Topic
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.
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TL;DR: In this article, the authors show that central bank independence can reduce inflation without major employment effects where bargaining is coordinated, but it can bring higher levels of unemployment when bargaining is less coordinated.
Abstract: Plans for the European Monetary Union (EMU) are based on the conventional postulate that increasing the independence of the central bank can reduce inflation without any real economic effects. However, the theoretical and empirical bases for this claim rest on models of the economy that make unrealistic information assumptions and omit institutional variables other than the central bank. When signaling problems between the central bank and other actors in the political economy are considered, we find that the character of wage bargaining conditions the impact of central bank independence by rendering the signals between the bank and the bargainers more or less effective. Greater central bank independence can reduce inflation without major employment effects where bargaining is coordinated, but it can bring higher levels of unemployment where bargaining is less coordinated. Thus, currency unions like the EMU may require higher levels of unemployment to control inflation than their proponents envisage. They will have costs as well as benefits, and these will be unevenly distributed among and within the member nations, depending on the changes they induce in the status of the bank and of wage coordination.
531 citations
TL;DR: In this paper, the authors evaluate the KLR approach to forecasting currency crises and develop and test an alternative, which is based on a more general probit-based model of predicting currency crises, and test several basic assumptions underlying the indicators approach.
528 citations
TL;DR: The authors argue that the negative skewness is due to sudden unwinding of carry trades, which tend to occur in periods in which risk appetite and funding liquidity decrease, and controlling for liquidity helps explain the uncovered interest-rate puzzle.
Abstract: This paper documents that carry traders are subject to crash risk: i.e. exchange rate movements between high-interest-rate and low-interest-rate currencies are negatively skewed. We argue that this negative skewness is due to sudden unwinding of carry trades, which tend to occur in periods in which risk appetite and funding liquidity decrease. Funding liquidity measures predict exchange rate movements, and controlling for liquidity helps explain the uncovered interest-rate puzzle. Carry-trade losses reduce future crash risk, but increase the price of crash risk. We also document excess co-movement among currencies with similar interest rate. Our flndings are consistent with a model in which carry traders are subject to funding liquidity constraints.
520 citations
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01 Jan 1993
TL;DR: The transition to European monetary union (EMU) appeared to be fully underway in 1992 as discussed by the authors and the European monetary system (EMS) celebrated five years of exchange rate stability: sixty full months without a realignment.
Abstract: FROM THE STANDPOINT OF EUROPEAN MONETARY AFFAIRS, 1992 opened with a bang and closed with a whimper. In January, the European monetary system (EMS) celebrated five years of exchange rate stability: sixty full months without a realignment. The month before, the representatives of European Community (EC) member-states initialed the Treaty on Economic and Monetary Union concluded at Maastricht in the Netherlands. The transition to European monetary union (EMU) appeared to be fully underway. By the end of the year, the European monetary system had enduredindeed, was continuing to experience-the most severe crisis in its fourteen-year history. Two of ten currencies, the Italian lira and the British
516 citations
TL;DR: The root of Mexico's balance-of-payments crisis is found in the prevailing high degree of capital mobility and financial globalization as discussed by the authors, which may produce large imbalances between stocks of financial assets and foreign reserves, threatening the sustainability of currency pegs.
515 citations