|
on Central Banking |
| By: | Frederic S. Mishkin |
| Abstract: | This paper discusses what recent economic research tells us about exchange rate pass-through and what this suggests for the control of monetary policy. It first focuses on exchange rate pass-through from a macroeconomic perspective and then examines the microeconomic evidence. In light of this evidence, it then discusses the implications of exchange rate movements on the conduct of monetary policy. |
| JEL: | E52 F41 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13889&r=cba |
| By: | Frederic S. Mishkin |
| Abstract: | This paper discusses recent economic research that demonstrates that the objectives of price stability and stabilizing economic activity are often likely to be mutually reinforcing. Thus, the answer to the title of this paper--"Does stabilizing inflation contribute to stabilizing economic activity?"--is, for the most part, yes. |
| JEL: | E31 E32 E52 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13970&r=cba |
| By: | Andrew Atkeson; V. V. Chari; Patrick J. Kehoe |
| Abstract: | Sophisticated monetary policies can depend on the history of private actions and can differ on and off the equilibrium path. We show that such policies can uniquely implement any desired competitive outcome, even those in which along the equilibrium path interest rate policies violate the Taylor principle. We also show that the conventional restricted policies studied in the literature cannot uniquely support the best outcomes while sophisticated policies can. Finally, we show that sophisticated policies are robust to imperfect monitoring. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:659&r=cba |
| By: | Edward Nelson |
| Abstract: | Woodford (2007) argues that it is not appropriate to regard inflation in the steady state of New Keynesian models as determined by steady-state money growth. Woodford instead argues that the intercept term in the monetary authority's interest-rate policy rule determines steady-state inflation. In this paper, I offer an alternative interpretation of steady-state behavior, according to which it is appropriate to regard steady-state inflation as determined by steady-state money growth. The argument relies on traditional interpretations of the central bank's power in the long run and appeals to model properties that are common to textbook and New Keynesian analysis. According to this argument, the only way the central bank can control interest rates in the long run is via affecting inflation, and its only means available for determining inflation is by determining the money growth rate. |
| Keywords: | Monetary policy ; Macroeconomics |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2008-013&r=cba |
| By: | Daniel L. Thornton |
| Abstract: | Monetary policy is now conducted by targeting a very short-term interest rate. The Fed and other central banks attempt to control the price level by manipulating aggregate demand by adjusting their interest rate target. At best, money's role is tertiary. Indeed, a few prominent and influential macroeconomists have suggested that money is not essential, or perhaps is irrelevant, for the determination of the price level. Against this backdrop, this paper argues that the essential feature of money is that it guarantees "final payment" and is essential for price determination. It also suggests that the ability of the central banks to control interest rates may be greatly exaggerated. |
| Keywords: | Monetary policy |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2008-011&r=cba |
| By: | Emi Nakamura; Jon Steinsson |
| Abstract: | Empirical evidence suggests that roughly 1/3 of the U.S. business cycle is due to nominal shocks. We calibrate a multi-sector menu cost model using new evidence on the cross-sectional distribution of the frequency and size of price changes in the U.S. economy. We augment the model to incorporate intermediate inputs. We show that the introduction of heterogeneity in the frequency of price change triples the degree of monetary non-neutrality generated by the model. We furthermore show that the introduction of intermediate inputs raises the degree of monetary non-neutrality by another factor of three, without adversely affecting the model's ability to match the large average size of price changes. Our multi-sector menu cost model with intermediate inputs generates variation in real output in response to calibrated aggregate nominal shocks that can account for roughly 26% of the U.S. business cycle. |
| JEL: | E30 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:14001&r=cba |
| By: | Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School); Wickens, Michael |
| Abstract: | We use the method of indirect inference, using the bootstrap, to test the Smets and Wouters model of the EU against a VAR auxiliary equation describing their data; the test is based on the Wald statistic. We find that their model generates excessive variance compared with the data. If the errors are scaled down, then the original model marginally passes the Wald test. We compare a New Classical version of the model which passes the test but generates a combination of excessive inflation variance and inadequate output variance. If the large consumption and investment errors are removed as possibly due to low frequency events, then the New Classical version passes easily while the original version is strongly rejected. |
| Keywords: | Bootstrap; DSGE Model; VAR model; Model of EU; indirect inference; Wald statistic |
| JEL: | C12 C32 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2008/11&r=cba |
| By: | Michael D. Bordo; Michael J. Dueker; David C. Wheelock |
| Abstract: | This paper examines the association between inflation, monetary policy and U.S. stock market conditions during the second half of the 20th century. We estimate a latent variable VAR to examine how macroeconomic and policy shocks affect the condition of the stock market. Further, we examine the contribution of various shocks to market conditions during particular episodes and find evidence that inflation and interest rate shocks had particularly strong impacts on market conditions in the postwar era. Disinflation shocks promoted market booms and inflation shocks contributed to busts. We conclude that central banks can contribute to financial market stability by minimizing unanticipated changes in inflation. |
| Keywords: | Inflation (Finance) ; Monetary policy ; Stock market |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedlwp:2008-012&r=cba |
| By: | Patrick J. Kehoe; Virgiliu Midrigan |
| Abstract: | the data, a large fraction of price changes are temporary. We provide a simple menu cost model which explicitly includes a motive for temporary price changes. We show that this simple model can account for the main regularities concerning temporary and permanent price changes. We use the model as a benchmark to evaluate existing shortcuts that do not explicitly model temporary price changes. One shortcut is to take the temporary changes out of the data and fit a simple Calvo model to it. If we do so prices change only every 50 weeks and the Calvo model overestimates the real effects of monetary shocks by almost 70%. A second shortcut is to leave the temporary changes in the data. If we do so prices change every 3 weeks and the Calvo model produces only 1/9 of the real effects of money as in our benchmark. We show that a simple Calvo model can generate the same real effects as our benchmark model if we set parameters so that prices change every 17 weeks. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmwp:661&r=cba |
| By: | Pierpaolo Benigno; Luca Antonio Ricci |
| Abstract: | Wage setters take into account the future consequences of their current wage choices in the presence of downward nominal wage rigidities. Several interesting implications arise. First, nominal wages tend to be endogenously rigid also upward, at low inflation. Second, a closed-form solution for a long run Phillips curve relates average unemployment to average wage inflation; the curve is virtually vertical for high inflation rates but becomes flatter as inflation declines. Third, macroeconomic volatility shifts the Phillips curve outward, implying that stabilization policies can play an important role in shaping the trade-off. Fourth, when inflation decreases, volatility of unemployment increases whereas the volatility of inflation decreases: this implies a long-run trade-off also between the volatility of unemployment and that of wage inflation. |
| JEL: | E0 E24 E30 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13986&r=cba |
| By: | Lundborg, Per (Swedish Institute for Social Research, Stockholm University) |
| Abstract: | We derive a long-run Phillips curve that is negatively sloped at low inflation rates. Due to exogenous changes, unions want to redistribute wages across different members also in the long run. Wage stickiness, inflation targeting and union solidarity are central characteristics of our New Keynesian model. In the model, high enough inflation becomes the grease of the economy that allows wage redistribution across unions without causing unemployment to rise above NAIRU. We show that under nominal wage rigidity, long-run unemployment may rise drastically and at zero inflation, unemployment may be trapped at very high levels even if demands for wage redistribution tapers off. Under real wage rigidity, the economy may get trapped at high unemployment also at positive but low inflation rates irrespective of demand for wage redistribution has vanished or not. Thus, a period of wage redistribution may cause an economy of full real wage rigidity to get trapped at a high unemployment rate. A policy conclusion is that economies characterized by extensive wage rigidity should not target inflation at too low levels. |
| Keywords: | - |
| Date: | 2008–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sofiwp:2008_003&r=cba |
| By: | Fernando Alexandre (Universidade do Minho - NIPE); Vasco J. Gabriel (University of Surrey and Universidade do Minho - NIPE); Pedro Bação (GEMF and Universidade de Coimbra) |
| Abstract: | We analyse the effect of uncertainty concerning the state and the nature of asset price movements on the optimal monetary policy response. Uncertainty is modelled by adding Markov-switching shocks to a DSGE model with capital accumulation. In our analysis we consider both Taylor-type rules and optimal policy. Taylor rules have been shown to provide a good description of US monetary policy. Deviations from its implied interest rates have been associated with risks of financial disruptions. Whereas interest rates in Taylor-type rules respond to a small subset of information, optimal policy considers all state variables and shocks. Our results suggest that, when a bubble bursts, the Taylor rule fails to achieve a soft landing, contrary to the optimal policy. |
| Keywords: | Asset Prices, Monetary Policy, Markov Switching. |
| JEL: | E52 E58 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:nip:nipewp:15/2008&r=cba |
| By: | Giorgio Fagiolo (Sant'Anna School of Advanced Studies, Pisa, Italy); Andrea Roventini (Università di Verona; Dipartimento di Scienze economiche (Università di Verona)) |
| Abstract: | In the last years, a number of contributions has argued that monetary - and, more generally, economic - policy is finally becoming more of a science. According to these authors, policy rules implemented by central banks are nowadays well supported by a theoretical framework (the New Neoclassical Synthesis) upon which a general consensus has emerged in the economic profession. In other words, scientific discussion on economic policy seems to be ultimately confined to either fine-tuning this ''consensus'' model, or assessing the extent to which ''elements of art'' still exist in the conduct of monetary policy. In this paper, we present a substantially opposite view, rooted in a critical discussion of the theoretical, empirical and political-economy pitfalls of the neoclassical approach to policy analysis. Our discussion indicates that we are still far from building a science of economic policy. We suggest that a more fruitful research avenue to pursue is to explore alternative theoretical paradigms, which can escape the strong theoretical requirements of neoclassical models (e.g., equilibrium, rationality, etc.). We briey introduce one of the most successful alternative research projects - known in the literature as agent-based computational economics (ACE) - and we present the way it has been applied to policy analysis issues. We conclude by discussing the methodological status of ACE, as well as the (many) problems it raises. |
| Keywords: | Economic Policy, Monetary Policy, New Neoclassical Synthesis, New Keynesian Models, DSGE Models, Agent-Based Computational Economics, Agent-Based Models, Post-Walrasian Macroeconomics, Evolutionary Economics. |
| JEL: | B41 B50 E32 E52 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:ver:wpaper:47&r=cba |
| By: | Jonathan Chiu; Miguel Molico |
| Abstract: | This paper studies the welfare costs and the redistributive effects of inflation in the presence of idiosyncratic liquidity risk, in a micro-founded search-theoretical monetary model. We calibrate the model to match the empirical aggregate money demand and the distribution of money holdings across households, and study the effects of inflation under the implied degree of market incompleteness. We show that in the presence of imperfect insurance the estimated long-run welfare costs of inflation are on average 40% smaller compared to a complete markets, representative agent economy, and that inflation induces important redistributive effects across households. For example, the welfare gains of reducing inflation from 10% to 0% is 0.59% of income. Furthermore, we estimate that the long-run welfare gains of reducing the typical current inflation target of 2 to 1 percent to be 0.06% of income. |
| Keywords: | Inflation: costs and benefits; Monetary policy framework |
| JEL: | E40 E50 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:08-13&r=cba |
| By: | Weise, Charles L |
| Abstract: | The U.S. Great Inflation of the 1970s was characterized by repeated, failed attempts at disinflation by the Federal Reserve as well as periods of inaction despite rising inflation. Previous research has attributed these failures to policymakers’ “misperceptions” about monetary policy and the macroeconomy. This paper argues instead that the Fed’s behavior during this period can be explained as a response to political constraints. Members of the Fed understood that a serious attempt to tackle inflation would be unpopular with the public and would generate opposition from Congress and the Executive branch. The result was a commitment to the policy of gradualism, under which the Fed would attempt to reduce inflation with mild policies that would not trigger an outright recession, and premature abandonment of anti-inflation policies at the first sign of recession. The Fed managed to disinflate successfully under Chairman Volcker only when the political constraints on Fed policy were lifted after 1979, allowing the Fed to abandon the policy of gradualism and knowingly take actions that risked recession. Evidence for this explanation of Fed behavior is found in Minutes and Transcripts of FOMC meetings and speeches of Fed chairmen. |
| Keywords: | Great Inflation; monetary policy; Federal Reserve |
| JEL: | E58 E50 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:8694&r=cba |
| By: | Sala, Luca; Söderström, Ulf; Trigari, Antonella |
| Abstract: | We study the design of monetary policy in an estimated model with sticky prices, search and matching frictions, and staggered nominal wage bargaining. We find that the estimated natural rate of unemployment is consistent with the NBER description of the U.S. business cycle, and that the inflation/unemployment trade-off facing monetary policymakers is quantitatively important. We also show that parameter uncertainty has a limited effect on the performance or design of monetary policy, while natural rate uncertainty has more sizeable effects. Nevertheless, policy rules that respond to the output or unemployment gaps are more efficient than rules responding to output or unemployment growth rates, also in the presence of uncertainty about the natural rates. |
| Keywords: | Labour market search; Monetary policy; Natural rate uncertainty; Parameter uncertainty; Unemployment |
| JEL: | E24 E32 E52 J64 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:6826&r=cba |
| By: | Gino Cateau |
| Abstract: | The purpose of this paper is to make a quantitative contribution to the inflation versus price level targeting debate. It considers a policy-maker that can set policy either through an inflation targeting rule or a price level targeting rule to minimize a quadratic loss function using the actual projection model of the Bank of Canada (ToTEM). The paper finds that price level targeting dominates inflation targeting, although it can lead to much more volatile inflation depending on the weight assigned to output gap stabilization in the loss function. The price level targeting rule is also found to mimic the full-commitment solution quite well. There is, however, an important difference: the full-commitment solution does not require stationarity in the price-level. The paper then analyzes the extent to which the results are sensitive to Hansen and Sargent (2004) model uncertainty. The paper finds the price level targeting rule to be robust; its performance deteriorates slower than the inflation targeting rule and the absolute decline in performance is small in magnitude. |
| Keywords: | Uncertainty and monetary policy |
| JEL: | E5 E58 D8 D81 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:bca:bocawp:08-15&r=cba |
| By: | Aleksander Berentsen; Esther Bruegger; Simon Loertscher |
| Abstract: | We consider an economy where decision maker(s) do not know the true production function for a public good. By using Bayes rule they can learn from experience. We show that the economy may learn the truth, but that it may also converge to an inefficient policy where no further inference is possible so that the economy is stuck in an information trap. We also show that our results are robust with respect to experimentation. |
| Keywords: | Public economics, learning, size of government |
| JEL: | D72 H10 D83 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:zur:iewwpx:371&r=cba |
| By: | Araújo, Eurilton |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ibm:ibmecp:wpe_108&r=cba |
| By: | Araújo, Eurilton |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ibm:ibmecp:wpe_109&r=cba |
| By: | Araújo, Eurilton |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ibm:ibmecp:wpe_110&r=cba |
| By: | Moheeput, Ashwin (Department of Economics, University of Warwick) |
| Abstract: | This paper reviews and categorises the literature on micro-systemic risks and on optimal policies designed to mitigate these risks. Micro-systemic risks are risks to the financial system that occur when the interaction of a bank with other banks or with financial markets, can propagate an initially localised shock to the whole financial system and can prevent the latter from fulfilling its intermediation and distributional roles. The severe episodes of financial crises that have plagued economies - developed and emerging markets alike - have made more compelling, the need for policymakers such as central banks, to develop prudential tools as part of crisis prevention and crisis management policies. We review the success of these policies under different theoretical paradigms. The paper ends with a brief synopsis of financial accelerator models which stress on how imperfections in financial markets may magnify the swings and intensity of business cycles and have a more entrenched impact on the macroeconomy. |
| Keywords: | Microsystemic Risks ; Financial Fragility ; Financial Accelerator |
| JEL: | G20 G28 |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:856&r=cba |
| By: | Ellen R. McGrattan; Edward C. Prescott |
| Abstract: | The U.S. Bureau of Economic Analysis (BEA) estimates the return on investments of foreign subsidiaries of U.S. multinational companies over the period 1982--2006 averaged 9.4 percent annually after taxes; U.S. subsidiaries of foreign multinationals averaged only 3.2 percent. Two factors distort BEA returns: technology capital and plant-specific intangible capital. Technology capital is accumulated know-how from intangible investments in R&D, brands, and organizations that can be used in foreign and domestic locations. Used abroad, it generates profits for foreign subsidiaries with no foreign direct investment (FDI). Plant-specific intangible capital in foreign subsidiaries is expensed abroad, lowering current profits on FDI and increasing future profits. We develop a multicountry general equilibrium model with an essential role for FDI and apply the BEA's methodology to construct economic statistics for the model economy. We estimate that mismeasurement of intangible investments accounts for over 60 percent of the difference in BEA returns. |
| JEL: | F32 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13983&r=cba |
| By: | Laurent Ferrara (Banque de France et Centre d'Economie de la Sorbonne); Thomas Raffinot (CPR Asset Management) |
| Abstract: | Non-parametric methods have been empirically proved to be of great interest in the statistical literature in order to forecast stationary time series, but very few applications have been proposed in the econometrics literature. In this paper, our aim is to test whether non-parametric statistical procedures based on a Kernel method can improve classical linear models in order to nowcast the Euro area manufacturing industrial production index (IPI) by using business surveys released by the European Commission. Moreover, we consider the methodology based on bootstrap replications to estimate the confidence interval of the nowcasts. |
| Keywords: | Non-parametric, kernel, nowcasting, bootstrap, Euro area IPI. |
| JEL: | C22 C51 E66 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:mse:cesdoc:b08033&r=cba |
| By: | Rangan Gupta (Department of Economics, University of Pretoria) |
| Abstract: | In this paper, we use a general equilibrium overlapping generations monetary endogenous growth model of a small open economy, to analyze whether financial repression, measured via the "high" mandatory reserve-deposit requirements of financial intermediaries, is an optimal response of a consolidated government following an increase in the degree of currency substitution. We find that higher currency substitution can yield higher reserve requirements, but, the result depends crucially on how the consumer weighs money in the utility function relative to domestic and foreign consumptions, and also the size of the government. |
| Keywords: | Currency Substitution, Endogenous Growth Models, Financial Repression, Small Open Economy, Public Finance |
| JEL: | E31 E44 E63 F43 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:pre:wpaper:200806&r=cba |
| By: | Michael P. Dooley; David Folkerts-Landau; Peter M. Garber |
| Abstract: | We identify incentives generated by the Bretton Woods II system that may have contributed to the sub-prime liquidity crisis now working its way through the international monetary system. We then evaluate the persistent conjecture that the liquidity crisis is or will become a balance of payments crisis for the United States. Given that it happens, the additional costs associated with a sudden stop of net capital flows to the United States could be quite substantial. But we observe that emerging market governments have continued to acquire US assets even as yields have fallen, and the incentives for continuing to do so remain strong. Moreover, the Bretton Woods II system, which has clearly been the most resilient of the forces driving current markets, continues to generate low real interest rates in industrial countries and growth in emerging markets that will help limit the damage from the liquidity crisis. |
| JEL: | F02 F32 F33 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:13978&r=cba |
| By: | Jonas Dovern; Carsten-Patrick Meier; Johannes Vilsmeier |
| Abstract: | Macro-stress testing studies often rely on rather short sample periods due to the limited availability of banking data. They may fail to appropriately account for the cyclicality in the interaction between the banking system and macroeconomic developments. In this paper we use a newly constructed data set on German banks’ income and loss statements over the past 36 years to model the interaction between the banking sector and the macroeconomy. Our identified-VAR analysis indicates that the level of stress in the banking sector is strongly affected by monetary policy shocks. The results rationalize the active behavior of central banks observed during periods of financial market crises |
| Keywords: | stress testing, banking, VAR |
| JEL: | C32 E44 |
| Date: | 2008–04 |
| URL: | http://d.repec.org/n?u=RePEc:kie:kieliw:1419&r=cba |
| By: | Mehmet Guclu (Department of Economics, Ege University) |
| Abstract: | The choice of exchange rate regime has become one of the most important issues one more time in many economies after the financial crises in recent years. In the wake of the financial crises, many countries, especially emerging market economies, opted for floating exchange rate regimes by forsaking the pegged regimes. Consequently, an old debate on the choice and determinants of exchange rate regimes has been triggered. Economists have started to debate what appropriate exchange rate regime for an economy is. When the tendency in recent years is taken into consideration, the choice of exchange rate regime of countries, especially emerging economies, needs to be analyzed. To do this, in this paper, we attempt to uncover how emerging market economies choose their exchange rate regimes. In other words, we try to find the economic and political factors underlying the choice of exchange rate regimes. The study includes 25 emerging market economies over the period 1970-2006. We use random effect ordered probit model in order to find the long run economic and political determinants of exchange rate regimes for emerging economies. The determinants of both the de jure and de facto exchange regimes are empirically analyzed in the paper. |
| Keywords: | Exchange Rate Regime, Emerging Market |
| JEL: | E42 F31 F33 F41 |
| Date: | 2008–05 |
| URL: | http://d.repec.org/n?u=RePEc:ege:wpaper:0806&r=cba |
| By: | Marcelo L. Moura, Adauto R. S. Lima e Rodrigo M. Mendonça |
| Date: | 2008–10 |
| URL: | http://d.repec.org/n?u=RePEc:ibm:ibmecp:wpe_112&r=cba |
| By: | Beoy Kui Ng (Division of Economics,School of Humanities and Social Sciences, Nanyang Technological University, Singapore) |
| Abstract: | China has been delaying its adoption of a flexible exchange rate system with free capital flows. The main excuse is that its financial sector is still in its fragile stage and is not able to withstand any external shocks. A big bang approach towards such liberalization will only lead to financial crisis as observed by experiences of many Asia-Pacific countries during the Asian Financial Crisis. With this in mind, this paper attempts to uncover the approach and strategies adopted by China in its banking reform since 1978 and then assess these reform measures in macroeconomic perspective. The paper argues that since China is still lingering on export-oriented strategy in promoting economic growth and monetary independence for demand management is still a long way to go, it is still in China’s best interest not to adopt a flexible exchange rate system at this point of time. As to capital account liberalization, the main focus is to engineer a controlled and systematic capital outflows through outward investment in particular portfolio investment. At the micro level, China should continue its banking reforms until the financial sector is strong enough to withstand the severe pressure of globalization. By then, will China, with its matured financial system be ready to consider the adoption of a flexible exchange system with free capital flows. |
| Keywords: | China, banking reform, non-performing loans, state-owned enterprises, corporate governance, regulation and supervision, financial liberalization |
| JEL: | E44 E5 G2 O16 O5 |
| Date: | 2007–07 |
| URL: | http://d.repec.org/n?u=RePEc:nan:wpaper:0707&r=cba |
| By: | Yap, Josef T. |
| Abstract: | <p>During the past five years or so, most East Asian economies including the Philippines experienced a rising level of foreign exchange reserves and rapidly appreciating currencies both in nominal and real terms. One cause has been the resurgence of capital flows, which makes the issue of how to manage them relevant. However, the experience with regard to capital flows among East Asian economies is mixed and the level of capital flows to the region is proportionally less than that prior to the 1997 crisis.</p> <p>Another reason is the rise in current account surpluses. The Philippines has experienced both a return of capital inflows and a more favorable current account balance, with the latter largely due to remittances from overseas workers. However, like many other regional currencies, the appreciation of the peso is not commensurate to movements of the BOP accounts. Currencies in the region are reacting primarily to the general weakness of the US dollar, and global uncertainties have contributed to weak investment which in turn is another major reason behind the current account surplus of several economies including the Philippines. Policy measures at the domestic level can focus on reviving private investment, particularly channeling overseas remittances to more productive investment. Meanwhile, East Asian financial and monetary cooperation can also result in a unified front aimed at overhauling the unipolar global financial system.</p> |
| Keywords: | foreign exchange inflows, currency appreciation, unipolar global financial system |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:phd:dpaper:dp_2008-04_(revised)&r=cba |