Showing papers on "Currency published in 1982"

Currency Substitution and the Demand for Money: Some Evidence for Canada

Abstract: RECENTLY, THE POSSIBILITY THAT foreign and domestic currencies are substitutes has received considerable attention (see [1, 2, 3, 10, 19, 21]). Currency substitution has important implications for the working of flexible exchange rates. If the degree of currency substitution is high, small changes in the money supply would induce large changes in the exchange rate. Furthermore, currency substitution would transmit the effect of monetary disturbances from one country to another. Indeed, significant currency substitution would seriously undermine the ability of flexible exchange rates to provide monetary independence. This paper examines the empirical importance of currency substitution in the framework of the demand function for money. If currency substitution is important, the expected change in the exchange rate should be a significant determinant of the demand for home currency. In section 2, we undertake such a test for the Canadian demand for money during the recent flexible exchange rate period. There is considerable evidence that the forward exchange rate is a good measure of the expected exchange rate. Our own tests confirm these results for Canadian data since 1970.

The macroeconomic implications of a resource discovery in an open economy

Abstract: This paper analyses the macroeconomic impact on an economy of the discovery of significant quantities of a natural resource. The resource will be termed 'oil' and the analysis is intended to be suggestive of the effects on the U.K. economy of the discovery of North Sea Oil and of possible policy responses. Our motivation is what appears to be an inconsistency between the commonly expressed view that North Sea Oil has generated unemployment' by causing the exchange rate to appreciate2 and the contention of proponents of the 'New Classical' macroeconomics that the oil discovery creates no special macroeconomic problems.3 In order to abstract from microeconomic questions we shall assume that oil is perfectly tradable and that there are no extraction costs.4 We also assume that the foreign currency oil price is exogenous and rises at the foreign interest rate. The effect of these assumptions is that for the economy as a whole the oil discovery can be considered as a foreign exchange windfall of fixed magnitude, and we define the term 'oil revenue' in a permanent income sense as the infinite term foreign exchange annuity value of this windfall. Oil revenue as defined is independent of depletion policy: it accrues whether or not depletion is occurring at any date (since it includes capital gains on the oil stock) and depends in no way on whether the oil is exported or used domestically. It will be assumed throughout that the economy operates with a flexible exchange rate and that international capital mobility is perfect. At the date of discovery the economy is assumed to be at zero inflation full employment with both current and capital accounts balanced. We are primarily interested in the dynamics of adjustment to the oil discovery, but comparative static analysis5 provides a convenient point of departure. For this purpose only, we suppose that depletion is managed so as actually to realise the oil revenue each year. If all the oil revenue is saved, then there are no effects on demand, prices or

The hedging effectiveness of foreign currency futures

Abstract: This study provides an initial analysis of the hedging potential of the foreign currency futures markets. Numerous studies exist on the pricing efficiency and hedging effectiveness of the foreign currency forward markets, but little research exists on the foreign currency futures market. An adequate price history has only recently become available to carry out such an investigation. Minimum risk hedges and hedging effectiveness measures are presented for five currencies: the British pound, German mark, Canadian dollar, Japanese yen and Swiss franc. Analysis indicates the relative desirability of positions in futures contracts to minimize the risk of spot currency exposure. Results also show hedging effectiveness increases with the investment horizon.

Currency devaluation in developing countries

Abstract: Publisher Summary This chapter describes the currency devaluation in developing countries. In analyzing devaluation, the exact nature of the initial disequilibrium is important and much analysis misleads by its focus on economies that are assumed to be in equilibrium at the moment of devaluation. The elasticities approach focuses on the substitution among commodities, both in consumption and in production induced by the relative price changes wrought by the devaluation. The principal relative-price change is between goods, whether imported or exported, whose price is strongly influenced by conditions in the world market, and those home goods and services that are not readily traded. For a small country, it can be assumed that the prices in domestic currency of foreign-trade goods will rise by the amount of devaluation. This rise will divert purchases out of the existing income to nontraded goods and services, thereby reducing domestic demand for imports and for export goods, releasing the latter for sale abroad.

Can We Sterilize? Theory and Evidence

Abstract: This paper is a highly selective review of our knowledge about the scope for sterilized intervention in foreign exchange markets under alternative exchange-rate regimes. Section I demonstrates the potential importance of simultaneous-equations bias in single-equation econometric studies of the capital-account offset to monetary policy under fixed exchange rates. The empirical record suggests that, in the case of West Germany, sterilization was a feasible short-run monetary strategy in the 1960s. Section II notes that there is considerable recent evidence of imperfect asset substitutability under the managed float. While limited substitution between bonds of different currency denomination is a precondition for the efficacy of sterilized foreign-exchange intervention, it is no guarantee of efficacy. Whether limited substitutability can in fact be exploited in a predictable manner by central banks is a distinct, and unanswered, question.

Can We Sterilize? Theory and Evidence

Abstract: Under managed floating, as under the Bretton Woods system, central banks have intervened heavily in the foreign exchange market. As before, they have often attempted to divorce their intervention activities from their money supplies through offsetting operations in domestic financial markets. An official purchase of foreign exchange can be sterilized through a corresponding openmarket sale of domestic securities. The transaction, which is equivalent to an official forward sale of domestic currency, leaves relative money supplies unchanged but alters the relative supplies of foreign- and domestic-currency bonds available to the public. Regardless of the exchange-rate regime, sterilized intervention may be viewed as an attempt to attain independent exchange-rate and money-stock targets in the short run. For this to be possible, bonds denominated in different currencies must be imperfect substitutes in private portfolios. If feasible, sterilization may or may not be useful in attaining the long-run objectives of the central bank.

Demand for Currency and the Black Economy in the UK

Abstract: The size and growth of the so‐called “black economy” has provided a great deal of discussion in recent years. Typically the discussion has been confined to editorials and articles in leading newspapers, but of late politicians, civil servants and even academics, on both sides of the Atlantic have commented on the rise of the black economy. Despite this volume of comment, very few serious attempts have been made actually to measure the size of this unobserved sector for the UK.

Foreign Currency Translation and Changing Prices in Perfect and Complete Markets

Abstract: Our purpose is to explore some properties of the major methods of foreign currency translation under the assumptions of perfect and complete markets. In doing so, we identify a set of sufficient conditions under which the various methods possess properties claimed by their advocates. Moreover, the role played by the controversial and elusive translation gain or loss becomes clearly defined. Neither the properties of the various methods nor the role of the translation gain or loss are obvious, notwithstanding the considerable debate during the recent attempt to resolve the issue in the policy domain.' In order to interpret the disclosures under the various methods of translation, it is necessary to make an assumption about the economic forces that induce changes in the exchange rates. The perspective we adopt is that changes in exchange rates are driven solely by differential rates of inflation among the respective countries. Given this assumption, we analyze the properties of three accounting models-translation methods: historical cost accounting with foreign-denominated subsidiary financial statements translated at historical rates of exchange, compre-

Activities 1931-1939 : world crises and policies in Britain and America

Abstract: 1. The currency question 2. Cheap money, wise spending and the means to prosperity 3. The world economic conference 4. The New Deal 5. The lull surrounding The General Theory 6. Slump and rearmament 7. Towards war.

The Concomitants of Exchange-Rate Depreciation: Less Developed Countries, 1971-1973

Abstract: This study shows what happens when less developed countries (LDCs) revalue their currencies With these findings we aim to provide evidence toward improving their currency valuation policies A background presumption and justification for the inquiry is that disequilibrium exchange rates can be an important cause of serious injury to economic performance, against which the costs of shifting toward equilibrium rates can be measured But whether or not this presumption is valid, exchange-rate variation is a phenomenon with potential major effects, which should be known more accurately so that policy can be better guided Exchange-rate revaluation is taken to mean a substantial alteration in the average rate at which transactions are effected between domestic and foreign currencies This concept implies three problems: the exchange rate shift must be a certain size for it to be counted; one country has current and capital transactions with a number of other countries; and transactions may be carried out at both official and free (black market) rates Section I below addresses these problems

Systems of Taxation of Multinational Firms under Exchange Risk

Abstract: The great stride of multinational firms during the last two decades has raised several problems in the home countries of such firms, notably in the United States. It is argued that the most serious problems are those of substitution of foreign production for exports of goods from the home countries, the negative impacts on the balance of trade of the home countries, and the possible losses of home tax revenues. These problems led to reconsideration of the system of taxation of multinational firms. One of the popular systems of taxation of foreign source income of multinational firms is the system of foreign tax credit with deferral allowed. Deferral means that profits of foreign subsidiaries of multinational firms are not taxed by the home governments until they are repatriated to the home countries. Even if repatriated profits (in the case of foreign branches all their profits) are subject to home taxation, tax credits are given by the amounts of taxes paid to the foreign countries. The tax credit system is adopted in major countries such as Japan, Sweden, the United Kingdom, the United States, and West Germany. Another method of taxation is the deduction system, under which foreign taxes paid are deducted from foreign profits taxable by home countries. It is partially adopted, for example, in Belgium and Italy (Kopits [14, 634]). Studies of the system of taxation in the United States have recently been made by Horst [9], Hartman [7], and Bergsten, Horst and Moran [4]. However, previous studies including the above three studies do not take into account exchange risk which is inevitable to multinational firms operating in different currency areas. Another shortcoming of the above three studies is that they focus only on the international investment decisions by multinational firms, and do not take into account the practice of international trade of goods and transfer pricing, which are typical features of most U.S. based multinational firms. This paper analyzes the system of taxation from new aspects, i.e., by incorporating

Currency-dispensing method and apparatus

Abstract: Units of currency are assembled and packed on a transport medium which is secured within a housing and which is incrementally unpacked under security control to dispense the desired amount of currency. The units of currency are removably attached to the transport medium by isolated, discontinuous adhesive regions on the transport medium that attach the currency thereto in substantially coplanar array with the forward edge unattached to facilitate selective unpacking by non-coplanar manipulation of the transport medium that separates the forward edge of the currency from the transport medium.

Exchange rate variations and export competitiveness in less developed countries under generalized floating

Abstract: This paper identifies two basic sources of effective exhange rate (EER) changes under the present system of generalized currency floating and formulates some EER‐based measures of relative export competitiveness in developing countries. These measures are presented and analyzed in terms of their monthly movements and trends over the period from March 1973 to December 1979 for twenty‐three developing countries. Export profitability vis‐a‐vis import‐competing production is shown to have been affected by major currency realignments only to a moderate extent. Normal currency depreciation, both small and large, is found not to lead necessarily to a permanent improvement in export competitiveness. The relationship between the type of exchange rate management and ability of the national authorities to adopt monetary and fiscal policies supportive of real exchange rate adjustment is also empirically examined.

On the Adequacy of Policy Instruments and Information When the Meaning of Money Is Changing

Abstract: This paper explores how monetary policy should be condusted when the definition and measurement of money are time varying. It suggests that the recent debate about the desirability of controlling monetary aggregates or nominal interest rates is not helpful in a regime where financial innovations are occuring. The first section argues that money should be defined as immediately spendable (or collected) funds and provides empirical evidence that both currency and overnight repurchase agreement and Eurodollar borrowing are more closely related to personal income than different types of bank deposits. The second surveys the adequacy of policy instruments and information available to the Federal Reserve in recent years. The third considers how policy should be condusted in a system that experiences innovations. A filtering approach proposed by Kalchbrenner and Tinsley is recommended. The paper argues that greater and faster data collection are desirable and that even in the best circumstances greater uncertainty about the effects of monetary policy is very likely to obtain. It concludes by recommending that monetary authorities focus on real interest rates, that banks be induced to raise new capital through stock issues, and that Federal Reserve consider introducing real-time reserve accounting.

Monetary Stabilization and the Informational Value of Monetary Aggregates

Abstract: A simple stochastic model is developed which demonstrates that information on the nominal value of money conveys sufficient information about the disturbance to currency and deposit demand so that monetary prices, such as adjusting the level of bank reserves, have no impact on the dispersion of price level forecast errors. However, if information on monetary aggregates is obtained only with a lag, then reserve requirements can reduce the disturbances to the demand for high-powered money and hence prices. Such a reserve ratio depends critically on the variance-covariance matrix of shocks to the monetary demands.

“Automatic” Output Stability and the Exchange Arrangement: A Multi-Country Analysis

Abstract: The dependence of national output variances on the structural and stochastic features of world markets and on the global exchange arrangement is depicted in a multi-country model of income and exchange rate determination. The set of Pareto optimal exchange arrangements is displayed. Examples are presented to illustrate the empirical determinants of an optimal arrangement, the situations under which currency blocs are Pareto optimal, and the distributional conflicts which often arise in an asymmetric world.

National accounting with limited data: lessons from nepal

Abstract: The Kingdom of Nepal is one of the least developed and least known countries. In order to understand the sometimes non-conventional estimating procedure used, a background section is included, describing the physical, socio-economic and institutional framework. In the second part of the paper some illustrative examples of the approaches used are given, the full description being published in four volumes, National Accounts of Nepal, National Planning Commission, Kathmandu. The last part of the paper considers the usefulness of national accounts based upon the market economy, and in general, the problem of applicability of international concepts to a developing country. What is the significance of international concepts to a developing country? What is the significance of national value aggregates in a country in which the unit of national currency does not serve as a nation-wide standard of value? Can a common denominator be found if the scale of values and the whole outlook of different groups are so different? What do people value, and does the rural population in localized economies put a monetary price on the value? Has the concept of labour force or employment, as used in industrial societies, any meaning in a society where all those capable, including small children, of contributing to daily survival do so? The conceptual problems have not yet been solved. National accounts are a useful first step in providing planners with symbols for telling a complex story in simple terms and as a kind of statistical reconnaissance, but as development planning is moving more and more in the direction of planning from below and into regional and rural development projects, household surveys are becoming essential planning and evaluation tools. Based upon twenty-five years of field experience, the author reflects upon problems and possible solutions, discussing managerial, training, substantive and statistical aspects.

Can We Sterilize? Theory and Evidence

Abstract: This paper is a highly selective review of our knowledge about the scope for sterilized intervention in foreign exchange markets under alternative exchange-rate regimes. Section I demonstrates the potential importance of simultaneous-equations bias in single-equation econometric studies of the capital-account offset to monetary policy under fixed exchange rates. The empirical record suggests that, in the case of West Germany, sterilization was a feasible short-run monetary strategy in the 1960s. Section II notes that there is considerable recent evidence of imperfect asset substitutability under the managed float. While limited substitution between bonds of different currency denomination is a precondition for the efficacy of sterilized foreign-exchange intervention, it is no guarantee of efficacy. Whether limited substitutability can in fact be exploited in a predictable manner by central banks is a distinct, and unanswered, question.