Currency

About: Currency is a research topic. Over the lifetime, 26697 publications have been published within this topic receiving 485370 citations. The topic is also known as: monetary unit & unit of money.

Mundell-Fleming Lecture: Contractionary Currency Crashes in Developing Countries

Abstract: To update a famous old statistic: a political leader in a developing country is almost twice as likely to lose office in the six months following a currency crash as otherwise. This difference, which is highly significant statistically, holds regardless of whether the devaluation takes place in the context of an IMF program. Why are devaluations so costly? Many of the currency crises of the last 10 years have been associated with output loss. Is this, as alleged, because of excessive reliance on raising the interest rate as a policy response? More likely it is because of contractionary effects of devaluation. There are various possible contractionary effects of devaluation, but it is appropriate that the balance sheet effect receives the most emphasis. Pass-through from exchange rate changes to import prices in developing countries is not the problem: this coefficient fell in the 1990s, as a look at some narrowly defined products shows. Rather balance sheets are the problem. How can countries mitigate the fall in output resulting from the balance sheet effect in crises? In the shorter term, adjusting promptly after inflows cease is better than procrastinating by shifting to short-term dollar debt, which raises the costliness of the devaluation when it finally comes. In the longer term, greater openness to trade reduces vulnerability to both sudden stops and currency crashes.

Currency Competition and Foreign Exchange Markets: The Dollar, the Yen and the Euro

Abstract: List of figures List of tables Preface and acknowledgements 1. Introduction 2. National and international money: a survey 3. A theory of vehicle currencies 4. Currency competition between the euro, the dollar and the yen 5. Trading volumes and transaction costs: from the short run to the long run 6. General conclusions Bibliography Index.

Banking Crises and Crisis Dating: Theory and Evidence*

Abstract: Many empirical studies of banking crises have employed “banking crisis” (BC) indicators that supposedly date the beginnings and ends of crises. We argue that these BC indicators are constructed using primarily information on government actions undertaken in response to bank distress. We formulate a simple theoretical model of a banking industry which models: the arrival of a systemic bank shock; its turning into a crisis; and the government’s policy response. Then we use implications of the theory to construct empirical indicators of systemic bank shocks. We show empirically that our theory based indicators of systemic bank shocks consistently predict BC indicators, employing widely-used BC series that have appeared in the literature. The implication is that BC indicators actually measure lagged government responses to crises, rather than the occurrence of crises per se. We next reexamine the impact of some key economic factors affecting both the probability of a systemic bank shock and the probability of a government response. These include the bank market structure (competition), the presence of deposit insurance, other external shocks, and currency crises. Disentangling the separate effects of systemic bank shocks and government responses turns out to be crucial in understanding the roots of banking fragility. Key macroeconomic, structural, and institutional features of economies have effects on the likelihood of a government response that are totally different from their effects on the likelihood of a banking crisis. Many findings of a large empirical literature need to be reassessed and/or re-interpreted.

Real Exchange Rate Volatility and International Trade: A Reexamination of the Theory*

Abstract: One of the issues that have received considerable attention in the comparison of the properties of alternative exchange rate regimes is the effect of exchange rate risk on the volume of trade. It has been argued that the higher volatility of exchange rates witnessed since the adoption of the floating regime in 1973 has led to a decrease in international trade transactions. This is because most trade contracts are not for immediate delivery of goods; and since they are denominated in terms of the currency of either the importer or the exporter, unanticipated fluctuations in the exchange rate affect realized profits and hence the volume of trade. It is implicitly assumed that forward exchange markets that can help traders eliminate this type of variations in profits either are not available (as it is true for the majority of currencies because most are not fully convertible, thereby impairing forward markets) or for some reason they are not utilized to fully hedge exchange risk present in trade transactions.' The empirical evidence, regarding the effect of exchange rate risk on trade, has at best been inconclusive. The large majority of the empirical studies are unable to establish a systematically significant link between exchange rate variability and the volume of international trade whether on an aggregate or on a bilateral basis. Abrams [1], Akhtar and Hilton [2], Cushman [4; 5; 6] and Kenan and Rodrik [12] find some significant negative effects of exchange volatility on exports. However, Bailey, Tavlas, and Uhlan [3], Hooper and Kohlhagen [10] and an International Monetary Fund Study [11] do not find any supporting evidence for the depressing effect of exchange rate volatility on international trade. It is also interesting to note that, in many of these studies, a significant positive effect of exchange rate volatility on the volume of trade is found for some cases. However, the positive effect, believed to be at odds with the theory was either ignored or dismissed as a perverse result, since "as far as volumes are concerned, theoretical considerations