monetary policy rules in the open economy effects on welfare and business cycles abstract this paper computes welfare maximizing taylor style interest rate rules in a business cycle model of a small open economy the model assumes staggered price setting and shocks to domestic productivity to the world interest rate to world inflation and to the uncovered interest rate parity condition optimized policy rules have a pronounced anti inflation stance and entail significant nominal and real exchange rate volatility the country responds to an increase in external volatility by holding more foreign assets the policy rule affects the variance and the mean of consumption the effect on the mean matters significantly for welfare

to float or to fix evidence on the impact of exchange rate regimes on growth we study the relationship between exchange rate regimes and economic growth for a sample of 183 countries over the post bretton woods period using a new de facto classification of regimes based on the actual behavior of the relevant macroeconomic variables in contrast with previous studies we find that for developing countries less flexible exchange rate regimes are associated with slower growth as well as with greater output volatility for industrial countries regimes do not appear to have any significant impact on growth the results are robust to endogeneity corrections and a number of alternative specifications borrowed from the growth literature

exchange rate regimes and the international transmission of business cycles capital account openness matters abstract we investigate the role of exchange rate regimes in the international transmission of business cycles during the global financial crisis we find that exchange rate regimes alone did not account for differences in the international transmission of business cycles during the crisis however analysis considering capital account openness and countries with currencies pegged to the u s dollar indicates that exchange rate regimes play an important role in shaping business cycle co movement adopting a fixed regime with high capital account openness additionally increased business cycle co movement with the united states during the crisis whereas u s dollar peggers with relatively restrictive capital accounts during the crisis were not found to affect business cycle transmission

fixing exchange rates a virtual quest for fundamentals abstract fixed exchange rates are less volatile than floating rates but the volatility of macroeconomic variables such as money and output does not change very much across exchange rate regimes this suggests that exchange rate models based only on macroeconomic fundamentals are unlikely to be very successful it also suggests that there is no clear tradeoff between reduced exchange rate volatility and macroeconomic stability

will business cycles in the euro area converge a critical survey of empirical research this survey of business cycle synchronization in the european monetary union focuses on two issues have business cycles become more similar and which factors drive business cycle synchronization we conclude that business cycles in the euro area have gone through periods of both convergence and divergence still there is quite some evidence that during the 1990s business cycle synchronization in the euro area has increased higher trade intensity is found to lead to more synchronization but the point estimates vary widely the evidence for other factors affecting business cycle synchronization is very mixed

u s and canadian industrial production indices as coupled oscillators abstract this paper uses ozaki s 1985 variable amplitude coefficient model to explore the impact of different types of dynamical linkages coupling between the indices of industrial production for the u s and canada empirical analysis reveals that for each country the requisite lag structure extends for up to six years and that the coupling linkages are functions of lagged changes in growth rates incorporating these linkages leads to an increased degree of oscillation in the equilibrium paths a marginal improvement in stability and somewhat greater synchronization between the two series the out of sample forecasts for each series are improved by the coupling

real exchange rate volatility and the price of nontradable goods in economies prone to sudden stops the dominant view in the empirical literature on exchange rates is that the high variability of real exchange rates is due to movements in exchange rate adjusted prices of tradable goods this paper shows that this dominant view does not hold in mexican data for the periods in which the country had managed exchange rate regimes variance analysis of a 30 year sample of monthly data shows that movements in the price of nontradables relative to tradables account for up to 70 percent of the variability of the real exchange rate during these periods the paper proposes a model in which this stylized fact and the sudden stops that accompanied the collapse of mexico s managed exchange rates could result from an endogenous amplification mechanism operating via nontradables prices in economies with dollarized liabilities and credit constraints the key feature of this mechanism is irving fisher s debt deflation process numerical evaluation suggests that the fisherian deflation effects on consumption the current account and relative prices dwarf those induced by the standard balance sheet effect typical of the sudden stops literature

model uncertainty and exchange rate volatility this article proposes an explanation for shifts in the volatility of exchange rate returns agents are uncertain about the true data generating model and deal with this uncertainty by making inference on the models and their parameters approach i call model learning model learning may lead agents to focus excessively on a subset of fundamental variables consequently exchange rate volatility is determined by the dynamics of these fundamentals and changes as agents alter models i investigate the empirical relevance of model learning and find that the change in volatility of gbp usd in 1993 was triggered by a shift between models

measuring the economic impact of monetary union the case of okinawa data from okinawa s monetary union with the united states in 1958 and with japan in 1972 are used to obtain a quantitative indication of how monetary union might affect the behavior of nominal and real shocks across two economies with monetary union the variance of the real exchange rate between two economies declines and their business cycle linkage becomes stronger a var analysis of output and price data for okinawa and japan further indicates that the contribution of asymmetric nominal shocks in business cycles becomes smaller monetary union thus seems to facilitate both nominal and real convergence

business cycles with staggered prices and international trade in intermediate inputs abstract international trade in intermediate inputs and increasingly in goods produced at multiple stages of processing has been widely studied in the real trade literature we assess the role of this feature of modern world trade in accounting for some stylized facts about international business cycles our model with staggered prices and trade in intermediates across four stages of processing does well in explaining the observed international correlations in aggregate quantities and it performs much better than a single stage model with no trade in intermediates the model in itself does not provide a full account of the cyclical behavior of the real exchange rate but compared to the single stage model it moves in the right direction

real exchange rate volatility financial crises and exchange rate regimes this paper examines real exchange rate rer volatility in eighty countries around the world during the period 1970 to 2011 two main questions are raised are structural breaks in rer volatility related to changes in exchange rate regimes or financial crises and do these two events affect the permanent and transitory components of rer volatility to answer them we employ two complementary procedures that consist in detecting structural breaks in the rer series and decomposing volatility into its permanent and transitory components our results suggest that structural breaks in rer volatility coincidence with financial crises and certain changes in nominal exchange rate regimes moreover our findings confirm that rer volatility does increase with the global financial crises and detect that the more flexible the exchange rate regime the higher the volatility of the rer using a de facto exchange rate classification

exchange rate pass through exchange rate volatility and exchange rate disconnect abstract this paper explores the hypothesis that high volatility of real and nominal exchange rates may be due to the fact that local currency pricing eliminates the pass through from changes in exchange rates to consumer prices exchange rates may be highly volatile because in a sense they have little effect on macroeconomic variables the paper shows the ingredients necessary to construct such an explanation for exchange rate volatility in addition to the presence of local currency pricing we need a incomplete international financial markets b a structure of international pricing and product distribution such that wealth effects of exchange rate changes are minimized and c stochastic deviations from uncovered interest rate parity together it is shown that these elements can produce exchange rate volatility that is much higher than shocks to economic fundamentals and disconnected from the rest of the economy in the sense that the volatility of all other macroeconomic aggregates are of the same order as that of fundamentals

international monetary regimes and incidence and transmission of macroeconomic shocks evidence from the bretton woods and modern floating periods this paper investigates the relationship between international monetary regimes and incidence and transmission of macroeconomic shocks within the context of an open economy macro model empirical results confirm monetary interdependence and lower incidence of monetary discretion under fixed exchange rates the average magnitude and dispersion of supply shocks in bretton woods and the subsequent float is comparable however the average magnitude and dispersion of real demand shocks under bretton woods seems higher overall the international monetary regime may pose important constraints to policymakers in open economies economists have long recognized the role of a flexible exchange rate regime in insulating economies and allowing independent pursuit of monetary policy however experience with floating rates in the post bretton woods period led many to question the merits of flexible rates with increased volatility in nominal and real exchange rates and the implied effects of this volatility on international trade flows although fixed rates reduce uncertainty and transaction costs compared with flexible rates these benefits may be outweighed by increased output volatility due to sticky prices and increased international interdependence if countries face idiosyncratic shocks independent monetary policy is needed to stabilize the domestic economy theoretical work on the effects of international monetary regimes has been inconclusive helpman 1981 dornbusch 1983 turnovsky 1983 and others provide evidence that exchange rate arrangements cannot be ranked unambiguously in terms of their impact on macroeconomic stability or domestic welfare instead several studies have analyzed macroeconomic performance under different historical exchange rate arrangements using macroeconomic data from the bretton woods and the subsequent floating regime baxter and stockman 1988 found no clear relationship between exchange rate flexibility and output stability or synchronization of the business cycle using bivariate vector autoregressions vars bayoumi and eichengreen 1994 analyzed the standard

recent developments in international finance a guide to research abstract this is a critical evaluation of the state of the art in international finance several points of reference are selected the mundell fleming branson mfp paradigm the monetary model with purchasing power parity ppp as a long run anchor the representative agent approach and the natural real exchange rate natrex model their strengths and weaknesses are identified from both a theoretical and empirical point of view we conclude with a suggestion of what is a fruitful explanation of medium to longer run movements in the real exchange rate and the current account

on becoming more flexible exchange rate regimes in latin america and the caribbean abstract this paper examines the shift from fixed to more flexible exchange rate regimes among countries in latin america and the caribbean in contrast to most traditional approaches the one followed here recognizes that fixed rates can be and often are adjusted but argues that policy makers incur a political cost from devaluation at the same time flexible exchange rates even managed ones may be very volatile with persistent misalignment a stylized model of regime choice is developed based on the perceived losses from exchange rate misalignment incurred under fixed versus more flexible regimes the model is estimated for a sample of 24 countries over the period 1978 1992 and empirical results are quite supportive misalignments proxied by current account deficits and moderate to high rates of inflation were associated with a move to more flexible rates during 1978 1986 misalignment indicators appear to have mattered less during 1987 1992 however there appears to have been a major reduction in the perceived difficulty of managing flexible rates during this period the paper then cautions against attributing differences in economic growth between groups of countries to their exchange regime the central point here is that the endogeneity of regime choice introduces selection biases into the samples of countries with fixed and with more flexible exchange regimes

structural breaks in volatility evidence for the oecd and non oecd real exchange rates abstract this paper attempts to determine whether or not nominal exchange rate regimes affect the volatility of bilateral and effective real exchange rates to that end we examine the real exchange rate behaviour for a set of oecd and non oecd countries during the 1960 2006 period therefore covering both the bretton woods system of fixed exchange rates and the adoption of generalised floating exchange rates from 1973 we make use of an econometric methodology based on the hansen s hansen b e 1997 approximate asymptotic p values for structural change tests journal of business and economic statistics 15 1 60 67 approximation to the p values of the supreme exponential and average statistics developed by andrews andrews d 1993 test for parameter instability and structural change with unknown change point econometrica 61 4 821 856 and andrews and ploberger andrews d ploberger w 1994 optimal tests when a nuisance parameter is present only under the alternative econometrica 62 6 1383 1414 this methodology allows us to obtain a profile of p values and to delimit periods of stability and instability in the variance of real exchange rates results suggest that there is clear evidence in favour of the non neutrality of nominal exchange rate regime regarding real exchange rate volatility for developed countries but not in the case of developing or emerging countries

real exchange rates under alternative nominal exchange rate systems abstract the paper develops an equilibrium model of the determination of exchange rates the relative price of nontraded goods and the current account the focus is on the effects of various real and nominal disturbances and the conditions under which the nominal exchange rate system is neutral with respect to real variables in the economy the model demonstrates an assymetry in the roles of trade and nontraded goods in affecting exchange rates an econometric investigation of the raltion between the exchange rate system and the variability of real exchange rates provides some evidence against the neutrality hypothesis

banking crises and exchange rate regimes is there a link the authors investigate the links between banking crises and exchange rate regimes using a comprehensive data set that includes developed and developing countries over the last two decades in particular they examine whether the choice of exchange rate regime affects the likelihood cost and duration of banking crises empirical results indicate that adopting a fixed exchange rate diminishes the likelihood of a banking crisis in developing countries but once a banking crisis occurs its real costs in terms of forgone output growth are higher for countries with more stringent exchange rate requirements the duration of crises seems not to be affected by exchange rate policy instead it is influenced mainly by the size of the credit boom before the crisis

regime linkages in the us uk real exchange rate real interest differential relation abstract using a multivariate regime switching framework and focusing on the period 1921 2002 which is characterized by different nominal exchange rate regimes and monetary regimes we find supportive evidence of the us uk real exchange rate real interest differential relation in terms of volatility regime dependence the two variables are jointly characterized by high volatility during periods of floating exchange rates and by low volatility during periods of fixed exchange rates thereby suggesting that the nominal exchange rate regime is the driving force behind the volatility regime switching thus allowing for regime switching in the real exchange rate real interest differential relation bridges the gap between popular theories of real exchange rate determination which predict such a relation and previous empirical studies which failed to uncover such a relation for the us uk real exchange rate

external shocks u s monetary policy and macroeconomic fluctuations in emerging markets estimated structural vars show that external shocks are an important source of macroeconomic fluctuations in emerging markets furthermore u s monetary policy shocks affect interest rates and the exchange rate in a typical emerging market quickly and strongly the price level and real output in a typical emerging market respond to u s monetary policy shocks by more than the price level and real output in the u s itself these findings are consistent with the idea that when the u s sneezes emerging markets catch a cold at the same time u s monetary policy shocks are not important for emerging markets relative to other kinds of external shocks

international real business cycles among heterogeneous countries abstract business cycle statistics differ widely across countries for some aggregates especially for trade related variables part of these variations relates to the size of the economies and to their distance from each other this paper asks whether a three country model is able to display the marked diversity of business cycle statistics observed across countries the model is calibrated to two specific examples canada and switzerland our findings are that most of the diversity of the business cycles can be accounted for by size and distance and that trade is not a strong channel of diffusion of cycles

choosing an exchange rate system abstract the focus of academic discussions of exchange rate policy has shifted in recent years the new literature on exchange rate regime choice emphasizes considerations relating to the problems of credibility in exchange rate targeting and the connections between exchange rate regime choices and choices of monetary and fiscal policy arguments for exchange rate targeting are reviewed under most circumstances and for most countries a system of freely floating exchange rates is likely to be a better choice than attempting to peg the exchange rate

real exchange rate volatility and exchange rate regimes evidence from long term data abstract using over one hundred years of historical data for the uk canadian japanese and french us real exchange rates we find that real exchange rate volatility is greater for flexible exchange rate periods than for fixed rate periods

noisy news and exchange rates a svar approach abstract this paper introduces noisy news shocks into a model of exchange rate determination to measure the impact of these shocks using a svar agents in the foreign exchange market make decisions with imperfect information about economic fundamentals driving interest rate differentials between countries in that they must rely on a noisy signal of future interest rates i apply the framework to the usd gbp nominal exchange rate for the period 1986 2013 results show that noisy news explains approximately one fifth of the forecast error variance in the nominal exchange rate with noise accounting for double 12 that of news 6 a historical decomposition of the exchange rate indicates that noise shocks are especially important during periods of changing monetary policy e g the 1990 easing and 2001 tightening of u s monetary policy and the unconventional monetary policies surrounding the financial crisis of 2008

productivity shocks budget deficits and the current account abstract productivity shocks and budget deficits are considered to be two key determinants of the current account in order to assess formally the role of both factors in driving current account movements the present paper extends the standard intertemporal model of the current account to allow for non ricardian household behavior testable cross equation restrictions for the current account and investment are derived by drawing on the distinction between country specific and global innovations to productivity as well as to the government budget we test the restrictions of the model against time series data for 21 oecd countries and find evidence in support of the model

the impact of us economic variables on bank of canada policy direct and indirect responses abstract the impact of us economic variables on canadian monetary policy is assessed using quarterly data for 1963 88 canadian monetary base growth is regressed upon the least squares predictors of 11 us and canadian variables using a generalized least squares procedure that permits isolation of i direct responses by the monetary authority to its expectations of the us variables and ii indirect responses to past us influences that impact upon the current fitted values of the canadian variables the results reveal significance of both direct and indirect us influences on canadian policy across fixed and floating exchange rate regimes

international interest rate linkages and the exchange rate regime abstract return differentials between instruments denominated in canadian dollars and instruments denominated in american dollars are investigated the study compares the properties of return differentials in the period of fixed exchange rates during the 1960s and in the period of flexible exchange rates during the 1970s and 1980s both real and nominal return differentials are investigated the results indicate that the change in exchange rate regime is not associated with a change in the average level of ex post return differentials between canada and the united states models which predict ex ante return differentials from available information in a rational expectations framework show a surprisingly large amount of structural stability across the regime change the major impact of the flexible exchange rate regime is on the variance of ex post return differentials and not on the average level of ex post or ex ante return differentials jel e42 e58 g15

on the sources of business cycles in the g 7 abstract this paper examines sources of cyclical movements in output inflation and the term structure of interest rates in the g 7 it employs a novel identification approach which uses the sign of the theoretical cross correlation function in response to shocks to catalog orthogonal disturbances we find that demand shocks are the dominant source of output and inflation fluctuations in several of the g 7 countries the proportion of term structure variability explained by different structural sources does not depend on the horizon apart from the us and canada structural shocks are nearly uncorrelated across countries

exchange rate policy and endogenous price flexibility most theoretical analysis of exible vs flxed exchange rates takes the degree of nominal rigidity to be independent of the exchange rate regime choice itself but informal policy discussion often suggests that a credible exchange rate peg may increase internal price exibility this paper explores the relationship between exchange rate policy and price exibility in a model where price exibility itself is an endogenous choice of proflt maximizing flrms a flxed exchange rate can afiect the optimal degree of price exibility by altering the volatility of nominal demand facing price setting flrms we flnd that a unilateral peg such as a currency board adopted by a single country will increase internal price exibility perhaps by a large amount on the other hand when an exchange rate peg is supported by bilateral participation of all monetary authorities such as in a monetary union price exibility may actually be less than under freely oating exchange rates quantitatively we flnd that the endogenous increase in price exibility following a unilateral peg might be big enough that output volatility is no greater than it would be under a oating exchange rate regime

exchange rate regime durability and performance in developing versus advanced economies abstract drawing on new data and advances in exchange rate regimes classification we find that countries appear to benefit by having increasingly flexible exchange rate systems as they become richer and more financially developed for developing countries with little exposure to international capital markets pegs are notable for their durability and relatively low inflation in contrast for advanced economies floats are distinctly more durable and also appear to be associated with higher growth for emerging markets our results parallel the baxter and stockman classic exchange regime neutrality result though pegs are the least durable and expose countries to higher risk of crisis

real exchange rate behavior the recent float from the perspective of the past two centuries using annual data spanning two centuries for dollar sterling and franc sterling real exchange rates we find strong evidence of mean reverting real exchange rate behavior using simple stationary autoregressive models estimated on prefloat data we easily outperform nonstationary real exchange rate models in dynamic forecasting exercises over the recent float such stationary univariate equations explain 60 80 percent of the in sample variation in real exchange rates although the degree of short run persistence may be high the econometric estimates imply a half life of shocks to the real exchange rate of about 6 years for dollar sterling and a little under 3 years for franc sterling

international capital movements and the locomotive effect abstract in this paper we build a two country two good model in which domestic and foreign investment goods are perfect or imperfect substitutes and the utilization rate of capital is variable if investment goods are imperfect substitutes the model succeeds in mimicking the output cross country correlation in particular a country specific technological shock leads to an increase in output in the two countries which reveals a locomotive effect thus substitution elasticity between domestic and foreign investment goods is a key parameter of the international transmission of the business cycle in the model

global output growth and volatility spillovers this article examines discernable patterns of real gross domestic product gdp growth co movements across 29 countries using consistent time series data 1912 2008 of these countries only 12 are found to form three statistically significant groupings i e g6 six organization for economic co operation and development oecd european countries g4 four anglo saxon countries and g2 two major asian countries one may then conclude that inter alia geographical proximity cultural ties and the level of socio economic and financial ties among countries determine the global systematic co movements of growth rates our results indicate that any recession in the us initially engulfs other anglo saxon countries as well as g6 and g2 countries before exerting its adverse knock on effects to the rest of the world a multivariate generalized autoregressive conditional heteroscedasticity mgarch model is also used to examine the transmission of gdp growth across these three groups and their corresponding vol

terms of trade and exchange rate regimes in developing countries abstract since friedman essays in positive economics university of chicago press chicago 1953 157 203 an advantage often attributed to flexible exchange rate regimes over fixed regimes is their ability to insulate more effectively the economy against real shocks i use a post bretton woods sample 1973 96 of 75 developing countries to assess whether the responses of real gdp real exchange rates and prices to terms of trade shocks differ systematically across exchange rate regimes i find that responses are significantly different across regimes in a way that supports friedman s hypothesis the paper also examines the importance of terms of trade shocks in explaining the overall variance of output and prices in developing countries

money and exchange rates in the grossman weiss rotemberg model abstract we analyze the impact of monetary policy on inflation interest rates and exchange rates in a model with segmented asset markets developed by grossman and weiss 1983 and rotemberg 1984 1985 we find parameters for which real and nominal exchange rates in this model are 1 much more volatile than interest rates inflation rates and money growth rates 2 highly correlated with each other and 3 highly persistent while this model fails to match the data in other important respects it illustrates a potentially useful approach to modelling exchange rate behavior

international business cycles world region and country specific factors the paper investigates the common dynamic properties of business cycle fluctuations across countries regions and the world we employ a bayesian dynamic latent factor model to estimate common components in macroeconomic aggregates output consumption and investment in a 60 country sample covering seven regions of the world the results indicate that a common world factor is an important source of volatility for aggregates in most countries providing evidence for a world business cycle we find that region specific factors play only a minor role in explaining fluctuations in economic activity we also document similarities and differences across regions countries and aggregates jel f41 e32 c11 c32

business cycles in international historical perspective business cycle models seek to answer the question of why economies go through cycles of recession and recovery or boom and bust any theory of the business cycle makes two sorts of claims what shocks are most important in disturbing the economy and what economic structure is necessary for propagating these shocks for example one common explanation of business cycles begins with monetary shocks and then seeks to explain why monetary shocks are not purely neutral as neoclassical theory would have it and instead have real effects at least in the short term early models in this vein were often implicitly or explicitly based on the proposition that markets do not clear continuously early equilibrium real business cycle theories instead emphasized the importance of real shocks especially to technology which may cause socially efficient fluctuations even when markets are always in equilibrium more recent models have attempted to marry the equilibrium approach to macroeconomics with the substantive keynesian ideas that money is not neutral and that economic fluctuations are costly new keynesian theories of the business cycle admit the possibility of a number of economic shocks including monetary and technology shocks but then focus on explaining how nominal price rigidities within the economy can turn these shocks into recessions or booms other models show that business cycles driven by keynesian animal spirits are consistent with rigorous microfoundations and rational expectations seeking empirical evidence for and against these various approaches we turn business cycle theories loose on perhaps the greatest macroeconomic laboratory

real interest parity rip over the 20th century new evidence based on confidence intervals for the largest root and the half life abstract in this paper we employ local to unity asymptotics to investigate the validity of real interest parity rip for three countries relative to the us using long span data we find that deviations from parity are corrected quickly and this is what could in principle be expected to happen in an integrated world where economic forces act rapidly so that discrepancies do not grow systematically over time moreover the observed speed of reversion raises important issues for policy in that the tendency for rates to converge implies that the impact of the domestic authorities stabilization polices might be limited finally there is no clear cut difference in the adjustment to shocks across fixed and floating regimes

exogenous shocks and exchange rate regimes using a dynamic stochastic general equilibrium dsge model with nominal price rigidity and imperfect competition we examine the impact of terms of trade and foreign interest rate shocks on some key macroeconomic variables for a small open economy under different exchange rate regimes numerical solutions from the model are found consistent with empirical panel var results of 33 asian economies for the period of 1980 2009 from both the theoretical model and empirical evidence we find that i output responses to terms of trade and foreign interest rate shocks are smoother in floats ii price responses to terms of trade shocks are smoother in floats than in pegs while its responses to foreign interest shocks are more volatile in floats than in pegs and iii the effects of terms of trade and foreign interest shocks are more prolonged under floats

purchasing power parity and markov regime switching we revisit the evidence on ppp in the twentieth century allowing for markov regime switching in the adf regression using lopez et al s 2005 extension of taylor s 2002 original data set our results are 1 for most countries there are periods over which the real exchange rate is stationary and ppp holds and periods over which the real exchange rate is non stationary and ppp does not hold namely regime dependent stationarity thus real exchange rate stationarity is a stochastic event itself 2 the probability that the real exchange rate is stationary is less than 50 for most countries 3 there is evidence of non stationarity during both the bretton woods and the recent float periods for the majority countries the comparative performance of ppp is slightly better during bretton woods than the recent float

evaluation of currency regimes the unique role of sudden stops this paper tackles two established puzzles in international macroeconomics literature the first is the lack of systematic differences in the macroeconomic performance across exchange rate regimes the second is the absence of a clear empirical relationship between macroeconomic performance and capital account liberalization we suggest that these negative findings may be due to empirical methods that fail to account for a latent economic crisis state influenced by exchange rate and capital account regimes and to allow that latent variable to influence the growth effects of policy regimes in practice we model and estimate the latent state of the economy as a crisis probability our proposed framework of analysis allows exchange rate and capital market liberalization regimes to have both a direct effect on short term growth and an indirect effect on growth that is channelled through their effects on the crisis probability the empirical decomposition of the total effect into two conflicting effects helps resolve the puzzles assaf razin and yona rubinstein

business cycles and the exchange rate system some international evidence this paper investigates the differences in time series behavior of key economic aggregates under alternative exchange rate systems we use a postwar sample of 49 countries to compare the behavior of output consumption trade flows government consumption spending and real exchange rates under alternative exchange rate systems pegged floating and cooperative systems such as the ems we then examine evidence from two particular episodes involving canada and ireland of changes in the exchange rate system aside from greater variability of real exchange rates under flexible than under pegged nominal exchange rate systems we find little evidence of systematic differences in the behavior of macroeconomic aggregates or international trade flows under alternative exchange rate systems these results are of interest because a large class of theoretical models implies that the nominal exchange rate system has important effects on a number of macroeconomic quantities

exchange rate regimes in the modern era fixed floating and flaky this paper provides a selective survey of the incidence causes and consequences of a country s choice of its exchange rate regime i begin with a critical review of michael klein and jay c shambaugh s 2010 book exchange rate regimes in the modern era and then proceed to provide an alternative overview of what the economics profession knows and needs to know about exchange rate regimes while a fixed exchange rate with capital mobility is a well defined monetary regime floating is not thus it is unclear whether it is theoretically sensible to compare countries across exchange rate regimes this comparison is quite difficult to make empirically it is often hard to figure out what the exchange rate regime of a country is in practice since there are multiple conflicting regime classifications more importantly similar countries choose radically different exchange rate regimes without substantive consequences for macroeconomic outcomes like output growth and inflation that is the profession knows surprisingly little about either the causes or consequences of national choices of exchange rate regimes but since the consequences of these choices are small understanding their causes is of only academic interest jel e52 f33

the dynamics of exchange rate regimes fixes floats and flips the impermanence of fixed exchange rates has become a stylized fact in international finance the combination of the mirage view that pegs do not really peg with the fear of floating view that floats do not really float generates the conclusion that exchange rate regimes are in practice unimportant for the behavior of the exchange rate this is consistent with evidence on the irrelevance of exchange rate regimes for general macroeconomic performance recent studies however show that the exchange rate regime matters this can be understood by considering the dynamics of exchange rate regimes we demonstrate that the mirage view is somewhat misleading and incomplete pegs frequently break but many do last also there is a high degree of flipping that is the re formation of pegs that have broken thus a fixed exchange rate today is a good predictor that one will exist in the future we also investigate the quantitative effect of fixed exchange rates while the fear of floating view suggests little actual difference in fixed and floating rates with respect to exchange rate volatility we show that fixed exchange rates exhibit considerably greater bilateral exchange rate stability than flexible rates both today and in the future 2007 elsevier b v all rights reserved

novice serial and portfolio entrepreneur behaviour and contributions policy makers and practitioners are considering whether to allocate resources towards portfolio and serial entrepreneurs as well as the provision of additional initiatives to increase the pool of novice entrepreneurs to inform this policy debate univariate statistical tests were used to test for differences between 354 firms owned by novice serial and portfolio entrepreneurs in scotland also univariate tests were conducted to compare responses made by pairwise groups of entrepreneurs no significant differences were detected between the three types of entrepreneurs with regard to several entrepreneur and firm demographic characteristics additional analysis revealed that portfolio entrepreneurs have more diverse experiences and more resources than serial or novice entrepreneurs on average portfolio entrepreneurs appear to offer more attractive growth prospects than other entrepreneurs

can equilibrium models explain nominal exchange regime non neutrality evidence from the european monetary system abstract in a recent paper alan stockman argues that the finding that real exchange rate variability id higher under flexible nominal exchange rate systems than under fixed nominal exchange rate systems typically interpreted as evidencee of price stickiness is consistent with equilibriu models stockman s theory we argue predicts that the formation of the european monetary system should have had no effect on the real exchange rate variability of its members we test this prediction and interpret our findings as evidence in support of stockman s theory although not as evidence that equilibrium models can account for nominal exchange regime non neutrality jel f31

macroeconomic effects of nominal exchange rate regimes new insights into the role of price dynamics abstract this paper analyzes the effects of pegged and floating exchange rates using a two country dynamic general equilibrium model that is calibrated to the us and a european aggregate the model assumes shocks to money productivity and the interest rate parity condition it captures the fact that the sharp increase in nominal exchange rate volatility after the end of the bretton woods bw system was accompanied by a commensurate rise in real exchange rate volatility but had no pronounced effect on the volatility of gdp this holds irrespective of whether flexible or sticky prices are assumed which casts doubt on the widespread view that the roughly equal post bw rise in nominal and real exchange rate volatility reflects price stickiness a flex prices variant of the model captures better the fact that the correlation between us and european gdp has been higher in the post bw era than under bw

exchange rate regime volatility and international correlations on bond and stock markets focusing on the recent experience of the ems the paper examines the behavior of domestic daily returns on bond and stock markets with the objective of identifying whether there exist significant differences in the patterns of volatilities and international correlations between erm and non erm countries and across alternative episodes of erm exchange rate variability the paper provides substantial evidence that a credible peg is associated with a decline in bond market volatility the analysis also shows that an increase in exchange rate volatility is accompanied by a decline in international correlations between bond and to a lesser extent stock markets c 1999 published by elsevier science ltd all rights reserved

regime non stationarity in the us uk real exchange rate abstract using a markov switching extension of the adf regression we find evidence that the us uk real exchange rate is stationary in periods when it is in a low volatility regime and nonstationary when it is in a high volatility regime

real exchange rates and macroeconomics evidence and theory since the early 1980s a large body of research has thrown doubt on the relevance of macroeconomic models for understanding exchange rates the authors argue that a balanced reading of recent literature in exchange rate economics gives a more optimistic assessment many studies have established the pertinence of long run purchasing power parity ppp and the explanatory power of macroeconomic fundamentals in real exchange rate fluctuations a reasonably strong case can be made for a traditional macroeocnomic interpretation of real exchange rates which emphasizes short run price stickiness but long run ppp but a central new ingredient in this interpretation is the presence of international commodity market segmentation and persistent deviations from the law of one price an example is given of a dynamic general equilibrium model that can reproduce some of the observed features of real exchange rate fluctuations

trade interdependence and the international business cycle a stochastic general equilibrium model of the world economy is developed to analyze the contribution of trade interdependence to international business cycles we test some of the implications of the model using data from ten major industrial countries and a variety of detrending techniques to calculate the cyclical component of output we find that the significance of trade in the transmission of economic disturbances across countries is not robust to the choice of the detrending method in general the role of trade interdependence is moderate and seem to have been stronger in the period before 1973

volatility of fundamental variables under different exchange rate system a simple test for hong kong this paper presents a comparison in the changes of hong kong macroeconomic fundamental variables before and after its currency was pegged to the us dollar in october 1983 using a simple method from flood and rose 1995 and baxter and stockman 1989 this paper compares the volatilities of all aggregate variables used by those investigators in so far as these data are available for hong kong the results show contrary to the dominating empirical literature for the g 7 countries that the volatilities of more than half of the nominal and real variables under the float are significantly higher than those under the link

sources and propagation of international output cycles common shocks or transmission abstract this paper studies the generation and transmission of international cycles in a multi country model with production and consumption interdependencies two sources of disturbance are considered and three channels of propagation are compared technology disturbances which are mildly correlated across countries are more successful than government expenditure disturbances in reproducing actual data the presence of a common component to the shocks and of production interdependencies appear to be crucial in quantitatively matching the properties of the data

chinese trade price and yuan s valuation this paper studies how the major economic events would have affected chinese yuan s nominal exchange rate against us dollar from 1989 to 2013 the traditional average treatment effect estimation methods cannot be used to consistently estimate yuan s pegged exchange rate we develop a new estimation strategy by combining a novel panel data method proposed by hisao ching and wan and the purchasing power parity theory based on this new estimation strategy we find that during the period of pegging to us dollar chinese yuan were undervalued before the 1997 asian financial crisis the pegged exchange rate regime starting from january 1994 made the yuan undervalued by 2 62 china s accession to wto caused yuan undervalued by 36 60 after the reform of chinese exchange rate policy in july 2005 the undervaluation of the yuan was reduced to only 0 76 yuan was undervalued again by 20 43 because of 2008 china s economy stimulus package the policy reform in june 2010 made yuan overvalued by 14 40 we conclude that chinese fixed exchange rate policy indeed undervalued the yuan especially after its accession to wto the recent reforms of chinese exchange rate policy made progresses in re evaluating the yuan

identifying the common component of international economic fluctuations a new approach in this paper we develop an aggregation procedure using time varying weights for constructing the common component of international economic fluctuations the methodology for deriving time varying weights is based on some stylised features of the data documented in the paper the model allows for a unified treatment of cyclical and seasonal fluctuations and also accommodates the dynamic propagation of shocks across countries we find evidence for a world business cycle as well as evidence for a distinct european common component we also find some evidence that macroeconomic fluctuations have become more closely linked across industrial economies in the period after 1973 the world economy has become more closely integrated in recent years due to increasing trade and financial flows across countries this has spurred interest in the question of how the ongoing phenomenon of globalisation has affected the transmission and propagation of business cycle fluctuations across national borders an important question in this context is whether a substantial fraction of economic fluctuations are country specific or if there exists a world business cycle which might be defined as fluctuations that are common across all countries more generally the comovement of macroeconomic aggregates across different countries has become a topic of increasing interest in both academic and policy circles these issues have implications in a number of dimensions an empirical analysis of the relative importance of country specific versus common international fluctuations is of relevance for determining the structure of certain classes of international business cycle models from a policy perspective strong comovement of output across countries at business cycle frequencies implies that external trade would be unlikely to play a significant role in dampening fluctuations domestic policies aimed at affecting the real exchange rate and thereby attempting to boost net exports in the short run would then tend to have limited impact the degree of synchronisation of business cycles across countries also has important implications for short run international policy coordination and for assessing the feasibility of monetary unions therefore identifying and analysing the common component of international economic fluctuations is relevant from a number of different perspectives

has the euro changed the business cycle abstract in contrast to the notion that the exchange rate regime is non neutral there is little evidence that emu has systematically changed the european business cycle in fact we find the volatility of macroeconomic variables largely unchanged before and after the introduction of the euro exceptions are a strong decline in real exchange rate volatility and a considerable increase in cross country correlations to account for this finding we develop a two country business cycle model which is able to replicate key features of european data in particular the model correctly predicts a limited effect of emu on standard business cycles statistics however further analysis reveals that the euro has changed the nature of the cycle through its impact on the transmission mechanism cross country spillovers have become relatively more domestic shocks relatively less important in accounting for economic fluctuations under emu this explains why there is little change in unconditional volatilities

price flexiblity and output volatility the case for flexible exchange rates abstract this paper uses descriptive statistics and regression analyses to examine the relationship between exchange rate variability and output volatility in developed countries based on 1961 to 1984 data the result indicate that a flexible exchange rate system is associated with less not more dispersion in output growth across industrialized countries despite a more turbulent global environment also countries which have more exchange rate volatility experience less output volatility the relationship appears not to be spurious the results are consistent with the idea that an increase in price flexibility does not destabilize output