Z. TÛmovi z âNB a dvûma anonymním recenzen-tÛm. Jakékoli chyby jsou v‰ak autorovy vlastní.

This paper provides an empirical analysis of the factors that caused deviations from the CNB's inflation targets during the first ten years of inflation targeting in the Czech Republic. While in the short term, shocks to agricultural producer prices represent the most important factor, exchange rate shocks are clearly the most important medium-term factor. At the same time, it could not be proved that monetary policy created any major shocks contributing to the non-fulfillment of inflation targets, although some role thereof cannot be excluded either. * The author thanks Aleš Bulíř, Martin Čihák, Viktor Kotlán, and an anonymous referee for useful comments, but any remaining errors and omissions are his own. The author acknowledges support from the Czech National Bank and from Czech Ministry of Education Grant MSMT 0021620841. However, the paper presents the author's own opinions, which may not correspond to the official views of the above-mentioned institutions.

Snahou následujícího pfiíspûvku je ukázat na spojitosti mezi standardními finaãními v˘kazy centrální banky (tj. její bilancí a v˘sledovkou) a konceptem tzv. raÏebného z ekonomické literatury. Zamûfiíme se na dvû nej-jednodu‰‰í definice raÏebného, které mají pfiímou souvislost s finanãními v˘kazy centrální banky. První ãást ãlánku se zab˘vá "monetárním raÏeb-n˘m" ve vztahu k bilanci centrální banky. Druhá ãást je pak vûnována ana-l˘ze tzv. "raÏebného v podobû nákladÛ u‰lé pfiíleÏitosti", které má svÛj odraz v hospodáfiském v˘sledku centrální banky. Teoretické poznatky jsou v obou ãástech aplikovány na konkrétním pfiíkladu âNB v letech 1993-99. Tfietí ãást ãlánku je vûnována ‰ir‰ím definicím raÏebného na bázi hotovostního toku (cash-flow) -tzv. "fiskální raÏebné", "celkové raÏebné" apod. Na vyvinutí a empirickou aplikaci tûchto ‰ir‰ích konceptÛ raÏebného se bûhem 90. let soustfiedila svûtová ekonomická literatura (v ãele s M. Neumannem) i nûkteré pfiíspûvky v ãeské literatufie. Hlavní cíl tohoto ãlánku je v‰ak pfiesnû opaãn˘ -ukázat, Ïe tyto ‰ir‰í koncepty raÏebného lze povaÏovat za teoreticky málo opodstatnûné a matoucí. âtvrtá ãást ãlánku shrnuje hlavní poznatky. Finance a úvûr, 51, 2001, ã. 1 * âeská národní banka; FSV UK Praha; V•E Praha Tento pfiíspûvek vyjadfiuje osobní názory autora, které se nemusejí shodovat s názory uvede-n˘ch institucí. Autor dûkuje za poskytnutí nûkter˘ch pramenÛ E. Stavrevovi z âNB a za cenné podnûty a pfiipomínky M. âihákovi z MMF, Z. TÛmovi z âNB a dvûma anonymním recenzen-tÛm. Jakékoli chyby jsou v‰ak autorovy vlastní.

This applied study aims to implement a precise mathematical model that enhances the efficiency of financial resource allocation within banking institutions. The model is based on dynamic programming, which is considered one of the most important quantitative methods for making optimal decisions over successive time periods. The core idea revolves around distributing the available financial balance progressively, taking into account present-time preference and the time value of money. The study relies on actual quarterly data of bank loans during the third quarter of 2023, where the total allocated balance amounted to 549,920 million dirhams, distributed among three main types of loans: investment loans, real estate loans, and consumer loans. The applied model includes a logarithmic utility function that reflects the diminishing marginal utility with the increase in used resources. The model also integrates both the discount factor (β = 0.95) and the interest rate (r = 0.05) to estimate the optimal allocations for the next three future periods. This model serves as a reference tool that enables comparison between the actual allocations adopted by the bank and those derived from the theoretical model, opening the door for better strategic decisions and more rational budget management.

This paper examines empirically the link between macro-instability and private investment rate in Guinea, in comparison with WAEMU countries 2 . Notwithstanding the caution imposed by data and methodological limitations in interpreting the results, the paper shows that macroeconomic instability is, in general, higher in Guinea than WAEMU countries. Consequently, macroeconomic uncertainties are cause of concern. Using a panel data approach, the findings suggest that the negative effects of relative price volatility (mainly inflation, real effective exchange rates) expected in theory, do not occur when small deviations are combined with competitiveness, resulting from a declining real effective exchange rate. In addition, the positive effect of foreign exchange reserves on the private investment rate supports the view that the availability of foreign exchange reserves is critical in a fixed exchange rate regime as that of WAEMU, as well as in an imperfect floating exchange rate regime as that of Guinea. While the panel data approach shows no evidence of negative impact of macroeconomic uncertainties, it suggests further analysis to explore the robustness of this result. A time series approach is carried out for Guinea, with regard to this purpose. As mentioned above, Guinea registers higher level of macroeconomic instability, compared to WAEMU countries. Using a single error correction model, the counter-intuitive impact of macroeconomic instability variables (measured by the real effective exchange rate, inflation rate and the terms of trade) persists. Given the dominant share of the mining sector in the private investment figures, the findings may be misleading as this sector may be protected from the wrong market signals resulting from the increasing macro-instability. However, capturing such an 'enclave-effect' is unfortunately limited by the lack of disaggregated investment data by sector. 1 The preliminary draft of this paper was issued in 2005 when the former author was an associate lecturer at the Social Research Centre of Côte d'Ivoire (CIRES/GPE) and economist at the World Bank Country Office in Guinea/Conakry and the latter one was a postgraduate student at CIRES/GPE. We are grateful to Dennis Jones (IMF) and Boubacar-Sid Barry (World Bank) and the postgraduate students of CIRES/GPE for their insightful comments. Many thanks to Faye Harbottle for her highly appreciated editorial assistance. The views expressed in this article do not reflect those of any organization. The authors are solely responsible for any remaining errors.

This paper examines empirically the link between macro-instability and private investment rate in Guinea, in comparison with WAEMU countries 2 . Notwithstanding the caution imposed by data and methodological limitations in interpreting the results, the paper shows that macroeconomic instability is, in general, higher in Guinea than WAEMU countries. Consequently, macroeconomic uncertainties are cause of concern. Using a panel data approach, the findings suggest that the negative effects of relative price volatility (mainly inflation, real effective exchange rates) expected in theory, do not occur when small deviations are combined with competitiveness, resulting from a declining real effective exchange rate. In addition, the positive effect of foreign exchange reserves on the private investment rate supports the view that the availability of foreign exchange reserves is critical in a fixed exchange rate regime as that of WAEMU, as well as in an imperfect floating exchange rate regime as that of Guinea. While the panel data approach shows no evidence of negative impact of macroeconomic uncertainties, it suggests further analysis to explore the robustness of this result. A time series approach is carried out for Guinea, with regard to this purpose. As mentioned above, Guinea registers higher level of macroeconomic instability, compared to WAEMU countries. Using a single error correction model, the counter-intuitive impact of macroeconomic instability variables (measured by the real effective exchange rate, inflation rate and the terms of trade) persists. Given the dominant share of the mining sector in the private investment figures, the findings may be misleading as this sector may be protected from the wrong market signals resulting from the increasing macro-instability. However, capturing such an 'enclave-effect' is unfortunately limited by the lack of disaggregated investment data by sector. 1 The preliminary draft of this paper was issued in 2005 when the former author was an associate lecturer at the Social Research Centre of Côte d'Ivoire (CIRES/GPE) and economist at the World Bank Country Office in Guinea/Conakry and the latter one was a postgraduate student at CIRES/GPE. We are grateful to Dennis Jones (IMF) and Boubacar-Sid Barry (World Bank) and the postgraduate students of CIRES/GPE for their insightful comments. Many thanks to Faye Harbottle for her highly appreciated editorial assistance. The views expressed in this article do not reflect those of any organization. The authors are solely responsible for any remaining errors.

Testing for purchasing power parity (PPP) and uncovered interest parity (UIP) has been the focus of many empirically oriented studies. While these simple economic theories of exchange rate and interest rate determination are theoretically attractive, the empirical support for these equilibrium conditions is at best mixed. Many potential reasons have been cited in the literature for the failure of such studies, ranging from market imperfections to inappropriate modelling strategies. The current state‐of‐the‐art procedure involves testing for two cointegrating vectors in a multivariate error correction model which may be economically identified as the PPP and UIP relations. However, such a procedure does not account for policy regime shifts which distort the underlying PPP and UIP relations. In this paper, a Markov‐switching vector error correction model (VECM) is considered for time series data in which monetary and exchange rate regime shifts are known to be present. Weak evidence i...

The history of Japanese exchange rates, though short by British or American standards, is exceedingly rich, both from the standpoint of variation in the data and in the institutions governing exchange rate arrangements and Japanese monetary conditions. This paper reviews that history and traces the evolution of yen-dollar and yen-sterling exchange rates from 1874 until the present, comparing their behavior to that of the dollar-sterling rate. It shows the relationships of all three nominal exchange rates to indexes of purchasing power parity, and it investigates the links among exchange-rate regimes, exchange rates themselves and other macroeconomic variables. Two conclusions emerge: (1) Purchasing power parity -at least in relative form -held remarkably well for the yen over the longer run. (2) The variability of real yen exchange rates under the current float does not, in fact, differ greatly from the often substantial and largely self-reversing movements observed historically. * I would like to thank Cornelia McCarthy for comments on and assistance in the preparation of this paper, and Kyung-Won Lee and Dario Werthein for their computational help. Most important is the debt that I owe to the late John Metcalf who stimulated my interest in Japanese monetary issues and directed me to what had then been a largely unexploited body of data.

In a Common Currency Area (CCA) the Common Central Bank sets a uniform rate of inflation across countries, taking into account the area's economic conditions. Suppose that countries in recession favor a more expansionary policy than countries in expansion, a conflict of interest between members arises when national business cycles are not fully syncronized. If governments of member countries have an informational advantage over the state of their domestic economy, such conflict may create an adverse selection problem: national authorities overemphasize their shocks, in order to shape the common policy towards their needs. This creates an inefficiency over and above the one-policy-fits-all cost discussed in the optimal currency area literature. In order to minimize this extra-burden of asymmetric information, monetary policy must over-react to large symmetric shocks and under-react to small asymmetric ones. The result is sub-optimal volatility of inflation.

This work selectively reviews the literature on exchange rate target zones and their theoretical and empirical methodologies and examines whether they can be used to clarify to what extent this type of exchange rate regime could contribute to greater exchange rate stability. We discuss the main contributions of the first and second generations of exchange rate target zone models. In an attempt to reconcile the poor empirical performance of the Krugman (1991) model with the reality of exchange rate target zone regimes, this line of research integrates target zones with alternative underlying economic models, such as imperfect credibility, intra-marginal interventions and sticky price models. It was thus possible to understand the correlations observed between the exchange rate, its fundamentals determinants and the interest rate differential, and to explain the fact that the statistical distribution of the exchange rate is hump-shaped rather than U-shaped. This implies that the initial emphasis of target zone models on nonlinearities, "honeymoon effect", "smooth pasting" and marginal interventions has vanished. Exchange rate target zones are better described as similar to managed floating regimes with intra-marginal interventions, with some marginal interventions when the exchange rate reaches the edges of the floating band.

We wish to acknowledge the financial support of the Department for International Development (DFID) for the funding of firm surveys in Tanzania and of UNIDO for its continuing support of work on manufacturing enterprises in Africa. We also wish to thank the Economic and Social Research Foundation (ESRF) and the Tanzanian Bureau of Statistics (TBS) for their assistance in conducting the surveys. We also particularly thank the survey team members for their commitment and enthusiasm and the firms, their managers and employees for their willingness to participate. All errors remain the responsibility of the authors.

Researchers Oxford based researchers: Alan Harding, Godius Kaharaya, Neil Rankin, Pieter Serneels, Måns Söderbom and Francis Teal, Centre for the Study of African Economies (CSAE), University of Oxford. Collaborators Anthony Wambugu University of Gothenburg Abena Oduro Centre for Economic policy Analysis, Accra, Ghana. Anthony Amuzu Ghana Statistical Office, Accra Sam Wangwe Economic and Social Research Foundation, Dar-es-Salaam

This article examines the debate surrounding EMU. It briefly reviews the benefits of EMU in terms of ending exchange rate uncertainty and eliminating transactions costs within the EC and explores in more detail the potential costs to member states of sacrificing 'monetary sovereignty' (ie, giving up the ability to make independent monetary policy and alter exchange rates). Finally, it discusses the likelihood of reaching the objective of an 'EMU of the Twelve' in the light of recent events and examines the likelihood of a 'mini-EMU' or 'Hard EMS' emerging instead.

There is a presumption that fixed and flexible (floating or market-determined) exchange-rate systems are equivalent if prices are flexible. We show that the presumption does not hold in two matching models of money. In both models, (i) currencies are the only assets and all trade is spot trade; (ii) the trades that directly determine welfare occur in pairwise meetings between buyers and sellers; and (iii) imperfect substitutability (including, as a special case, no substitutability) among currencies is a consequence of the trading protocol in those meetings. The two models are variants of the Lagos-Wright (2005) model and differ regarding the timing of the shock realizations relative to the centralized trade opportunities. One version has a speculative fringe. In it, the unique stationary (monetary) equilibrium under the fixed exchange-rate regime is one of a continuum of equilibria under a flexible exchange-rate regime. The other version has no speculative fringe. In it, there is a...

February 1999A more aggressive move toward exchange-rate unification in Tanzania would have delivered a fiscal bonus by the mid-1980s ? and unification of the exchange rate would have reduced monetary growth and inflationary pressures. From a fiscal viewpoint there was no economic rationale for gradualism in exchange-rate unification and delay of a move toward convertibility.Parallel exchange-rate markets have often been

The paper focuses on the perspectives of the 1985 stabilization that could not be envisaged at the time by its planners, led by Michael Bruno. One of these aspects is the extension of the disinflation process over many years. It turned out that the dramatic reduction of inflation in 1985 was only a first step in a long-term process. The paper analyzes the reasons for the slow process of disinflation. We view the inflation and disinflation process in the context of chronic high-inflation economies which failed to disinflate in the 1970s and the 1980s but succeeded in the 1990s. This success has to be viewed in the context of the process of globalization which prevailed in the 1990s and the growing recognition of the advantages of market- oriented regimes. We also distinguish between the short-term measures of stopping inflation (like the heterodox features of the stabilization program) and the long- term process of securing price stability. We conclude with some remarks concerning th...

Dollarization, in a broad sense, is increasingly a defining characteristic of many emerging market economies. How important is this trend quantitatively and how important is it for the conduct of monetary policy and the choice of exchange rate regimes? Though these questions have become a hot topic in both the theory and policy literature, most efforts are remarkably uninformed by evidence, in no small part because meaningful data has been lacking, except for a very narrow range of assets. This paper attempts to move the discussion forward and shed light on the critical questions by proposing a measure of dollarization that is broad both conceptually and in terms of country coverage. We use this measure to identify trends in the evolution of dollarization in the developing world in the last two decades, and to ascertain the consequences that dollarization has had on the effectiveness of monetary and exchange rate policy. We find that, contrary to the general presumption in the literature, a high degree of dollarization does not seem to be an obstacle to monetary control or to disinflation. A level of dollarization does, however, appear to increase exchange rate pass-through, reinforcing the claim that "fear of floating" is a greater problem for highly dollarized economies. We also review the developing countries' record in combating their addiction to dollars. Concretely, we try to explain why some countries have been able to avoid certain forms of the addiction, and examine the evidence on successful de-dollarization.

On 1 August 1993, less than twelve months after massive speculative pressure had driven sterling and the lira from the Exchange Rate Mechanism (ERM), European finance ministers finally bowed to the inevitable. Following sustained selling pressure on the French franc and the other weaker currencies, the European Union announced that it was abandoning the ±2.25 per cent bands which had constrained participating currencies since 1979 in favour of ultra-wide, ±15 per cent bands. This article explores the implications of the effective return to floating exchange rates for the prospects of continued European economic and monetary integration.

This paper quantifies the performance of five monetary policy regimes in controlling macroeconomic volatility triggered by a variety of supply, demand and external shocks in small open economies. While the proposed macroeconomic model is generic, the application is to the case of Sri Lanka. The investigated regimes separately target the exchange rate, a monetary aggregate, nominal GDP, the CPI inflation rate and a Taylor composite of output gaps and inflation. The results suggest that inflation targeting offers the least macro-economic volatility overall. Consistent with earlier research and Mundell's financial trilemma, its stabilising power is greatest under demand and external shocks, which have grown more prominent as product and financial markets have opened.

Researchers Oxford based researchers: Alan Harding, Godius Kaharaya, Neil Rankin, Pieter Serneels, Måns Söderbom and Francis Teal, Centre for the Study of African Economies (CSAE), University of Oxford. Collaborators Anthony Wambugu University of Gothenburg Abena Oduro Centre for Economic policy Analysis, Accra, Ghana. Anthony Amuzu Ghana Statistical Office, Accra Sam Wangwe Economic and Social Research Foundation, Dar-es-Salaam

The study explores reform options for the CFA franc arrangement through a comparative analysis of three monetary frameworks: the European Union, the South African Common Monetary Area, and Estonia's monetary reforms. Using a narrative research approach, we examine three scenarios: unilateral exit by a lone member, a smaller common currency area formed by a few exiting members, and a comprehensive reform of the CFA arrangement with all the members. The third option with continued French/EMU partnerships was the most viable and realistic way forward (best-case scenario). Results indicate successful reform requires strengthening intra-zone trade, merging the West and Central African CFA zones, attracting new members, developing a banking union, and investing pooled reserves in transnational infrastructure. It is suggested further that a post-reform CFA framework should prioritize Pan-African solutions while maintaining beneficial links to the Eurozone through French partnership, at least in the immediate and medium term.

We thank Eric Edmonds, Philip Lane, our discussant Christian Broda and participants at the NBER IFM program meetings, IIIS Trinity College Dublin, and the Dartmouth International Brown Bag for helpful discussion and Pooneet Kant for research assistance. We also thank Federico Sturzenegger, Carmen Reinhart, and Barry Eichengreen for making their data available on their website. All errors are ours. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.

A classic argument for a fixed exchange rate is its promotion of trade. Empirical support for this, however, is mixed. While one branch of research consistently shows a small negative effect of exchange rate volatility on trade, another, more recent, branch presents evidence of a large positive impact of currency unions on trade. This paper helps resolve this disconnect. Our results, which use a new data-based classification of fixed exchange rate regimes, show a large, significant effect of a fixed exchange rate on bilateral trade between a base country and a country that pegs to it. Furthermore, the web of fixed exchange rates created when countries link to a common base also promotes trade, but only when these countries are part of a wider system, as during the Bretton Woods period. These results suggest an economically relevant role for exchange rate regimes in trade determination since a significant amount of world trade is conducted between countries with fixed exchange rates.

A central result in international macroeconomics is that a government cannot simultaneously opt for open financial markets, fixed exchange rates, and monetary autonomy; rather, it is constrained to choosing no more than two of these three. In the wake of the Great Recession, however, there has been an effort to address macroeconomic challenges through intermediate measures, such as narrowly targeted capital controls or limited exchange rate flexibility. This paper addresses the question of whether these intermediate policies, which round the corners of the triangle representing the policy trilemma, afford a full measure of monetary policy autonomy. Our results confirm that extensive capital controls or floating exchange rates enable a country to have monetary autonomy, as suggested by the trilemma. Partial capital controls, however, do not generally enable a country to have greater monetary control than is the case with open capital accounts unless they are quite extensive. In contrast, a moderate amount of exchange rate flexibility does allow for some degree of monetary autonomy, especially in emerging and developing economies.

A central result in international macroeconomics is that a government cannot simultaneously opt for open financial markets, fixed exchange rates, and monetary autonomy; rather, it is constrained to choosing no more than two of these three. In the wake of the Great Recession, however, there has been an effort to address macroeconomic challenges through intermediate measures, such as narrowly targeted capital controls or limited exchange rate flexibility. This paper addresses the question of whether these intermediate policies, which round the corners of the triangle representing the policy trilemma, afford a full measure of monetary policy autonomy. Our results confirm that extensive capital controls or floating exchange rates enable a country to have monetary autonomy, as suggested by the trilemma. Partial capital controls, however, do not generally enable a country to have greater monetary control than is the case with open capital accounts unless they are quite extensive. In contrast, a moderate amount of exchange rate flexibility does allow for some degree of monetary autonomy, especially in emerging and developing economies.

We thank Eric Edmonds, Philip Lane, our discussant Christian Broda and participants at the NBER IFM program meetings, IIIS Trinity College Dublin, and the Dartmouth International Brown Bag for helpful discussion and Pooneet Kant for research assistance. We also thank Federico Sturzenegger, Carmen Reinhart, and Barry Eichengreen for making their data available on their website. All errors are ours. The views expressed herein are those of the author(s) and do not necessarily reflect the views of the National Bureau of Economic Research.

The impermanence of fixed exchange rates has become a stylized fact in international finance. The combination of the "mirage" view that pegs do not really peg with the "fear of floating" view that floats do not really float generates the conclusion that exchange rate regimes are, in practice, unimportant for the behavior of the exchange rate. This is consistent with evidence on the irrelevance of exchange rate regimes for general macroeconomic performance. Recent studies, however, show that the exchange rate regime matters. This can be understood by considering the dynamics of exchange rate regimes. We demonstrate that the "mirage" view is somewhat misleading and incomplete. Pegs frequently break, but many do last. Also, there is a high degree of flipping, that is, the re-formation of pegs that have broken. Thus, a fixed exchange rate today is a good predictor that one will exist in the future. We also investigate the quantitative effect of fixed exchange rates. While the "fear of floating" view suggests little actual difference in fixed and floating rates with respect to exchange rate volatility, we show that fixed exchange rates exhibit considerably greater bilateral exchange rate stability than flexible rates, both today and in the future.

This paper is a theoretical and empirical investigation into the duration of exchange-rate pegs. The theoretical model considers a policy-maker who must trade off the economic costs of real exchange-rate misalignment against the political cost of realignment. The optimal time to spend on a peg is derived and factors that influence peg duration are identified. The predictions of the model are tested using logit analysis with a data set of exchange-rate pegs for sixteen Latin American counu-ics and Jamaica during the 1957-199 1 period. We find that the real exchange rate is a significant detemiinant of the likelihood of a devaluation. Structural variables, such as the openness of the economy and its geographical trade concenhation, also significantly affect the likelihood of a devaluation. Finally, political events that change the political cost of realignment, such as regular and inegular executive transfers, are empirically important detemiinants of the likelihood of a devaluation.

This paper is a theoretical and empirical investigation into the duration of exchange-rate pegs. The theoretical model considers a policy-maker who must trade off the economic costs of real exchange-rate misalignment against the political cost of realignment. The optimal time to spend on a peg is derived and factors that influence peg duration are identified. The predictions of the model are tested using logit analysis with a data set of exchange-rate pegs for sixteen Latin American counu-ics and Jamaica during the 1957-199 1 period. We find that the real exchange rate is a significant detemiinant of the likelihood of a devaluation. Structural variables, such as the openness of the economy and its geographical trade concenhation, also significantly affect the likelihood of a devaluation. Finally, political events that change the political cost of realignment, such as regular and inegular executive transfers, are empirically important detemiinants of the likelihood of a devaluation.

In a recent paper Giugale and Korobow (2000) present evidence to suggest the time that output takes to return to its trend following a negative shock is faster under a flexible exchange rate regime than under a fixed exchange rate. In this paper VAR models are used to provide empirical evidence on the speed of recovery of real output following an interest rate shock for a number of Asian economies. We find little evidence that the degree of persistence in output is systematically related to the type of exchange rate regime that particular countries have adopted. Across a number of specifications we find that real output for Hong Kong and Australia has the least persistence following a negative interest rate shock. These countries represent the two ends of the spectrum, the former has an exchange rate that is pegged to the U.S. dollar via a currency board and the latter has one of the more flexible exchange rates in the Asian region. This paper was written while the authors were Visiting Research Fellows at the Hong Kong Institute for Monetary Research. We thank the HKIMR for their hospitality and support. Emily Cheng provided research assistance for the paper. Comments and suggestions from seminar participants at the HKIMR and two referees are gratefully acknowledged. The views presented in this paper are those of the authors and do not necessarily reflect those of the Hong Kong Institute for Monetary Research, its Council of Advisors or the Board of Directors.

Assuming the eventual adoption of the Euro, the paper reviews the run-up and the medium run issues and policy options on the path towards the Euro. In the run-up to the Euro, giving the markets a conversion rate to target is shown to be desirable. This can prevent an initial misalignment, and can take into account the expectation-driven increase in money demand and convergence in interest rates. In the medium run preparation, a fixed exchange rate brings high real interest rates and losses of output, unless fiscal policy is tight and wage settlements are market-based or kept under control. Floating exchange rates do not necessarily lower interest rates but enable monetary policy to regain some of its effectiveness. Eventually, a sound fiscal and income policy opens the way to a scenario of accommodating monetary policy and convergence towards the Euro. A political reading of the Maastricht conditions suggests that early adoption of the Euro is unlikely to be supported by the incumbents. It would then only make sense as a way out of a crisis.

Este trabajo estudia los efectos de las intervenciones cambiarias usando datos diarios e intra diarios para Chile, entre 1998 y 2003. Su mayor contribución es la de reconocer el rol de la transparencia y los anuncios públicos en el éxito de la política de intervención cambiaria, a través de un canal de expectativas que impacta directamente al tipo de cambio. Se distinguen tres instrumentos de política de intervención cambiaria -spot, BCD y anuncios-y son tratados independientemente. Estimaciones de series de tiempo son usadas para capturar el efecto de las intervenciones spot y BCD´s, como también los efectos asociados al canal de anuncio que proponemos como potencialmente relevante. Los resultados obtenidos indican que el efecto de las intervenciones individuales (spot y BCD) son extremadamente pequeños y, en la mayoría de los casos, no significativos estadísticamente. Adicionalmente, la importancia del canal anuncio es confirmada. El impacto de las acciones del Banco Central en el nivel y la tendencia del tipo de cambio parecen ser canalizadas a través de los anuncios hechos por las autoridades monetarias. El mercado ajusta sus expectativas a la información revelada, ajustándose el tipo de cambio de acuerdo a esto. Estos efectos ocurren en un período más prolongado que el sugerido por la literatura tradicional. Finalmente, usando datos intra diarios para el 2001, se confirma la insignificancia de las intervenciones individuales.

respectively. 1 A rule aimed at maintaining a fiscal surplus equivalent to 1% of GDP measured on a structural basis. 2 See for details on the fiscal rule. See De for a review of the exchange rate management experience in Chile. See and for an analysis of indexation and nominalization in Chile. See for a review of the Chilean financial market. See for discussion of capital controls and their interplay with exchange rate policy.

Recent reforms in most African economies of their trading and exchange rate regimes have eliminated much of the protection which previously limited competition. Despite these reforms, African manufacturing firms remain unsuccessful, particularly in international export markets. In this paper we consider the roles of learning, competition and market imperfections in determining three aspects of firm performance, namely firm exit, firm growth and productivity growth. We use a pooled panel data set of firms in Ghana, Kenya and Tanzania that spans a period of five years. We find that the main determinant of exit is firm size, with small firms having much higher exit rates than large ones. Productivity impacts on firm survival among large firms, but not among small firms. Reasons for this result are discussed. We find evidence that, among surviving firms, old firms grow slower than young firms, which is interpreted as evidence consistent with market constraints limiting growth of firms in Africa. We find no evidence that larger firms have faster rates of productivity or input growth, or are more efficient in the sense of benefiting from scale economies. We also find that competitive pressure enhances productivity growth. Given that one of the objectives of the reform programmes implemented in all three countries was to stimulate higher efficiency levels, this finding shows that one aspect of the reform programme has been successful. We thank Paul Collier as well as seminar participants at CSAE and UNIDO for comments on earlier drafts of the paper.

La sous-évaluation de la monnaie chinoise vis-à-vis du dollar est souvent dénoncée comme l'une des causes des déséquilibres mondiaux. Les autorités américaines soutiennent que la Chine manipule son taux de change tandis que la majorité des travaux empiriques estiment que le yuan est sous-évalué de 15 à 30 %. Cet article montre que les modèles de taux de change d'équilibre généralement utilisés ne sont pas pertinents pour une économie en développement telle que l'économie chinoise. La Chine souffre d'un sous-emploi massif ; un taux de change sous-évalué au regard des critères traditionnels lui permet d'impulser la croissance vigoureuse nécessaire pour résorber son chômage. Plus généralement, le taux de change optimal d'un pays émergent ne peut être défini que relativement à une stratégie de croissance : plus le pays désire une croissance vigoureuse, plus il est prêt à faire un effort d'épargne, plus il doit pratiquer un taux de change faible. La première partie de l'article décrit les points saillants de la croissance chinoise depuis 1994, où la Chine est passée en change fixe avec le dollar : croissance élevée mais sous-emploi massif, faible inflation, accumulation massive de réserves, forts taux d'épargne et d'investissement. La deuxième partie présente et critique les évaluations du taux de change d'équilibre du yuan selon différentes méthodes. La troisième développe une maquette où le taux de change d'un pays en développement est volontairement fixé à un bas niveau pour permettre une croissance vigoureuse, de sorte que sous-évalué du point de vue des critères usuels, il est optimal du point de vue de la stratégie de croissance ; enfin, la quatrième partie montre la difficulté du choix d'un régime de change pour la Chine.

This paper shows how sound macroeconomic management generates reputationbuilding behaviour in the international lending market. While current account deficits need not imply an imminent devaluation, their impact on foreign exchange reserves and the manner in which they are funded are important analytical factors in explaining creditworthiness and foreign borrowing .It suggests that the amount borrowed from the international market in the current year is due to macro-outcomes in the lagged year.

In recent years, the decline in inflation in Angola has stalled and further steps may be needed to attain the authorities' medium term goal of meeting the Southern African Development Community (SADC) convergence criteria of a low single digit inflation rate. A Vector Error Correction (VEC) model, which analyzes the factors that affect the inflationary process in Angola, suggests that the inflation path has been largely affected by exchange rate movements. This implies that greater exchange rate flexibility that facilitates a gradual appreciation would be instrumental to moderate price growth through reducing the price of imports and limiting liquidity injection by the National Bank of Angola (BNA). Additionally, the analysis shows that excess liquidity, which is measured by positive deviations of M2 from its equilibrium level, adds to demand pressures, and contributes to inflation with a lag. This underlines the importance of closely monitoring the growth of monetary aggregates as well as improving liquidity management. The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate.

This paper explores the relationship between a policymaker's reputation and the optimal wage indexation in an inflation-targeting framework, in which there is uncertainty regarding the policymaker's ability for commitment. The main result of this work is that the optimal wage indexation is non–monotonic in the policymaker's reputation. In particular, at low levels of reputation, a rise in reputation leads to an increase in the wage indexation, while at higher levels of reputation, a rise in reputation leads to a reduction in the wage indexation. This result holds both in the social planner framework and in the case where there is a labor union that determines not only the nominal wage but also its level of indexation.