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, a specific model of membership' contagion is presented, where the desire to be part of a political economic union, where maintaining a fixed exchange rate is a condition for membership and where the value of membership depends positively on who else is a member, is shown to give rise to potential contagion.
Abstract: Existing models of contagious currency crises are summarized and surveyed, and it is argued that more weight should be put on political factors. Towards this end, the concept of political contagion introduced, whereby contagion in speculative attacks across currencies arises solely because of political objectives of countries. A specific model of membership' contagion is presented. The desire to be part of a political-economic union, where maintaining a fixed exchange rate is a condition for membership and where the value of membership depends positively on who else is a member, is shown to give rise to potential contagion. We then present evidence suggesting that political contagion may have been important in the 1992-3 EMS crisis.
152 citations
TL;DR: In this paper, the authors used a simple Fisherian model of the "overborrowing syndrome" to compare the Asian crisis of 1997 with earlier overborrowing episodes in Mexico and Chile.
152 citations
TL;DR: In this article, a large number of Eastern and Central European countries in transition were experiencing large and growing current-account imbalances in the 1996 to 1997 period, including Croatia, the Czech Republic, the Slovak Republic, Poland, Estonia, Latvia, Lithuania, and Moldova.
Abstract: Recent episodes of currency crisis have been associated with large, growing, and eventually unsustainable current-account imbalances. The Mexican peso crisis of 1994 and the 1997 currency turmoil in a number of Asian countries (in particular Thailand, Malaysia, and the Philippines) appear to have been partly triggered by unsustainable current-account imbalances. Following the Mexican peso crisis of 1994, the IMF devised a warning mechanism aimed at an early recognition of potentially unsustainable current-account imbalances. In this regard, a large number of Eastern and Central European countries in transition were experiencing large and growing current-account imbalances in the 1996 to 1997 period. Deficits in excess of 5 percent of GDP (an in many cases closer to 10 percent of GDP) were observed in Croatia, the Czech Republic, the Slovak Republic, Poland, Estonia, Latvia, Lithuania, and Moldova. Moreover, similar to the crisis episodes in Mexico and East Asia, a number of Central and Eastern European countries had weak financial systems, had adopted in the 1990s semifixed exchange-rate regimes aimed at controlling inflation and were experiencing significant real appreciation of their currencies. As a combination of fixed-rate regimes, real appreciation, current-account worsening, short-term foreign debt accumulation, and weak financial systems had contributed to the earlier currency crises in Mexico and Southeast Asia, it is important to study whether the current-account imbalances in Central and Eastern Europe would be sustainable or whether there are significant risks that currency crises would also occur in the transition economies.
152 citations
TL;DR: This article showed that the failure to control for currency held by non-residents may lead to significantly overestimating the welfare costs for the domestic economy, thereby justifying a deviation from the Friedman rule in favor of the Fed's current policy.
Abstract: Empirical studies of the shoe-leather costs of inflation are typically computed using M1 as a measure of money. Yet, official data on M1 includes all currency issued, regardless of the country of residence of the holder. Using adjusted monetary data, we show that the failure to control for currency held by non residents may lead to significantly overestimating the welfare costs for the domestic economy. In particular, our estimates of shoe-leather costs are minimized for a positive but moderate value of the inflation rate, thereby justifying a deviation from the Friedman rule in favor of the Fed’s current policy.
152 citations
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TL;DR: In this paper, the authors analyse a large panel of 52 currencies in advanced and emerging countries over almost 25 years of data and find that only a few factors are robustly associated with a safe haven status, most notably the net foreign asset position, an indicator of external vulnerability, and to a lesser extent the absolute size of the stock market.
Abstract: There is already a substantial literature documenting the fact that low yield currencies typically appreciate during times of global financial stress and behave as safe havens. The main objective of this paper is to find out what the fundamentals of safe haven currencies are. We analyse a large panel of 52 currencies in advanced and emerging countries over almost 25 years of data. We find that only a few factors are robustly associated to a safe haven status, most notably the net foreign asset position, an indicator of external vulnerability, and to a lesser extent the absolute size of the stock market, an indicator of market size and development. The interest rate spread against the US is significant only for advanced countries, whose currencies are subject to carry trade. More generally, we find that it is hard to predict what currencies would do when global risk aversion is high, as estimates are imprecise and often not stable or robust. This suggests caution in over-interpreting exchange rate movements during financial crises.
152 citations