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The relationship between exchange rates and inflation targeting revisited
For decades, the exchange rate was at the center of macroeconomic policy debates in emerging markets. Many countries used the nominal exchange rate to bring down inflation, –others—mostly in Latin America—used the exchange rate to implicitly tax the export sector. Currency crises were common and usually ...
Current account and external financing: an introduction
Economic analysts were surprised by the collapse of the Thai baht in July 1997. In the months that followed, most of the so-called East Asian Tigers faced severe balance-of-payments crises, and a year later, in August 1998, the Russian ruble was devalued. As a result of this succession of crises, the ...
Managing the capital account
Globalization has been under attack over the last few years. Activists, famous academics, and commentators of various stripes have mounted a systematic campaign against free trade in goods and, especially, in financial claims. One of the latest manifestations of this antiliberalization mood was the ...
Is the foreign exchange derivatives market effective and efficient in reducing currency risk?
Floating foreign exchange rates have gained increased support as a preferred system for reducing the vulnerability of emerging markets to external shocks. The volatility associated with floating exchange rates, however, exposes economic agents to the risk of changes in the valuation of the financial ...
Trends, cycles, and convergence
Determining turning points in the business cycle is a difficult problem. Making sensible predictions concerning the growth path of an economy in the medium or long term is even harder. This paper explores what can be achieved by analysing and modeling time series observations on gross domestic product ...
Overoptimism boom-bust cycles and monetary policy in small open economies
In the 1990s several emerging market economies such as Chile Mexico and a number of southeast Asian countries displayed episodes of peaking growth rates combined with increasing current account deficits and appreciating currencies which ended with abrupt reversions in capital flows and recessions. In ...
Current account deficits: the Australian debate
Large and persistent current account deficits are frequently raised as a cause for concern for a number of reasons. Perhaps the key concern is that countries in this situation could be on a path to insolvency, building up excessive net foreign debt, raising the prospects of default or a sharp reversal ...
Monetary policy: rules and transmission mechanisms
Monetary policy must consider the bidirectional relationship between the economy and its central bank. It should therefore address two essential questions: first, how changes in the economy induce a reaction by the central bank, and second, how these policy changes are in turn transmitted to the ...
Macroeconomic and monetary policies from the eductive viewpoint
The quality of the coordination of expectations, a key issue for monetary policy, obtains from different, but interrelated, channels: both the credibility of the central bank intervention and the ability of decentralized agents to coordinate on a dynamical equilibrium matter. For both purposes, it is ...