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.

Fixed vs. Floating Exchange Rates: How Price Setting Affects the Optimal Choice of Exchange-Rate Regime

Abstract: We investigate the welfare properties of fixed and floating exchange rate regimes in a two-country, dynamic, infinite-horizon model with agents optimizing in an environment of uncertainty created by monetary shocks. The optimal exchange rate regime may depend on whether prices are set in the currency of producers or the currency of consumers. When prices are set in consumers' currency, the variance of home consumption is not influenced by foreign monetary variance under floating exchange rates, while there is transmission of foreign disturbances under floating rates if prices are set in producers' currencies, or under fixed exchange rates. An important feature of the model is the exchange rate regime affects not just the variance of consumption and output, but also their average levels. When prices are set in producer's currency, as in the traditional framework, we find that there is a trade-off between floating and fixed exchange rates. Exchange rate adjustment under floating rates allows for a lower variance of consumption, but exchange rate volatility itself leads to a lower average level of consumption. When prices are set in consumer's currency, floating exchange rates always dominate fixed exchange rates.

The international effects of monetary and fiscal policy in a two-country model

Abstract: This paper develops a two-country dynamic general equilibrium model with slowly adjusting prices to re-examine the well known analysis by Mundell (1968 Chapter 18) on the international transmission effects of monetary and fiscal policy. We show that the critical factor governing the effects of monetary policy is the currency of export price invoicing, while the critical factor for the effects of fiscal policy is the structure of international assets markets. By contrast, the currency of invoicing is essentially irrelevant for the effects of fiscal policy, while the structure of international assets markets is quantitatively unimportant for the international effects of monetary policy. We present VAR evidence of a positive output comovement and real exchange rate depreciation between the US and the other G7 economies in response to US monetary shocks. This is shown to accord well with the model where export prices are invoiced in foreign currency. Section

Measuring Real Economic Effects of Bailouts: Historical Perspectives on How Countries in Financial Distress Have Fared with and Without Bailouts

Abstract: In this paper we first trace the changing nature of banking, currency and debt crises from the last century to the present. Each type of crisis has transmogrified in the presence of official intervention and the creation of a safety net. A similar pattern is observed for international rescue loans. We then present evidence suggesting that the incidence has increased and the severity of financial crises has changed little in emerging markets from the pre-1914 era to the present. Finally we assess the impact of IMF loans on the macro performance of the recipients. A simple with-without comparison of countries receiving IMF assistance during crises in the period 1973-98 with countries in the same region not receiving assistance suggests that the real performance of the former group was possibly worse than the latter. Similar results obtain adjusting for self-selection bias and counterfactual policies.

An Estimate of the Effects of Currency Unions on Trade and Growth

Abstract: Gravity-based cross-sectional evidence indicates that currency unions stimulate trade as much or more than do free trade areas. Thus currencies are a source of the puzzling home-country bias in trade. This paper extends such findings to estimate the ultimate benefits of currency unions, via trade, in terms of income per capita. We use a large data set of economic and geographic variables for over 200 countries and dependencies to quantify the implications of currency unions for trade and growth, pursuing a two-stage approach. Our estimates at the first stage suggest that a currency union more than triples trade with the partners in question. Moreover, there is no evidence of trade-diversion. Our estimates at the second stage suggest that every one percent increase in trade (relative to GDP) raises income per capita by roughly 1/3 of a percent over a 20-year period. We combine the two estimates to derive a prediction for the effects of currency union on growth. Our results support the hypothesis that the beneficial effects of currency unions on economic performance come specifically through the promotion of trade or other interactions with major trading partners, rather than, as commonly thought, through a commitment to non-inflationary monetary policy, or other macroeconomic influences.