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.

Zooming Out: The Trade Effect of the Euro in Historical Perspective

Abstract: In 1999, eleven European countries formed the Economic and Monetary Union (EMU); they abandoned their national currencies and adopted a new common currency, the euro Several recent papers argue that the introduction of the euro has led (by itself) to a sizable and statistically significant increase in trade between the member countries of EMU In this paper, we put the trade effect of the euro in historical perspective We argue that the creation of the EMU was a continuation (or culmination) of a series of previous policy changes that have led over the last five decades to greater economic integration among the countries that now constitute EMU Using a data set that includes 22 industrial countries from 1948 to 2003, we find strong evidence of a gradual increase in trade intensity between European countries Once we control for this trend in trade integration, the euro's impact on trade disappears Moreover, a significant part of the trend in European trade integration is explained by measurable policy changes

Financial Markets and Economic Growth

Abstract: The current economic problems in Southeast Asia can be attributed not to too much reliance on financial markets, but to too little. Like the U.S. economy a century ago, the emerging Asian economies do not have welldeveloped capital markets and so remain heavily dependent on their banking systems to finance growth. For all its benefits, banking is “not only basically 19th-century technology, but disaster-prone technology.” The extreme maturity (and, in some cases, currency) mismatch on banks' balance sheets plus the first-come, first-served nature of the deposit obligations mean that banks are inherently vulnerable to massive runs by depositors—and that their economies are subjected to periodic credit crunches. And, as the author says, “in the summer of 1997 a banking-driven disaster struck in East Asia, just as it had struck so many times before in U.S. history.” In this century, In this century, the U.S. economy has steadily reduced its dependence on banks by developing “dispersed and decentralized” financial markets. In so doing, it has increased the efficiency of the U.S. capital allocation process and reduced its susceptibility to the credit crunches that have occurred throughout U.S. history. By contrast, Japan has not reduced its economy's dependence on banks, and its efforts to deal with its banking problems have served only to destabilize itself as well as its neighbors. Developing countries in Southeast Asia and elsewhere are urged not to follow the Japanese example, but to take measures aimed at developing financial markets and institutions that will either substitute for or complement bank products and services.

Policy issues in the operation of currency unions: Is Europe an optimum currency area?: evidence from regional data

Abstract: In this paper we contrast regional and national data on real exchange rate movements, the growth rates of output and employment, labour mobility and unemployment. We find that asymmetric shocks tend to be more prevalent at the regional than at the national level in Europe. The presumption of the optimum currency area literature holds relatively well, i.e. the adjustment mechanism at the national level involves very little mobility of labour and substantially more real exchange rate variability. At the regional level the opposite holds, although we find some role for real exchange rate adjustments. Finally, we identify two models of regional integration, a `Northern' and a `Southern' one. Implications for monetary union in Europe are drawn.

Fewer Monies, Better Monies

Abstract: In the aftermath of emerging market crises from Russia to Asia and Latin America, there is a quest for better monetary arrangements that are more crisis-proof. Fixed rates are out, flexible rates are in with a policy focus on inflation targeting. But there is, of course, the alternative of abolishing exchange rates all together. This paper revisits the issue of dollarization or currency boards to review what arguments in the debate stand up. The case for flexible exchange rates emphasizes the need for a tool to accomplish relative price adjustment. This paper argues that in an intertemporal perspective most shocks require financing in the capital market rather than adjustment. Moreover, countries frequently do not use their flexible rate to play a cyclical role and, as a result, only a pay a premium for the option to depreciate but do not take advantage of the flexibility; on the contrary, they engineer systematic overvaluation in the context of inflation targeting.