The Survival of Intermediate Exchange Rate Regimes
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Abstract:
We propose a model of exchange-rate regime choice which accounts for the existence of a continuous range of regimes, the need for real exchange-rate adjustment in response to shocks , the existence of capital account shocks and of balance-sheet effects, the sensitivity of prices to the nominal exchange rate, and the need for a commitment to make any given regime sustainable . Non-ordered Logit estimations on a cross-section sample of 126 emerging and developed countries before and after 1997-1998 currency crises broadly support our approach. We characterize those countries for which there is still a case for intermediate exchange rate regimes.Keywords:
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The existing exchange rate regime of China is in fact dollar pegged fixed exchange rate regime. It constrains the performance of China's macroeconomics policies. To promote the effectiveness of China's macroeconomic policies requires reforming the existing exchange rate regime. China's current economic situation determines that the short-term objective of the exchange rate regime reform is to establish exchange rate target zone, while the long-term objective is to establish floating exchange rate regime.
Renminbi
Floating exchange rate
Liberian dollar
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China has been becoming more and more important in the global market, and the RMB exchange rate regime is also attracting more and more attention. To adapt the development of China, the RMB exchange rate regime had experienced several great adjustment. This paper focuses on the RMB exchange rate regime. At first, it introduces the reform process of the RMB exchange rate regime and then goes into depth on the current RMB exchange rate regime, analysising its the advantages and disadvantages. After that, it studies the influence of RMB exchange rate regime on RMB exchange rate stability during the Russia-Ukraine conflict with comparative analysis method and the result shows that RMB exchange rate regime has its own superiority. Finally, I give four policy recommendations, including strengthening the flexible management and reform of the RMB exchange rate regime, strengthening the regulation of the balance of payments, developing a reasonable range of exchange rate fluctuations to increase the flexibility of the RMB exchange rate, and improving the national central bank’s intervention mechanism for monetary policy.
Renminbi
Exchange-rate flexibility
Balance of Payments
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Exchange-rate pass-through
Vector autoregression
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Although there exists a large volume of literature on the theory and practice of LDC exchange rate regimes in the post-Bretton Woods era, it is mostly of a general nature treating LDCs as a whole. There are very few studies which examine in depth the special features of individual exchange rate regimes. Moreover, the issue of exchange rate instability that characterized the generalized floating of world's major currencies since the early 1970s, has so far received only superficial treatments as far as LDCs are concerned. The thesis attempts to fill these gaps by examining the Indian case in detail. An exchange rate policy in fact has two aspects. First, it involves the establishment of an optimal exchange rate regime which lays the framework for the day-to-day determination of the nominal exchange rate. Second, the exchange rate policy is concerned with the operation of the exchange rate regime in such a way as to promote given policy objectives. In the context of generalized floating, the decision regarding exchange rate regime for an LDC has to be made on the grounds of `internal balance', i.e. with a view to protecting the domestic economy from disturbances arising from day-to-day third world currency fluctuations. This would require a multi-currency peg based on balance of trade elasticities. Once an exchange rate regime is established, it has to be managed on considerations of `external balance'. This in turn would require adjustments in the value of the peg, either to compensate for the inflation differential between the home country and its trading partners, or in order to bring about a balance of payments adjustment. India adopted a basket peg since September 1975. However, India's basket system does not appear to be optimal, firstly because of the major role given in it to sterling as the currency of intervention, designation and valuation, and more importantly, because the official currency basket does not seem to be representative enough and also is not based on elasticity weights. Concerning the management of the basket peg, it appears that the authorities have been guided by a number of alternative considerations which came into conflict with the objective of external balance. Particularly, considerations such as the minimization of speculation and inflation, and the stabilization of the rupee-dollar rate seemed to have considerably influenced India's exchange rate policy. An important result of the promotion of the above alternative objectives has been high exchange rate volatility. Exchange rate instability depresses trade by generating exchange risk. In the context of LDCs with quantitative restrictions on private imports and direct government imports, the impact of exchange risk is felt much more on exports than imports. Previous studies on the impact of exchange rate instability on LDC exports have suffered from specification mistakes of export functions as well as inaccuracy of the exchange risk proxies employed. We developed a fully specified exchange risk-augmented demand-supply model of exports for India. We used this model to estimate the impact of changes in exchange rate and exchange risk on exports in the aggregate as well as for the two disaggregated groups, namely, manufactured and non-fuel primary products. The separate effects on the volume and price of exports were estimated. We also demonstrated that the signs of the exchange risk elasticity coefficients in export price equations are consistent with the invoicing pattern of India's exports. We simulated the results of the export model under reasonable assumptions for the medium term, and demonstrated the possibility of much gains on current account through a policy of reducing exchange rate instability in real terms. They also tend to show that an equilibrium exchange rate cannot be defined independent of the short-term fluctuations of the exchange rate. The results of the study have profound implications also for other LDCs which are subject to chronic balance payment deficits.
Floating exchange rate
Balance of Payments
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We attempt to analyze the effects of the currency crises on the long-run growth by using a cross-sectional country data set. After controlling for the post-crisis period, we find that the effects of the currency crises on the long-run growth are strictly negative and significant. We also find that the negative effects of the currency crises on the long-run growth increase as the number of the currency crises increases.
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Depreciation (economics)
Exchange-rate pass-through
Small open economy
Open economy
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Exchange rate fluctuations of a currency generate currency risk to the extent that it isused to make international transactions. These operationsare subject to currency risk, as exchange rates change frequently from one period to another, and on the other hand, speculation in the foreign exchange market affect the exchange rate through interventions they perform. This paper explores a topic of great interest, especially as exchange rate fluctuations and the uncertainty regarding the future of a currency relative to major currencies is a big problem for most economic actors. Regardless of whether they are importers or exporters or have significant debt currency depreciation or appreciation causes significant losses. Proper management and active currency risk is a way to reduce the damage caused by exchange rate fluctuations.
Depreciation (economics)
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