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.

Crises now and then: what lessons from the last era of financial globalization?

Abstract: We consider the operation of international capital markets in two periods of globalization, before 1914 and after 1971, with a focus on the crisis problem. We explore the idea that the incidence of crises in these two periods reflects how capital flows were embedded in the larger economic system. Other authors have made similar connections, suggesting that the international monetary framework was responsible for the relatively short-lived and mild nature of pre-World War I financial crises. However, we show that currency crises in fact were of longer duration before 1914. Only for banking and twin crises is there evidence that recovery was faster then than now. This leads us to a somewhat different view of the role of the monetary regime in the propagation of financial crises. A key difference between then and now, we suggest, is that prior to 1914 banking crises were less prone to undermine confidence in the currency, and to thereby compound financial problems, in the countries that were at the core of the international monetary system.

The Demand for Money, Financial Innovation, and the Welfare Cost of Inflation: An Analysis with Household Data

Abstract: We use microeconomic data on households to estimate the parameters of the demand for currency derived from a generalized Baumol‐Tobin model. Our data set contains information on average currency, deposits, and other interest‐bearing assets; the number of trips to the bank; the size of withdrawals; and ownership and use of ATM cards. We model the demand for currency accounting for adoption of new transaction technologies and the decision to hold interest‐bearing assets. The interest rate and expenditure flow elasticities of the demand for currency are close to the theoretical values implied by standard inventory models. However, we find significant differences between individuals with an ATM card and those without. The estimates of the demand for currency allow us to calculate a measure of the welfare cost of inflation analogous to Bailey’s triangle, but based on a rigorous microeconometric framework. The welfare cost of inflation varies considerably within the population but never turns out to be very lar...

Currency Crises and Monetary Policy in an Economy with Credit Constraints

Abstract: This paper presents a simple model of currency crises which is driven by the interplay between the credit constraints of private domestic firms and the existence of nominal price rigidities. The possibility of multiple equilibria, including a 'currency crisis' equilibrium with low output and a depreciated domestic currency, results from the following mechanism: if nominal prices are 'sticky', a currency depreciation leads to an increase in the foreign currency debt repayment obligations of firms, and thus to a fall in their profits; this reduces firms' borrowing capacity and therefore investment and output in a credit-constrained economy, which in turn reduces the demand for the domestic currency and leads to a depreciation. We examine the impact of various shocks, including productivity, fiscal, or expectational shocks. We then analyze the optimal monetary policy to prevent or solve currency crises. We also argue that currency crises can occur both under fixed and flexible exchange rate regimes as the primary source of crises is the deteriorating balance sheet of private firms.

Currency and Interest-Rate Derivatives Use in US Firms

Abstract: This study examines derivatives use in samples of 451 Fortune 500/S&P 500 (FSP) firms and 461 randomly selected firms. We find that over 61% of the FSP firms and 36% of the random firms use derivatives. In both samples, swaps are the most often used interest-rate contract, and forwards and futures the most often used currency contract. The determinants of derivatives use differ across samples and definitions of derivatives use, and are largely consistent with theory. One exception is that the random firms' derivatives use and the theoretical determinants are not strongly related.