Showing papers on "Currency published in 1980"
638 citations
TL;DR: In this paper, the authors employ a modified version of Cagan's model, estimating the demand for such "illegal currency" from 1929 to 1976, the longest period for which data are available for the U.S at this time.
Abstract: The paper analyses the increasing relevance that the underground economy has taken on in the United States and in the political debate of the country. It then proceeds to estimate the size of the U.S. underground economy by estimating the demand for currency for underground transactions. To do so, the author employs a modified version of Cagan’s model, estimating the demand for such “illegal currency” from 1929 to 1976, the longest period for which data are available for the U.S at this time.
276 citations
TL;DR: In this paper, a three-country model of payments equilibrium with transaction costs is developed, and it is shown how the underlying structure of payments limits, without necessarily completely determining, the choice and role of a vehicle currency.
Abstract: This paper is concerned with the reasons why some currencies, such as the pound sterling and the U.S. dollar, have come to serve as "vehicles" for exchanges of other currencies. It develops a three-country model of payments equilibrium with transaction costs, and shows how one currency can emerge as an international medium of exchange. Transaction costs are then made endogenous, and it is shown how the underlying structure of payments limits, without necessarily completely determining, the choice and role of a vehicle currency. Finally, a dynamic model is developed, and the way in which one currency can displace another as the international medium of exchange is explored.
157 citations
TL;DR: In this article, the authors examined the interaction between the exchange rate and the trade balance within the framework of the portfolio approach to exchange rates and rational expectations and provided some evidence in favor of the presumption that surplus country should have an undervalued currency relative to its long-run level.
Abstract: The purpose of this paper is to examine the interaction between the exchange rate and the trade balance within the framework of the portfolio approach to exchange rates and rational expectations. In a simplified linear version, it is shown that the difference between the spot exchange rate and its long-run equilibrium value is proportional to the current level of the trade-balance surplus normalized by the current stock of foreign-asset holdings. Therefore, the analysis provides some evidence in favor of the presumption that surplus country should have an undervalued currency (relative to its long-run level). The basic idea behind the analysis is that, in a world of high capital mobility,current flow payments disequilibria can be accommodated by capital flows without need, in principle, for exchange rate movements. Only if the public expects lasting change in the required rate of capital flows will exchange rates adjust, since in this case the expected time path of net foreign assets will be significantly...
123 citations
TL;DR: A currency is not risky because it is highly likely to be devalued; if the devaluation were certain, there would be no risk at all as discussed by the authors, and a weak currency can be less risky than a strong currency.
Abstract: A currency is not risky because devaluation is highly likely. If the devaluation were certain, there would be no risk at all. A weak currency can be less risky than a strong currency. A strong currency does not become risky because it has been used to denominate a firm's debt.
83 citations
Journal Article•
TL;DR: The most important macroeconomic requirement for inducing remittances through official channels is a realistic single rate of exchange for the currency of the labor exporting country of origin this paper, which is a useful incentive for attracting migrants funds.
Abstract: For many developing countries migrant workers remittances comprise a substantial proportion of foreign exchange earnings. The most important macroeconomic requisite for inducing remittances through official channels is a realistic single rate of exchange for the currency of the labor exporting country. Convenient facilities for holding remittances in approved foreign currency accounts with banks in the country of origin are another useful incentive for attracting migrants funds. In addition policies must be formulated to ensure the optimal use sectoral and regional of cash remittances. There is a choice between consumption saving and investment. Generally remittances have contributed little to the longterm development potential of most labor exporting countries. This reflects the lack of a coherent policy to mobilize the savings from remittances into productive investment. The 1st priority given the lack of financial and managerial skills in many migrant households is the creation of a specialized institution or specialized units within existing banks for remittances. It is important as well to ensure that remittances are utilized to inculcate a savings psychology among recipients. This can be achieved through the creation of contractual savings schemes and the linkage of savings to credit facilities. Such measures are contingent upon an adequate spread of banking facilities in rural areas and the development of an appropriate intermediate financial technology in the labor exporting countries. Institutional banking will have to adapt lending procedures to the viability of projects rather than to the availability of collateral. Advantageous interest rates in rural areas are also necessary to redress the urban bias of the financial system in developing countries.
70 citations
TL;DR: In this article, a model for selecting an optimal foreign exchange reserves portfolio for semi-industrial and developing countries, using the mean-approach, is presented, focusing on the relationship between the composition of reserves and that of imports, as well as the impact of return and risk of investments in each currency.
59 citations
TL;DR: Offenbacher and Clements and Nguyen as discussed by the authors argued that the full competitive rate to demand deposits would seem to overstate substantially the non-monetary services of those deposits.
47 citations
Book•
01 Oct 1980
TL;DR: In the turbulent years between passage of the Federal Reserve Act (1913) and the Bretton Woods Agreement (1945), the people of the western world suffered two world wars, two major and several minor international financial panics, and epidemic of currency devaluations and debt repudiations, civil wars and revolutions as discussed by the authors.
Abstract: In the turbulent years between passage of the Federal Reserve Act (1913) and the Bretton Woods Agreement (1945), the people of the western world suffered two world wars, two major and several minor international financial panics, and epidemic of currency devaluations and debt repudiations, civil wars and revolutions. From his vantage point as economist for the Chase Manhattan Bank and editor of the Chase Economic Bulletin, who participated in much of what he records, Dr Anderson here describes the climactic events of a turbulent era.
47 citations
46 citations
TL;DR: In this paper, the authors describe and interpret some empirical regularities in the movements of money's income velocity of circulation in major industrial countries and offer support for the "portfolio view", especially in the case of Germany.
Abstract: The purpose of this paper is to describe and interpret some empirical regularities in the movements of money's income velocity of circulation in major industrial countries. The results offer support for the "portfolio view", especially in the case of Germany. Since 1976, increases in the opportunity cost and the risk associated with holding dollars have argued strongly in favour of a shift in currency demand towards the Deutsche Mark.
TL;DR: In this paper, the economic characteristics of a mini state are shown to be such that monetary policy is more circumscribed than in the conventional open economy model, and the inherent ineffectiveness of monetary policy and the need to hold substantial foreign exchange reserves are discussed.
Book•
01 Jan 1980
TL;DR: In this article, the authors provide the first detailed empirical investigation of the financing of UK trade flows based on questionnaires received from samples of firms engaged in exporting or importing in February, I975.
Abstract: The authors provide the first detailed empirical investigation of the financing of UK trade flows based on questionnaires received from samples of firms engaged in exporting or importing in February, I975. The first five chapters (IOO pages) are concerned with the formulation and testing of various hypo- theses relating to trade financing practices. The remaining two chapters are concerned with the implications of the results for the foreign exchange market and for policy formulation. Discussion of the former section of the book can be conveniently organised around the four main characteristics of trade financing identified by the authors; currency of denomination of the invoice; the use of forward cover; the method of settlement; the period of credit.
Posted Content•
TL;DR: This article examined three possible sources of deindustrialization in an open economy: monetary disinflation, an increase in the international price of oil, and a 'domestic oil discovery' using a model which incorporates different speeds of adjustment in goods and asset markets.
Abstract: This paper examines three possible sources of "de-industrialization" in an open economy: monetary disinflation, an increase in the international price of oil, and a 'domestic oil discovery. The analysis is conducted using a model which incorporates different speeds of adjustment in goods and asset markets; domestic goods prices respond only sluggishly to excess demand while the exchange rate (and hence the price of imported goods) adjusts quickly. Monetary disinflation leads to reduced real balances, higher interest rates, and a lower nominal exchange rate. In the short-run this causes a real appreciation and a decline in domestic manufacturing output. Perhaps surprisingly, an increase in world oil prices can create similar effects even for a country which is a net exporter of oil. Although the direct effect of an oil price increase for such a country is an increase in the demand for the domestic manufacturing good, that effect may be swamped by a real appreciation created by the increased demand for the home currency. This corresponds rather closely to the recent experiences of several oil and gas exporting countries, and is commonly referred to as the "Dutch-Disease". In our analysis, however, this is only a transitional phenomenon. Domestic oil discoveries, though necessarily finite in nature, generate permanent income effects in demand which last beyond the productive life of the new oil reserve. Initially, current income is above permanent income, leading to an improvement in the trade account; this is eventually reversed when permanent income exceeds current income. A wide variety of output response patterns are possible.
TL;DR: In this paper, the authors examined the effects of an experiment in the indexation of bank deposits in Hungary during the Hungarian hyperinflation of 1945-46 and suggested that contemporary indexing strategies should exclude demand deposits from indexation, especially in countries where a substantial amount of government revenue is collected from new money issue.
Abstract: This article examines the effects of an experiment in the indexation of bank deposits in Hungary during 1946. It is argued that this experiment reduced substantially the tax base against which the inflation-tax rate, determined by the issue of government currency, could be applied. Consequently, indexation was the decisive mechanism making the Hungarian hyperinflation of 1945-46 atypical of other hyperinflations. It is suggested that contemporary indexing strategies should exclude demand deposits from indexation, especially in countries where a substantial amount of government revenue is collected from new money issue.
TL;DR: The decision on whether to centralize or decentralize exposure management must take into account the costs of collecting relevant information of this kind at different degrees of centralization as mentioned in this paper, which is the case in this paper.
Abstract: The economic exposure of financial assets and liabilities of a foreign subsidiary depends mainly on the currency denomination and the commodity composition of future transactions. Country of residency of shareholders and parent corporations are of secondary interest. Accordingly, management of exposure presumes information about the denomination of future cash flows and future purchases. The decision on whether to centralize or decentralize exposure management must take into account the costs of collecting relevant information of this kind at different degrees of centralization.
TL;DR: The currency denomination of international trade contracts has been studied extensively in the literature as discussed by the authors, and the degree to which this risk is borne by the importer or the exporter depends, in part, on the currency of denomination.
Abstract: Sven Grassman's [2] empirical observation that most exports from small open economies are denominated in the currency of the exporter stimulated much theorizing on the currency denomination of international trade contracts. As Rao and Magee [6] note, the problem is nontrivial only if exchange risk exists and the two traditional hedging techniques, forward exchange and international borrowing and lending, are too costly to be employed. With international contracting, both parties typically agree on the quantity to be traded and on a price fixed in one of the two currencies at the time the letter of credit is agreed upon; thus, apart from commercial risk the only source of uncertainty is the real value of the future nominal payment. The degree to which this risk is borne by the importer or the exporter depends, in part, on the currency of denomination.
TL;DR: In the UK, currency holdings adjusted for changes in consumer prices have risen at a 2 percent rate since 1960 while real demand deposits have been unchanged on balance as discussed by the authors, and currency rose from 25 percent of demand deposits in 1960 to 29 percent in 1970, to 38 percent in 1979.
Abstract: stock has risen at an average 7 percent amiual rate. It is reasonable that the public, faced with higher prices, would seek to hold more currency. However, currency holdings adjusted for changes in consumer prices have risen at a 2 percent rate since 1960 while real demand deposits have been unchanged on balance. As a result, currency rose from 25 percent of demand deposits in 1960 to 29 percent in 1970, to 38 percent in 1979 (table 1). In late 1979 the average holdings of currency for a family of five amounted to an astonishing $2,500.
TL;DR: In this paper, the authors show that the explanation of direct foreign investment based on the existence of a currency premium implies a bias in the home capital market of the multinational firm, and that an alternative and complementary explanation of the choice between licensing and direct Foreign investment may be found in "disagreements" in the negotiations for a license.
Abstract: This note shows that the explanation of Direct Foreign Investment based on the existence of a currency premium implies a bias in the home capital market of the multinational firm. An alternative and complementary explanation of the choice between Licensing and Direct Foreign Investment may be found in “disagreements” in the negotiations for a license.
TL;DR: The transition from an open to a closed economy was not an inevitable process, nor an automatic result of impersonal economic laws, but rather was the outcome of a specific political response to the political and economic strains of the era as discussed by the authors.
Abstract: IN 1963 DUDLEY SEERS drew on his knowledge of Latin American economies to write a rejoinder to W.W. Rostow's theory about the universal character of the process of economic development.' The debate itself has long since lost its interest, and it is for its description of less developed countries' transition from "open" to "closed" economies that Seers' concise and lively article has been remembered. Seers argued that in most of the non-western world, the open economies which had characterised the imperialist era became gradually closed against the background of the disruption of international trade and the "revolution of rising expectations" in the mid-twentieth century. He offered no precise definitions of "openness" and "closure," but the meaning of his classification was reasonably clear. Open economies had virtually no restrictions on foreign trade, little fiscal management, and no control over their own currencies which were heavily backed and linked to the currency of a major power. There was no clearly defined point where such an economy became closed, but the institution of tariff barriers, import controls, a managed currency, differential exchange rates, and a planning board were the usual features of the process. Seers went to pains to point out that the transition from an open to a closed economy was not an inevitable process, nor an automatic result of impersonal economic laws, but rather was the outcome of a specific political response to the political and economic strains of the era. The disruption of trade in depression and war and the start of the decline in the terms of trade for primary produce on the one hand, and popular pressure for economic development on the other, pushed governments in Latin America and elsewhere towards a policy of import-substituting industrialisation. The
TL;DR: In this article, an effective exchange rate for the pound in the I 932-4 period was calculated, showing that the pound appreciated 40 per cent against the dollar while depreciating I5 per cent of its value against the franc.
Abstract: U tNTIL comparatively recently the normal method of quoting exchange rates has been to use a numeraire currency, usually the pound or the dollar. During the periods of the gold standard and of fixed exchange rates following Bretton Woods this was perfectly valid. However, the widespread adoption of floating exchange rates in the I 970s has made the numeraire currency method to some extent misleading, and consequently a new method of quoting exchange rate values has been developed which gives a better indication of the overall value of a currency: this is provided by a currency's "effective exchange rate" which is a weighted average of its movements against all other currencies. No one has yet, however, extended this new method back to other periods of widespread floating exchange rates and this is the object of the present study: to begin this process by calculating an effective exchange rate for the pound in the I930S. The need for this is clear if one considers the example of the period I 932-4 in which the pound appreciated 40 per cent against the dollar while depreciating I5 per cent against the franc.2 The general heterogeneity of all exchange-rate movement in this period is illustrated by Fig. I which plots the paths of eight exchange rates from I93I III to I935 I inclusive (I929-30 = ioo). When one also considers that at the same time the currencies of Australia, Egypt, Finland, and India fluctuated less than I per cent against the pound it becomes rather dubious to express the pound in terms of any single numeraire currency. Moreover the interwar years are especially interesting since the "evidence" of the volability of exchange rates in this period has long been used as one of the standard arguments against flexible rates, initially by Nurkse3 and since then by numerous others. An effective exchange rate must surely provide a more suitable indication of the overall "stability" of a currency.
TL;DR: In this paper, the positive and negative effects of illicit currency exchanges in West Africa are evaluated for their social and economic significance for the region, based on Anthroplogical data.
TL;DR: The UK Central Electricity Generating Board (CEGB) has recently published figures which appear to show that nuclear generated electricity is 20% cheaper than electricity from coal stations as mentioned in this paper, however, argues Professor J.W. Jeffery, these figures cannot be used to make a case for nuclear power since they are based on an accounting convention which fails to give due consideration to inflation.
TL;DR: In this article, the authors focus on the international transmission of various macroeconomic shocks, and on their implications for the current account, capital account, and exchange rate of open economies.
Abstract: Almost all developed economies at some time during the 1970s seemed supply-constrained. Even much of measured excess capacity was arguably redundant due to energy price shocks, environmental policy, and other structural flux of the 1970s. Little analytical work has been carried out on the macroeconomics of open economies under such supply constraints. This paper attempts a beginning. Its focus is on the international transmission of various macroeconomic shocks, and on their implications for the current account, capital account, and exchange rate. The paper captures both the foreign repercussions and the terms-of-trade effects of various shocks. Conclusions are based on an analytical model that assigns behavior to each of two regions relating to one nontradeable input, one tradeable output, and one tradeable financial asset. International exchange between the two regions is characterized by sequential "temporary equilibria," each consistent with economically and institutionally constrained optimization, yet each simultaneously consistent with failure of output and input markets to clear. International transactions take place in capital markets and through a foreign exchange market that do clear continuously through flexible exchange rates. The abstract reduced form of the model is derived, then applied empirically, using parameters and initial values that incorporate data and consensus beliefs about the U.S. and the rest of the world in the 1970s. The most important conclusions of the exercise are:(1) Floating exchange rates fail to insulate either supply-constrained economy from unanticipated shocks in the other. International transmission is direct -- the impacts on the two regions of any shock have the same sign.(2)Exchange rates and the terms of trade between the supply-constrained economies are moderately sensitive to incomes policies and changes in technology/productivity trends (elasticities of 0.5 to 1.5 in absolute value) and relatively insensitive to fiscal policy and distributionally neutral wage-price guidelines. Wage-favoring incomes policies, liquidity-financed fiscal expansion, tighter wage-price guidelines, and slackening of technology/productivity growth all cause depreciation of the domestic currency and deterioration of the terms of trade.(3)These same shocks all promote "internationalization" of commodity and financial markets. Export volume, import volume, claims on foreigners, and indebtedness to them all grow as a result, sometimes by significant amounts (elasticities as high as 1.5 in response to each shock taken independently of the others, and larger elasticities in response to combinations of shocks).
Posted Content•
TL;DR: In this article, the authors focus on the international transmission of various macroeconomic shocks, and on their implications for the current account, capital account, and exchange rate of open economies.
Abstract: Almost all developed economies at some time during the 1970s seemed supply-constrained. Even much of measured excess capacity was arguably redundant due to energy price shocks, environmental policy, and other structural flux of the 1970s. Little analytical work has been carried out on the macroeconomics of open economies under such supply constraints. This paper attempts a beginning. Its focus is on the international transmission of various macroeconomic shocks, and on their implications for the current account, capital account, and exchange rate. The paper captures both the foreign repercussions and the terms-of-trade effects of various shocks. Conclusions are based on an analytical model that assigns behavior to each of two regions relating to one nontradeable input, one tradeable output, and one tradeable financial asset. International exchange between the two regions is characterized by sequential "temporary equilibria," each consistent with economically and institutionally constrained optimization, yet each simultaneously consistent with failure of output and input markets to clear. International transactions take place in capital markets and through a foreign exchange market that do clear continuously through flexible exchange rates. The abstract reduced form of the model is derived, then applied empirically, using parameters and initial values that incorporate data and consensus beliefs about the U.S. and the rest of the world in the 1970s. The most important conclusions of the exercise are:(1) Floating exchange rates fail to insulate either supply-constrained economy from unanticipated shocks in the other. International transmission is direct -- the impacts on the two regions of any shock have the same sign.(2)Exchange rates and the terms of trade between the supply-constrained economies are moderately sensitive to incomes policies and changes in technology/productivity trends (elasticities of 0.5 to 1.5 in absolute value) and relatively insensitive to fiscal policy and distributionally neutral wage-price guidelines. Wage-favoring incomes policies, liquidity-financed fiscal expansion, tighter wage-price guidelines, and slackening of technology/productivity growth all cause depreciation of the domestic currency and deterioration of the terms of trade.(3)These same shocks all promote "internationalization" of commodity and financial markets. Export volume, import volume, claims on foreigners, and indebtedness to them all grow as a result, sometimes by significant amounts (elasticities as high as 1.5 in response to each shock taken independently of the others, and larger elasticities in response to combinations of shocks).