Home Bias Exchange Rate Disconnect And Optimal Exchange Rate Policy PDF Download
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| Author | : Jian Wang |
| Publisher | : |
| Total Pages | : 44 |
| Release | : 2015 |
| Genre | : |
| ISBN | : |
Download Home Bias, Exchange Rate Disconnect, and Optimal Exchange Rate Policy Book in PDF, ePub and Kindle
This paper examines how much the central bank should adjust the interest rate in response to real exchange rate fluctuations. The paper first demonstrates in a two-country Dynamic Stochastic General Equilibrium (DSGE) model, that the home bias in consumption is important to duplicate the exchange rate volatility and exchange rate disconnect documented in the data. When home bias is high, the shock to Uncovered Interest-rate Parity (UIP) can substantially drive up exchange rate volatility while leaving the volatility of real macroeconomic variables, such as GDP, almost untouched. The model predicts the volatility of the real exchange rate relative to that of GDP increases with the extent of home bias. This relation is strongly supported by the data. Then a second-order accurate solution method is employed to solve the model and compare the conditional welfare under different policy regimes. The results suggest that the monetary authority should not seek to vigorously stabilize exchange rate fluctuations. In particular, when the central bank does not take a strong stance against the inflation rate, exchange rate stabilization may induce substantial welfare loss. The model also suggests no welfare gain from the international monetary cooperation, which extends Obstfeld and Rogoff's (2002) findings to a DSGE model.
| Author | : Camila Casas |
| Publisher | : International Monetary Fund |
| Total Pages | : 62 |
| Release | : 2017-11-22 |
| Genre | : Business & Economics |
| ISBN | : 1484330609 |
Download Dominant Currency Paradigm: A New Model for Small Open Economies Book in PDF, ePub and Kindle
Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.
| Author | : Francis E. Warnock |
| Publisher | : |
| Total Pages | : 44 |
| Release | : 2000 |
| Genre | : Foreign exchange rates |
| ISBN | : |
Download Exchange Rate Dynamics and the Welfare Effects of Monetary Policy in a Two-country Model with Home-product Bias Book in PDF, ePub and Kindle
International spillovers and exchange rate dynamics are examined in a two-country dynamic optimizing model that allows for home-product bias in consumption patterns: at given relative prices the ratio of home goods consumed to foreign goods consumed is higher in the home country. The setup nests Obstfeld and Rogoff (1995), who assume identical tastes. With home bias, results are different in three ways. When preferences are biased, the wealth transfers associated with current account imbalances induce movements in the real exchange rate and produce large short-run and small long-run deviations from consumption-based purchasing power parity. With home bias, interest rates, both real and nominal, can differ across countries; relatedly, home bias is a necessary but not sufficient condition for Dornbusch (1976) type exchange rate overshooting. Finally, in this model the welfare effects of expansionary monetary policy depend not only on world demand but also on the expenditure-switching effect of an exchange rate depreciation; monetary policy is 'beggar-thy-neighbor' if individuals have strong preferences for domestic products, but can be 'beggar-thyself' if, instead, imported goods are preferred.
| Author | : Charles Engel |
| Publisher | : |
| Total Pages | : 68 |
| Release | : 2000 |
| Genre | : Foreign exchange administration |
| ISBN | : |
Download Optimal Exchange Rate Policy Book in PDF, ePub and Kindle
This paper examines optimal exchange-rate policy in two-country sticky-price general equilibrium models in which households and firms optimize over an infinite horizon in an environment of uncertainty. The models are in the vein of the new open-economy macroeconomics' as exemplified by Obstfeld and Rogoff (1995, 1998, 2000). The conditions under which fixed or floating exchange rates yield higher welfare depend on the exact nature of price stickiness and on the degree of risk-sharing opportunities. This paper presents some preliminary empirical evidence on the behavior of consumer prices in Mexico that suggests failures of the law of one price are important. The evidence on price setting and risk-sharing opportunities is not refined enough to make definitive conclusions about the optimal exchange-rate regime for that country.
| Author | : Michael Fidora |
| Publisher | : |
| Total Pages | : 48 |
| Release | : 2008 |
| Genre | : |
| ISBN | : |
Download Home Bias in Global Bond and Equity Markets Book in PDF, ePub and Kindle
This paper focuses on the role of real exchange rate volatility as a driver of portfolio home bias, and in particular as an explanation for differences in home bias across financial assets. We present a Markowitz-type portfolio selection model in which real exchange rate volatility induces a bias towards domestic financial assets as well as a stronger home bias for assets with low local currency return volatility. We find empirical support in favour of this hypothesis for a broad set of industrialised and emerging market countries. Not only is real exchange rate volatility an important factor behind bilateral portfolio home bias, but we find that a reduction of monthly real exchange rate volatility from its sample mean to zero reduces bond home bias by up to 60 percentage points, while it reduces equity home bias by only 20 percentage points.
| Author | : Mr.Eugenio M Cerutti |
| Publisher | : International Monetary Fund |
| Total Pages | : 36 |
| Release | : 2019-01-16 |
| Genre | : Business & Economics |
| ISBN | : 1484395212 |
Download Covered Interest Parity Deviations: Macrofinancial Determinants Book in PDF, ePub and Kindle
For about three decades until the Global Financial Crisis (GFC), Covered Interest Parity (CIP) appeared to hold quite closely—even as a broad macroeconomic relationship applying to daily or weekly data. Not only have CIP deviations significantly increased since the GFC, but potential macrofinancial drivers of the variation in CIP deviations have also become significant. The variation in CIP deviations seems to be associated with multiple factors, not only regulatory changes. Most of these do not display a uniform importance across currency pairs and time, and some are associated with possible temporary considerations (such as asynchronous monetary policy cycles).
| Author | : Ronald MacDonald |
| Publisher | : Routledge |
| Total Pages | : 334 |
| Release | : 2005 |
| Genre | : Foreign exchange |
| ISBN | : 1134838220 |
Download Exchange Rate Economics Book in PDF, ePub and Kindle
''In summary, the book is valuable as a textbook both at the advanced undergraduate level and at the graduate level. It is also very useful for the economist who wants to be brought up-to-date on theoretical and empirical research on exchange rate behaviour.'' ""Journal of International Economics""
| Author | : Ben Bernanke |
| Publisher | : Mit Press |
| Total Pages | : 418 |
| Release | : 2001-02-19 |
| Genre | : Macroeconomics |
| ISBN | : 9780262025034 |
Download NBER Macroeconomics Annual 2000 Book in PDF, ePub and Kindle
The NBER Macroeconomics Annual presents, extends, and applies pioneering work in macroeconomics and stimulates work by macroeconomists on important policy issues. Each paper in the Annual is followed by comments and discussion.
| Author | : Collective of authors |
| Publisher | : MAC Prague consulting |
| Total Pages | : 611 |
| Release | : 2014-12-01 |
| Genre | : Political Science |
| ISBN | : 8090544282 |
Download Proceedings of MAC-EMM 2014 Book in PDF, ePub and Kindle
Conference proceedings - Multidisciplinary Academic Conference on Economics, Management and Marketing in Prague 2014 (MAC-EMM 2014)
| Author | : Richard K. Lyons |
| Publisher | : MIT Press (MA) |
| Total Pages | : 360 |
| Release | : 2001 |
| Genre | : Business & Economics |
| ISBN | : |
Download The Microstructure Approach to Exchange Rates Book in PDF, ePub and Kindle
Explaining the puzzling behavior of exchange rates using models from microstructure finance and data from electronic trading.
