Showing papers on "Foreign-exchange reserves published in 1984"
TL;DR: This paper showed that, given certain expectations about policy, balance-of-payments crises can also be purely self-fulfilling events, and they also showed how crises occur in a discrete-time stochastic monetary model when an eventual breakdown is inevitable.
Abstract: The recent balance-of-payments literature shows that-speculative attacks on a pegged exchange rate must sometimes-occur if the path of the rate is riot to offer abnormal profit opportunities. Such attacks are fully rational, as they reflect the market's response to a regime breakdown that is inevitable.This paper shows that, given certain expectations about policy, balance-of-payments crises can also be purely self-fulfilling events. In such cases even a permanently viable regime maybreak down, and the economy will possess multiple equilibria corresponding to different subjective assessments of the probability of collapse. The behavior of domestic interest rates and foreign reserves will naturally reflect the possibility of a speculative attack. Work on foreign-exchange crises derives from the natural-resource literature initiated by Salant and Henderson (1978),where the definition of "abnormal" profit opportunities is straightforward. Because the definition is not always straight-forward in a monetary context, this paper also shows how crises occur in a discrete-time stochastic monetary model when an eventual breakdown is inevitable.
956 citations
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TL;DR: The authors analyzes inevitable transitions between fixed and floating exchange-rate regimes in a balance-of-payments model where individual preferences are explicitly specified, and analyzes the analogy between speculative attacks in foreign exchange markets and attacks on official price-fixing schemes in natural resource markets.
Abstract: This paper analyzes inevitable transitions between fixed and floating exchange-rate regimes in a balance-of-payments model where individual preferences are explicitly specified The goal is to assessthe analogy between speculative attacks in foreign exchange markets and attacks on official price-fixing schemes in natural resource markets In discrete time the analogy with resource markets is only partially correct, for in a deterministic model the collapse of a fixed rate may be characterized by two, successive attacks The two-attack equilibriumis peculiar to discrete-time analysis, however In the continuous-time limit of discrete-time models there is a single attack timed so as to rule out an anticipated discrete jump in the exchange rateBalance-of-payments models differ from nonrenewable resource models in that foreign exchange reserves may be borrowed from abroadThe paper therefore asks whether there are limits to central-bank borrowing possibilities In an idealized world where all private incomeis subject to lump-sum taxation, central-bank reserves can become infinitely negative with no violation of the public sector's intertemporal budget constraint Nonetheless, a growth rate of domestic credit exceeding the world interest rate, if maintained indefinitely, leads to violation of the constraint in the paper's model
108 citations
TL;DR: This article argued that the overvaluation of the Paraguayan currency, combined with extensive smuggling, undermined incentives for investment in manufacturing and deprived the government of revenues needed to finance infrastructure for sustained economic growth and development.
31 citations
TL;DR: This article argued that even with flexible exchange rates, the existence of currency substitution exposes the domestic economy to monetary shocks from both home and abroad, and that a rational holder of money balances would seek to diversify his portfolio of currencies for the same reasons that investors typically hold diversified portfolios of interest-earning assets.
Abstract: COMMON defense of flexible exchange rates is that they insulate the domestic economy and money supply from foreign monetary disturbances.’ This view has been challenged by a number of critics who question the assumption behind the monetary independence argument that domestic and foreign currencies are not considered substitutes indemand by domestic residents.2 A rational holder of money balances, these critics argue, would seek to diversify his portfolio of. currencies for the same reasons that investors typically hold diversified portfolios of interest-earning assets. If currency substitution exists, domestic money demand should be sensitive to changes in both domestic and foreign influences. Consequently, even with flexible exchange rates, the existence of currency substitution exposes the domestic economy to monetary shocks from both home and abroad.
25 citations
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TL;DR: In this article, it is shown that when the tax system is not indexed, the optimal nominal interest rate on the monetary authority's liabilities is likely to be zero, and that any discussion of the payment of interest on reserves and currency must take into account the nature of the tax systems and the rate of inflation in a nonindexed economy.
Abstract: Reserve requirements imposed against bank deposits, nominal interest payments on bank reserves (or on base money), and inflation can all be viewed as generating tax effects. Any analysis of optimal monetary policy in a steady-state equilibrium needs to consider the simultaneous choice of all the tax instruments controlled by the monetary authority. Such an analysis is carried out in this paper. It is shown that when the tax system is not indexed, the optimal nominal interest rate on the monetary authority's liabilities is likely to be zero. More importantly, any discussion of the payment of interest on reserves and currency must take into account the nature of the tax system and the rate of inflation in a nonindexed economy.
16 citations
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TL;DR: In this paper, the authors analyze the transition between fixed and floating exchange-rate regimes in a balance-of-payments model where individual preferences are explicitly specified, and they compare the analogy between speculative attacks in foreign exchange markets and attacks on official price-fixing schemes in natural resource markets.
Abstract: This paper analyzes inevitable transitions between fixed and floating exchange-rate regimes in a balance-of-payments model where individual preferences are explicitly specified. The goal is to assessthe analogy between speculative attacks in foreign exchange markets and attacks on official price-fixing schemes in natural resource markets. In discrete time the analogy with resource markets is only partially correct, for in a deterministic model the collapse of a fixed rate may be characterized by two, successive attacks. The two-attack equilibriumis peculiar to discrete-time analysis, however. In the continuous-time limit of discrete-time models there is a single attack timed so as to rule out an anticipated discrete jump in the exchange rate.Balance-of-payments models differ from nonrenewable resource models in that foreign exchange reserves may be borrowed from abroad.The paper therefore asks whether there are limits to central-bank borrowing possibilities. In an idealized world where all private incomeis subject to lump-sum taxation, central-bank reserves can become infinitely negative with no violation of the public sector's intertemporal budget constraint. Nonetheless, a growth rate of domestic credit exceeding the world interest rate, if maintained indefinitely, leads to violation of the constraint in the paper's model.
9 citations
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TL;DR: This paper showed that, given certain expectations about policy, balance-of-payments crises can also be purely self-fulfilling events, and they also showed how crises occur in a discrete-time stochastic monetary model when an eventual breakdown is inevitable.
Abstract: The recent balance-of-payments literature shows that-speculative attacks on a pegged exchange rate must sometimes-occur if the path of the rate is riot to offer abnormal profit opportunities. Such attacks are fully rational, as they reflect the market's response to a regime breakdown that is inevitable.This paper shows that, given certain expectations about policy, balance-of-payments crises can also be purely self-fulfilling events. In such cases even a permanently viable regime maybreak down, and the economy will possess multiple equilibria corresponding to different subjective assessments of the probability of collapse. The behavior of domestic interest rates and foreign reserves will naturally reflect the possibility of a speculative attack. Work on foreign-exchange crises derives from the natural-resource literature initiated by Salant and Henderson (1978),where the definition of "abnormal" profit opportunities is straightforward. Because the definition is not always straight-forward in a monetary context, this paper also shows how crises occur in a discrete-time stochastic monetary model when an eventual breakdown is inevitable.
5 citations
TL;DR: In this paper, the effect of trade embargoes as a measure of foreign policy can be unpredictable, and the best strategy for the USA is the selective encouragement of trade that implicitly carries the threat of embargo.
4 citations
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TL;DR: In this paper, the authors empirically integrate two alternative explanations for the behavior of international reserves through time: monetary factors and differences between actual and desired reserves, and show that the exclusion of monetary factors from the dynamic analysis of international reserve movements will yield biased coefficients.
Abstract: Traditionally, two alternative explanations have been offered for the behavior of international reserves through time. On the one hand, the literature on the demand for international reserves postulates that reserves movements respond to discrepancies between desIred and actual reserves. Onthe other hand, according to the monetary approach to the balance of payments,changes in international reserves will be related to excess demands or excess supplies for money. The purpose of this paper is to empirically integrate these two basic explanations for international reserves movements. This is done by estimating a dynamic equation that explicitly allows reserves movements to reflect the monetary authority's excess demand for international reserves, and the public's excess demand for money. The results obtained,using a sample of 23 developing countries that maintained a fixed exchange rate during period 1965-1972, confirm the hypothesis that reserves movements respond both to monetary factors and to differences between actual and desired reserves. These results indicate that the exclusion of monetary considerations from the dynamic analysis of international reserves will yield biased coefficients.
3 citations
TL;DR: The adoption of contemporaneous reserve requirements (CRR), which became effective in February of this year, did not affect the reserve requirement ratios applicable to any group of deposit liabilities, but did, however, alter the relationships between deposit liabilities and the periods over which depository institutions are required to hold reserves against them.
Abstract: The adoption of contemporaneous reserve requirements (CRR), which became effective in February of this year, did not affect the reserve requirement ratios applicable to any group of deposit liabilities. It did, however, alter the relationships between deposit liabilities and the periods overwhich depository institutions are required to hold reserves against them.2 This ai’ticle describes how the adoption of CRR has modified the calculation of RAM and, hence, the adjusted monetary base.
2 citations
TL;DR: Pogorel et al. as discussed by the authors discuss the political debate on the international monetary system since 1940, and propose a tri-polar monetary system: the dollar, the yen and the ECU, created in 1979 within the European Monetary System.
Abstract: From parity to floating currencies : the political debate on the international monetary System since 1940, Gerard Pogorel ; During the second world war, within the framework of the allies negotiations on the post war, the Americans, the English and the French established the foundations of a future international monetary System. The Bretton Woods conference set up in July 1944 the two key institutions — the International Monetary Fund and the World Bank. The liveliness of the discussions on exchange parity and the use of the gold standard, and the weight of the dollar and of the pound sterling prevented the system from becoming operative until the end of the 1950s. The creation of the European Common Market and the competitiveness of Europe and Japan then aggravated the tensions between the United States and the rest of the world, especially General de Gaulle's France. A compromise was reached in 1967 with the creation of the Special Drawing Rights. But the economic crisis of the 1970s and the imbalance of international exchanges resulted in the tri-polar monetary System : the dollar, the yen and the ECU, created in 1979 within the European Monetary System. The failure of an international fiduciary currency is compensated by the flexibility of the new System, even if some heads of state are in the early 1980s speaking of a new Bretton Woods.