Showing papers on "Currency published in 1984"
TL;DR: In this article, the authors present a model in which value-maximizing firms pursue active hedging policies for foreign currency exposure through forward contracts on foreign currencies and derive an optimal hedging policy for risk-averse agents.
Abstract: This paper makes contributions in two directions First, the paper presents a model in which value-maximizing firms pursue active hedging policies Second, the paper derives optimal hedging policies for risk-averse agents Whereas the methodology used and the results provided are quite general, this paper deliberately focuses the analysis on hedging foreign exchange exposure through forward contracts on foreign currencies This emphasis is explained by the fact that hedging foreign currency exposure through forward contracts has been a topic of considerable interest in recent years
985 citations
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TL;DR: The authors argued that currency depreciation in the 1930s was beneficial for the initiating countries and pointed out that there can in fact be no presumption that currency depreciation was a beggar-thy-neighbor policy and that similar policies, had they been even more widely adopted, would have hastened recovery from the Great Depression.
Abstract: Currency depreciation in the 1930s is almost universally dismissed or condemned. It is credited with providing little if any stimulus for economic recovery in the depreciating countries and blamed for transmitting harmful beggar-thy-neighbor impulses to the rest of the world econonv. In this paper we argue for a radically different interpretation of exchange-rate policy in the 1930s . We document first that currency depreciation was beneficial for the initiating countries. It worked through both the standard supply- and demand-side channels suggested by modern variants of the Keynesian model. We show next that there can in fact be no presumption that currency depreciation inthe 1930s was beggar-thy-neighbor policy. Rather, an empirical analysis of the historical record is needed to determine whether the impact on other countries was favorable or unfavorable. We conclude provisionally on the basis of this analysis that the foreign repercussions of individual devaluations were in fact negative -that the depreciations considered were beggar-thy-neighbor. As we point out, however, this finding does not support the conclusion that competitive devaluations taken by a group of countries were without benefit for the system as a whole. We argue to the contrary that similar policies, had they been even more widely adopted, would have hastened recovery from the Great Depression.
322 citations
TL;DR: The clearing house currency was an inconvertible paper money issued without the sanction of law, yet necessitated by conditions for which our banking laws did not provide as discussed by the authors, and it worked effectively and doubtlessly prevented multitudes of bankruptcies which otherwise would have occurred.
Abstract: "MOST OF THIS [clearinghouse] currency was illegal, but no one thought of prosecuting or interfering with its issuers.... As practically all of it bore the words 'payable only through the clearing house,' its holders could not demand payment for it in cash. In plain language, it was an inconvertible paper money issued without the sanction of law, . . . yet necessitated by conditions for which our banking laws did not provide.... When banks were being run upon and legal money had disappeared in hoards, in default of any legal means of relief it worked effectively and doubtlessly prevented multitudes of bankruptcies which otherwise would have occurred" (Andrew 1908b, p. 516).
223 citations
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01 Jan 1984
TL;DR: In this article, the authors explore how free banking could work in practice by examining how this has worked historically, specifically in the United Kingdom in the early 19th century, and explore the history of Scotlands experience of free banking and the contemporary policy debate over the question of whether Parliament should allow free banking in England.
Abstract: Free banking, generically speaking, denotes a monetary system without a central bank, under which the issuing of currency is left to private banks. This book explores how this could work in practice by examining how this has worked historically, specifically in the United Kingdom in the early 19th century. After building a theory of free banking, its central chapters explore the history of Scotlands experience of free banking and the contemporary policy debate over the question of whether Parliament should allow free banking in England. The final chapters bring the debate forward and examine how free banking could work in modern times. The result is a significantly revised and update edition of a book about privately issued currency.
176 citations
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TL;DR: The authors investigated the sources of debt and debt difficulties for a group of Latin American countries and argued that external shocks such as oil, interest rates, world recession and the fall in real commodity prices cannot account by themselves for the problems.
Abstract: The paper investigates the sources of debt and debt difficulties for a group of Latin American countries. It is argued that external shocks -- oil, interest rates, world recession and the fall in real commodity prices -- cannot account by themselves for the problems. Budget deficits that accommodate terms of trade deterioration and disequilibrium exchange rates are central to a complete explanation. The paper documents that in Chile an extreme currency overvaluation led to a massive shift into imported consumer durables while in Argentina overvaluation in conjunction with financial instability led to large-scale capital flight. In the case of Brazil the budget deficit is the explanation for the growth in external indebtedness.The difference in the experience of the three countries reflects the difference in their openness to the world economy.
156 citations
TL;DR: In this paper, the authors examined the effect of marginal tax rates on the demand for currency in Norway and Sweden and showed that the uncertainty involved in applying the currency approach to measure the size of the hidden economy is so great as to make it hazardous to rely on such estimates.
Abstract: Variables associated with the level of hidden economic activity are examined in terms of their effects on the demand for currency in Norway and Sweden. Aggregate time series of marginal tax rates are compiled for this purpose. No such effects are evident for Norway, while in the case of Sweden the demand for currency was found to be significantly related to marginal tax rates. These estimates are then used as a basis for deriving an estimate of the size of the hidden economy in Sweden. An analysis of the assumptions underlying this procedure shows that the uncertainty involved in applying the currency approach to measuring the size of the hidden economy is so great as to make it hazardous to rely on such estimates.
153 citations
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TL;DR: Income comparisons between persons or groups of persons in different countries are a special field of inquiry mainly because there are different currency units as mentioned in this paper, and some writers hold that international comparisons are complicated or even invalidated by differences in consumption patterns, variations that are often much larger between countries than those found between regions within a country or between different periods in the same country.
Abstract: Income comparisons between persons or groups of persons in different countries are a special field of inquiry mainly because there are different currency units. For the most part, the other theoretical and empirical problems encountered in international income comparisons are similar to those of within-nation comparisons between different persons at the same time or different groups of persons either interspatially or, what is more common, intertemporally (e.g., constant price series of national income). The qualifications "mainly" and "for the most part" are included because some writers hold that international comparisons are complicated or even invalidated by differences in consumption patterns. Sometimes differences in tastes are held to underlie these variations in consumption patterns, variations that are often much larger between countries than those found between regions within a country or between different periods in the same country. This essay focuses, in its methodological aspects, on these special problems. The basic problems that are common to international and within-nation comparisons are left to the standard literature on national accounts.2 We turn now to the currency unit problems and reserve the question of tastes for a later section.
119 citations
TL;DR: In this article, the authors link the timing of the initial speculative attack to the magnitude of the expected devaluation and to the length of the transitional period off loating, and the implication of the analysis is that there exist devaluations so sharp and transition periods so short that acrisis must occur the moment the market first learns that the current exchange parity will eventually be altered.
Abstract: The collapse of a fixed exchange rate is typically marked by a sudden balance-of-payments crisis in which"speculators" fleeing from the domestic currency acquire a large portion of the central bank's foreign exchange holdings.Faced with such an attack, the central bank often withdraws temporarily from the foreign exchange market, allowing the exchange rate to float freely before devaluing and returning to a fixed-rate regime. This paper links the timing of the initial speculative attack to the magnitude of the expected devaluation and to the length of the transitional period off loating. An implication of the analysis is that there exist devaluations so sharp and transition periods so short that acrisis must occur the moment the market first learns that the current exchange parity will eventually be altered. For sufficiently long transition periods, the floating exchange rate"overshoots" its new peg before appreciating back toward it;for shorter periods, the rate depreciates monotonically to its new fixed level. Accordingly, the central bank's return tothe foreign exchange market can occasion a capital outflow or a capital inflow.
118 citations
TL;DR: A fixed exchange rate is a specific case of an active crawling peg where the pre-announced rate of change in the exchange rate was zero as discussed by the authors, which is the case in many countries in Latin America.
Abstract: As OF FEBRUARY 28, 1983, ninety-four countries are classified as having a fixed exchange rate regime: 38 are pegged to the U.S. dollar, 13 to the French franc, 14 to the Special Drawing Right, and 24 to different baskets of currencies. The choice of a fixed exchange rate peg implies a specific monetary discipline, namely monetary growth equal to the growth rate of the currency (or currencies) to which a country is pegged. Monetary policy is thus subject to an exchange rate rule rather than to either a monetary growth rule or alternatively to discretionary policy. A fixed exchange rate is a specific case of an active crawling peg where the preannounced rate of change in the exchange rate is zero. Active crawling peg rules whereby the exchange rate is adjusted downward by a preannounced amount over a specified period of time have been practiced in various places, particularly in Latin America. Recent experiments include Argentina beginning December 1978, Brazil during the 1980 calendar year, Chile from February 1978 to June 1979, Jamaica from May 1978 to May 1979, Portugal from August 1977 to June 1979, and Uruguay beginning October 1978.1 At times, the prean-
112 citations
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TL;DR: This paper investigated the sources of debt and debt difficulties for a group of Latin American countries and argued that external shocks such as oil, interest rates, world recession and the fall in real commodity prices cannot account by themselves for the problems.
Abstract: The paper investigates the sources of debt and debt difficulties for a group of Latin American countries. It is argued that external shocks -- oil, interest rates, world recession and the fall in real commodity prices -- cannot account by themselves for the problems. Budget deficits that accommodate terms of trade deterioration and disequilibrium exchange rates are central to a complete explanation. The paper documents that in Chile an extreme currency overvaluation led to a massive shift into imported consumer durables while in Argentina overvaluation in conjunction with financial instability led to large-scale capital flight. In the case of Brazil the budget deficit is the explanation for the growth in external indebtedness.The difference in the experience of the three countries reflects the difference in their openness to the world economy.
111 citations
TL;DR: In this paper, the authors investigated how purchasing power risks affect the determination of exchange rates in a fairly general optimizing model and used techniques developed in the finance literature which build on Merton's (1973) asset-pricing model.
Abstract: MOST RECENT RESEARCH on the theory of exchange rate determination treats the exchange rate as the relative price of two assets: domestic money and foreign money. The value of an asset depends on the distribution of its return. However, most of the research has dealt with models in which there is no uncertainty. The present paper focuses on questions that cannot be addressed in a world of certainty, because in such a world an asset is never risky. It investigates how purchasing power risks affect the determination of exchange rates. This investigation is pursued in a fairly general optimizing model. The present research is related to some recent work in international economics and in financial economics. It follows the approach of Obstfeld (1981) and Stockman (1980) in that it uses an optimizing model and takes into account the role of government transfers in the flow budget constraint of individuals. As in Calvo and Rodriguez (1977), Stockman (1980), and others, the fact that holdings of foreign monies are useful to domestic individuals is taken into account. Finally, the paper uses techniques developed in papers in the finance literature which build on Merton's (1973) asset-pricing model and use a concept of equilibrium developed in
TL;DR: In this article, monetary policy is analyzed within a model that appeals to legal restrictions on private intermediation to explain the coexistence of currency and interest-bearing default-free bonds.
Abstract: Monetary policy is analysed within a model that appeals to legal restrictions on private intermediation to explain the coexistence of currency and interest-bearing default-free bonds. The interaction between such legal restrictions and monetary policy is illustrated in a version of the overlapping generations model. The model shows that legal restrictions and the use of both currency and bonds permit the government to levy a nonlinear inflation tax and that such a tax may be better in terms of the Pareto criterion than a linear inflation tax.
TL;DR: This article developed a model of the black market for foreign exchange in which black market currency is demanded and supplied by firms engaged in smuggling and demonstrated that quotas or foreign exchange rationing are not necessary to induce the coexistence of legal and black foreign exchange markets.
TL;DR: In this article, the authors argue that the demand for national currencies depends on existing payment arrangements for imports and exports, and that exchange rate movements depend on these arrangement, as well as various macroeconomic aggregates, like saving and investment.
TL;DR: This article pointed out that foreign assistance was equal to nearly two-thirds of gross domestic investment in the low-income economies of Sub-Saharan Africa in 1984 and 13% of the gross domestic investments for the region as a whole (World Bank 1984, 1986); the opinions of donors matter in Africa.
Abstract: We respond to the comment by Schiff on our 1984 invited paper along three lines. First, we clarify points that appear to have been misunderstood. Second, we emphasize our disagreement with several aspects of Schiff's position that find particular currency within a small, but not negligible, portion of the donor community. Foreign assistance was equal to nearly two-thirds of gross domestic investment in the low income economies of Sub-Saharan Africa in 1984 and 13% of gross domestic investment for the region as a whole (World Bank 1984, 1986); the opinions of donors matter in Africa. Third, we use the opportunity to refocus the debate on the real issue of steps to improve agricultural investment in Africa. We feel that a critical mass of national and donor agency policy makers have made this transition but that we as an academic community have done relatively little in recent years to assist them.
TL;DR: In this article, the generalizations which constitute province-building are examined and most are found not to be adequately supported by the evidence now available, and some lines of research are indicated and it is suggested that this emotive and misleading concept be abandoned.
Abstract: In the discourse of Canadian political science, the term “province-building” has gained wide currency. Although not often defined explicitly, it denotes the recent evolution of more powerful and competent provincial administrations which aim to manage socioeconomic change in their territories and which are in essential conflict with the central government. In this analysis, the generalizations which constitute province-building are examined and most are found not to be adequately supported by the evidence now available. Some lines of research are indicated and it is suggested that this emotive and misleading concept be abandoned.
TL;DR: In this article, the authors show how the standard closed-economy macroeconomic model, the Phillips curve augmented IS-LM analysis, has to be modified for the United States to take account of the economy's international interactions.
Abstract: The exchange rate has by 1984 become as central to United States economic policy discussions as it has long been in the rest of the world. In this paper we show how the standard closed-economy macroeconomic model -- the Phillips curve augmented IS-LM analysis -- has to be modified for the United States to take account of the economy's international interactions. The only key structural equation that goes unamended is the money demand equation. Foreign prices,foreign activity, and foreign asset yields in the goods and asset markets appearas important determinants of domestic activity, prices, and interest rates. We show that international interactions exert an important effect on the manner in which monetary and fiscal policies operate. The Phillips curve is much steeper under flexible than fixed interest rates. A tight money policy leads to appreciation under flexible rates, and thus to more rapid disinflation. Fiscal expansion, because it induces currency appreciation, is less inflationary under flexible than fixed exchange rates, but it also involves more crowding out. We show that these effects are in practice significantly large for the United States economy.
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TL;DR: This paper argued that currency depreciation in the 1930s was beneficial for the initiating countries and pointed out that there can in fact be no presumption that currency depreciation was a beggar-thy-neighbor policy and that similar policies, had they been even more widely adopted, would have hastened recovery from the Great Depression.
Abstract: Currency depreciation in the 1930s is almost universally dismissed or condemned. It is credited with providing little if any stimulus for economic recovery in the depreciating countries and blamed for transmitting harmful beggar-thy-neighbor impulses to the rest of the world econonv. In this paper we argue for a radically different interpretation of exchange-rate policy in the 1930s . We document first that currency depreciation was beneficial for the initiating countries. It worked through both the standard supply- and demand-side channels suggested by modern variants of the Keynesian model. We show next that there can in fact be no presumption that currency depreciation inthe 1930s was beggar-thy-neighbor policy. Rather, an empirical analysis of the historical record is needed to determine whether the impact on other countries was favorable or unfavorable. We conclude provisionally on the basis of this analysis that the foreign repercussions of individual devaluations were in fact negative -that the depreciations considered were beggar-thy-neighbor. As we point out, however, this finding does not support the conclusion that competitive devaluations taken by a group of countries were without benefit for the system as a whole. We argue to the contrary that similar policies, had they been even more widely adopted, would have hastened recovery from the Great Depression.
TL;DR: In this article, a model of firm pricing where customers adjust slowly to price differences is extended to an exporting firm under flexible exchange rates, where the foreign currency price the firm sets determines both current net revenue and the rate of investment in market share.
TL;DR: In this article, the authors show the distorting effects of different tax regulations on the effective absolute and relative costs of long-term borrowing in different currencies. In particular, if expected borrowing costs are equal before tax, then the process of minimizing expected after-tax borrowing costs generally involves borrowing the weakest currency.
Abstract: This paper shows the distorting effects of different tax regulations on the effective absolute and relative costs of long-term borrowing in different currencies. In particular, if expected borrowing costs are equal before tax, then the process of minimizing expected after-tax borrowing costs generally involves borrowing the weakest currency.
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TL;DR: This article argued that the overvaluation of the Paraguayan currency, combined with extensive smuggling, undermined incentives for investment in manufacturing and deprived the government of revenues needed to finance infrastructure for sustained economic growth and development.
TL;DR: The role of the International Monetary Fund is to maintain an environment that facilitates the accumulation of capital on a world scale as mentioned in this paper, which requires the complete international mobility of capital and commodities, and therefore, implicitly contain a specific strategy of economic development that takes effect during, and continues after, the adjustment period.
Abstract: All programs of balance of payments adjustment involve the manipulation of macroeconomic variables and, therefore, implicitly contain a specific strategy of economic development that takes effect during, and continues after, the adjustment period. The International Monetary Fund's strategy of balance of payments adjustment and economic development is derived from its role in the capitalist world economy. The role of the IMF is to maintain an environment that facilitates the accumulation of capital on a world scale. This requires the complete international mobility of capital and commodities. The IMF, using the leverage of "lender of last resort" in the world capitalist economy, ensures that a country with a balance of payments disequilibrium does not institute measures that constitute national barriers to international mobility of capital and commodities. Such measures include inconvertibility of currency, exchange controls, deferred debt payments, and tariffs and quota restrictions. The problem is that what is good for the accumulation of captial at a world level often impedes development in the underdeveloped countries. The world environment fostered by the IMF is one in which there is open competition between countries at different levels of development. The result is that developed countries and the transnational corporations based there get the better of developing countries and their national firms. Developing countries, in many instances, opt for development stategies that reduce their exposure to and integration with the world capitalist system by implementing measures to reduce the openness of their economies. An expanding role for
01 Dec 1984
TL;DR: Tanzi as discussed by the authors provides a time series of annual estimates of the underground economy in the United States for the period 1930-80, based on a currency-demand-equation approach.
Abstract: IN HIS PAPER, Tanzi1 offers a time series of annual estimates of the "underground economy" in the United States for the period 1930-80. These estimates are based on a currency-demandequation approach, which Tanzi developed in an earlier paper.2 The technique, which draws inspiration from a classic paper by Cagan,3 has gained wide currency among scholars engaged in estimating the scale of the underground economy (variously called the black economy, the parallel economy, the unaccounted economy, the unreported economy, and so forth) in the United States and abroad.
TL;DR: In this article, Foreign Currency Translation Gains and Losses: What Effect Do They Have and What Do They Mean? Financial Analysts Journal: Vol. 40, No. 2, pp. 28-36.
Abstract: (1984). Foreign Currency Translation Gains and Losses: What Effect Do They Have and What Do They Mean? Financial Analysts Journal: Vol. 40, No. 2, pp. 28-36.
TL;DR: In the early nineteenth century, Gresham's Law accurately predicted the coins that circulated in Canada, and it was concluded that the colonists suffered from a lack of quality rather than quantity of specie as mentioned in this paper.
Abstract: Colonial economies suffered from a scarcity of specie that traditionally has been attributed to a chronic external drain An analysis of the Canadian currency in the early nineteenth century suggests that the explanation for the specie scarcity lies in the multi-coin monetary standard imposed by the currency laws Gresham's Law accurately predicts the coins that circulated in Canada, and it is concluded that the colonists suffered from a lack of quality rather than quantity of specie
01 Jan 1984
TL;DR: White as mentioned in this paper discusses the history of currency competition and currency competition in monetary systems and discusses the need for a lender of last resort in the UK and the need to return to the gold standard.
Abstract: General introduction.- General introduction.- One: Currency Competition.- I. The theory of currency competition.- 1. The future unit of value.- 2. Currency competition: A sceptical view.- 3. Monetary integration and monetary stability: The economic criteria of the monetary constitution.- II. The history of currency competition.- 1. Private competitive note issue in monetary history.- 2. The Scottish banking system in the eighteenth and nineteenth century.- 3. The need for a lender of last resort.- 4. Further remarks on past experiences.- 5. The British monetary experience, 1797-1821.- III. The history of monetary thought on currency competition.- 1. Central bank monopoly in the history of economic thought: A century of myopia in England.- 2. Past justifications for public intervention.- Appendix to Chapter III. Free banking and currency competition: A bibliographical note.- IV. The current debate: The return to gold and the liberalization of banking.- 1. Backgrounder on the gold standard.- 2. Going for solid gold.- Appendix. Senate of the United States - Bill S.1704: To provide for the minting of U.S. gold coins.- Two: Monetary Union.- to Part Two. Which monetary integration?.- V. The European Monetary System.- 1. From the myth of the 'snake' to the myth of the 'E.C.U.'.- 2. Monetary Europe today: A cartel of central banks.- VI. Is the adjustable peg a viable option?.- 1. The adjustable peg: A viable option for the E.M.S.?.- 2. Monetary target or exchange-rate target?.- 3. The adjustable peg: An illusory compromise.- VII. Freely flexible exchange rates or a common currency?.- 1. Freely flexible exchange rates or a common currency? A new look at the issue.- 2. Political union and monetary union.- VIII. Exchange controls for ever?.- 1. Exchange controls for ever? The experience of the United Kingdom.- 2. Why do exchange controls exist?.- 3. A case for temporary exchange controls?.- IX. Towards a better European Monetary System.- Appendix to Bibliographical Note (Lawrence H. White).- The authors.- Index of names.
TL;DR: In this article, the authors analyzed the impact of corporate actions to counter the falling rate of profit on the distributional struggle in the 1970s and found that both the rates of unemployment and inflation were moderate in countries with a low level of distributive struggle, while countries with high level faced severe problems of unemployment.
Abstract: The intensity of the distributive struggle is an important determinant in explaining cross-national differences in unemployment and inflation during the economic crisis of the 1970s. Unemployment is analysed as a result of corporate actions to counter the falling rate of profit. In countries with a high level of distributive struggle, the reduction of the labour force has been the main method of coping with problems of profitability. In countries with a low level of distributive struggle, other methods have also been used. Production costs have been stabilized by means of moderate incomes policy and by revaluing the currency. As a result of these policy differences, both the rates of unemployment and inflation were moderate in countries with a low level of distributive struggle, while countries with a high level faced severe problems of unemployment and inflation.
TL;DR: The Lisbon merchants bought advantageously into a limited Angolan ivory market when they could, but they took most of their gains in currency and in notes generated from sales of high-priced goods abroad as discussed by the authors.
Abstract: tury,but not, paradoxically, because the metropolitan financiers of the slaving often took direct ownership of the slaves. The backers of the trade in Europe worked through complex commercial and financial techniques that reserved its most lucrative and secure aspects to themselves, while assigning the high risks of holding captive humans to provincial traders resident in Africa and Brazil. Lisbon merchants bought advantageously into a limited Angolan ivory market when they could, but they took most of their gains in currency and in notes generated from sales of high-priced goods abroad. They saw themselves as earning returns in Angola and America and then sought to minimize the costs of remitting funds back to Europe by investing in more ivory, various credit instruments, and Brazilian sugars and other colonial produce. Slaves, subject to high risks attendant on uncertain prices for labor sold in Brazil and vulnerable to catastrophic rates of mortality at sea, ranked at the bottom of the short list of available options. This specialization of function probably typified the Angola-Brazil slave trade from early in the 1650s at least until the end of Lisbon's role in the trade in the 1810s.
TL;DR: This article investigated the sources of debt and debt difficulties for a group of Latin American countries and argued that external shocks such as oil, interest rates, world recession and the fall in real commodity prices cannot account by themselves for the problems.
Abstract: The paper investigates the sources of debt and debt difficulties for a group of Latin American countries. It is argued that external shocks -- oil, interest rates, world recession and the fall in real commodity prices -- cannot account by themselves for the problems. Budget deficits that accommodate terms of trade deterioration and disequilibrium exchange rates are central to a complete explanation. The paper documents that in Chile an extreme currency overvaluation led to a massive shift into imported consumer durables while in Argentina overvaluation in conjunction with financial instability led to large-scale capital flight. In the case of Brazil the budget deficit is the explanation for the growth in external indebtedness.The difference in the experience of the three countries reflects the difference in their openness to the world economy.