Browsing by Subject "E42"

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  • Korhonen, Iikka; Wachtel, Paul (2005)
    BOFIT Discussion Papers 2/2005
    Published in Research in International Business and Finance Vol. 20, No. 2 (2006), pp. 215-226
    We assess the extent and speed of exchange rate pass-through in the countries of the Commonwealth of Independent States (CIS).We do this in the framework of vector autoregressive regressions, utilising impulse functions and variance decompositions with monthly data that starts in 1999 in order to avoid periods of very high inflation and the Russian crisis.We find that exchange rate movements have a clear impact on price developments in the CIS countries.The speed of the pass-through is also fairly high: in most cases the full effect is transmitted into domestic prices in less than 12 months.Unlike in many other emerging market economies, an additional effect from US prices on to domestic prices is not significant.The extent of the exchange rate pass-through is usually much higher than in our benchmark group of emerging market countries.Variance decomposition shows that the relative share of exchange rates in explaining changes in domestic prices is higher in the CIS countries than in the benchmark group. Our results indicate that policy-makers in the CIS countries need to pay more attention to exchange rate movements than in many other emerging market countries.Key words: exchange rate pass-through, inflation, exchange rate regime, transition countries JEL: E31, E42, F31, F42
  • Chen, Yu-Fu; Funke, Michael; Glanemann, Nicole (2009)
    BOFIT Discussion Papers 21/2009
    Hong Kong's currency is pegged to the US dollar in a currency board arrangement. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities revamped the one-sided currency board mechanism into a symmetric two-sided system with a narrow exchange rate band. This paper reviews the characteristics of the new currency board arrangement and embeds a theoretical soft edge target zone model typifying many intermediate regimes, to explain the notable achievement of speculative peace and credibility since May 2005. JEL-Classification: C61, E42, F31, F32 Keywords: currency board arrangement, target zone model, credibility, Hong Kong
  • Ma, Guonan; Yao, Wang (2016)
    BOFIT Discussion Papers 1/2016
    A global renminbi needs to be backed by a large, deep and liquid renminbi bond market with a world-class Chinese government bond (CGB) market as its core. China’s CGB market is the seventh largest in the world while sitting alongside a huge but non-tradable and captive central bank liability in the form of required reserves. By transforming the non-tradable cen-tral bank liabilities into homogeneous and tradable CGBs through halving the high Chinese reserve requirements, the size of the CGB market can easily double. This would help over-come some market impediments and elevate the CGBs to a top three government bond mar-ket globally, boosting market liquidity while trimming distortions to the banking system. With a foreign ownership similar to that of the JGBs, CGBs held by foreign investors may increase ten-fold by 2020, approaching 5 percent of the 2014 global foreign reserves and facilitating a potential global renminbi, especially in the wake of the renminbi’s inclusion into the basket of the IMF Special Drawing Rights.
  • Grym, Aleksi; Heikkinen, Päivi; Kauko, Karlo; Takala, Kari (2017)
    BoF Economics Review 5/2017
    Central banks have traditionally issued cash to the general public. With digitalisation, banknotes are becoming a technically outdated payment instrument, and some central banks have explored the possibility of central bank-issued electronic money applicable to retail payments. Electronic central bank money would offer the public the possibility to hold central bank money in a potentially cashless future. In its present form, blockchain technology would probably not be a suitable solution, since it is unable to process a sufficiently large number of transactions. Electronic central bank money would potentially have significant implications for other areas of central bank policy, which should be meticulously analysed.
  • Fischer, Christoph (2012)
    BOFIT Discussion Papers 24/2012
    Based on a classification of countries and territories according to their regime and anchor currency choice, the study considers the two major currency blocs of the present world. A nested logit regression suggests that long-term structural economic variables determine a given country's currency bloc affiliation. The dollar bloc differs from the euro bloc in that there exists a group of countries that peg temporarily to the US dollar without having close economic affinities with the bloc. The estimated parameters are consistent with an additive random utility model interpretation. A currency bloc equilibrium in the spirit of Alesina and Barro (2002) is derived empirically. Keywords: anchor currency choice, nested logit, exchange rate regime classification, additive random utility model, currency bloc equilibrium JEL-Classification: F02, F31, F33, E42, C25
  • Kauko, Karlo (2018)
    Scandinavian Economic History Review 1; January ; 2018
    Chartalist theories assume the government determines the currency used by the public. Finland’s experience following the Russo-Swedish war in 1808–1809 would seem to contradict the chartalist view. Having become a Grand Duchy under Russia, the Finnish Government sought to replace Swedish riksdalers in circulation with roubles. However, due to a resilient trade surplus with Sweden and the resulting flood of Swedish money into Finland, bans on the riksdaler were largely ineffective. Taxation proved a particularly clumsy tool for leveraging the switch to roubles. Taxpayers almost forced the government to accept payments in a foreign currency. Even the government had to use Swedish money. Issuing roubles was of limited use. As a result, the rouble failed to establish itself as Finland’s main currency until the introduction of a silver standard in 1840–1842.
  • Grym, Aleksi; Heikkinen, Päivi; Kauko, Karlo; Takala, Kari (2017)
    BoF Economics Review 4/2017
    Keskuspankit ovat perinteisesti laskeneet liikkeeseen seteleitä yleisön käytettäviksi. Digitalisaation myötä setelit alkavat olla teknisesti vanhentunut maksuväline, ja jotkut keskuspankit ovat harkinneet vähittäismaksamiseen soveltuvaa elektronista keskuspankkirahaa. Elektroninen keskuspankkiraha tarjoaisi yleisölle mahdollisuuden pitää hallussaan keskuspankkirahaa mahdollisessa setelittömässä tulevaisuudessa. Lohkoketjuteknologia nykyisellään todennäköisesti sopisi tarkoitukseen huonosti, sillä se ei pysty käsittelemään riittävän suurta määrää transaktioita. Elektronisella keskuspankkirahalla olisi todennäköisesti muille keskuspankkipolitiikan lohkoille merkittäviä vaikutuksia, joita olisi selvitettävä huolellisesti.
  • McClung, Nigel (2020)
    Journal of Economic Dynamics and Control December
    This paper examines E-stability, determinacy, and indeterminacy in a general class of regime-switching models with lagged endogenous variables. Using determinacy conditions from Cho (2016, 2020), our first result extends McCallum (2007) to models with time-varying parameters: the unique mean-square stable equilibrium is E-stable if agents have current information and one-period-ahead decision rules. Further, we address the existence of E-stable non-fundamental equilibria, and find that Iteratively E-stable equilibria of indeterminate switching models can exist. Finally, we show that indeterminate New Keynesian models with persistent, recurring interest rate peg regimes admit Iteratively E-stable equilibria. In special cases, the Iterative E-stability condition coincides with the Long Run Taylor Principle.
  • Funke, Michael; Paetz, Michael (2012)
    BOFIT Discussion Papers 30/2012
    This paper evaluates various financial system reform initiatives and proposals in China in a DSGE modelling setting. The key reform steps analysed include phasing out benchmark interest rates, deepening the direct finance market, reducing government's quantity-based intervention on financial institutions. Our counterfactual model simulation results suggest that the reforms will be beneficial only, if Chinese monetary policy continues to rely on quantity-based interventions on financial institutions or tightens the interest rate rule. Keywords: DSGE model, financial sector reform, monetary policy, China. JEL classification: E42, E52, E58.
  • Berganza, Juan Carlos; Broto, Carmen (2011)
    BOFIT Discussion Papers 9/2011
    Published in Journal of International Money and Finance, Volume 31, Issue 2, March 2012, Pages 428-444
    Emerging economies with inflation targets (IT) face a dilemma between fulflling the theoretical conditions of "strict IT", which implies a fully flexible exchange rate, or applying a "flexible IT", which entails a de facto managed floating exchange rate with forex interventions to moderate exchange rate volatility. Using a panel data model for 37 countries we find that, although IT lead to higher exchange rate instability than alternative regimes, forex interventions in some IT countries have been more effective in reducing volatility than in non-IT countries, which may justify the use of "flexible IT" by policymakers. Keywords: Inflation targeting; Exchange rate volatility; Foreign exchange interventions; Emerging economies. JEL codes: E31; E42; E52; E58; F31
  • Mariotto, Carlotta; Verdier, Marianne (2015)
    Bank of Finland Research Discussion Papers 23/2015
    Over the recent years, the development of Internet banking and mobile banking has had a considerable impact on competition in the retail banking industry. In some countries, the regulatory framework has been adapted to allow non-banks to operate in retail payments and compete with banks for deposits. Several platforms or large retailers have started to offer innovative financial products to their customers. In this paper, we survey the issues related to innovation and competition in Internet banking and mobile banking and discuss some perspectives for future research.
  • Castrén, Olli; Takalo, Tuomas; Wood, Geoffrey (2004)
    Suomen Pankin keskustelualoitteita 22/2004
    Published in Scottish Journal of Political Economy, Volume 57, No. 1, February 2010: 85-102
    It is commonly thought that an open economy can accommodate output shocks through either exchange rate or real sector adjustments.We formalise this notion by incorporating labour market rigidities into an 'escape clause' model of currency crises.We show that the absence of structural reform makes a currency peg more fragile and undermines the credibility of the monetary authority in a dynamic setting.The fragility is captured by a devaluation premium in expectations that increases the average inflation rate when the currency peg is more vulnerable to 'busts' than 'booms'.This interaction between macroeconomic and microeconomic rigidities suggests that a policy reform can only be consistent if it renders either exchange rates or labour markets flexible. Key words: exchange rate policy, labour market flexibility, structural reform JEL classification numbers: E42, F33, D84
  • Dabrowski, Marek (2013)
    BOFIT Discussion Papers 8/2013
    Achieving price stability has been a serious challenge for CIS countries. In the first half of the 1990s, they experienced very high inflation or hyperinflation, which had originated in the perestroika period and following the dissolution of the ruble area. After the introduction of new currencies and stabilization programs in the mid-1990s, inflation moderated to two-digit levels. However, for lack of sufficient fiscal policy support, this partial progress did not succeed in preventing the financial crisis of 1998/99. The economic boom of the 2000s allowed for a return to macroeconomic stability with stronger fiscal fundamentals, but nevertheless proved insufficient to withstand the shock from the global financial crisis of 2008/09. The paper analyses the evolution monetary policy regimes of in the CIS countries over the decade of the 2000s and early 2010s and is based on the publicly available cross-country statistics and other information provided by the IMF. The paper compares financial openness in these economies both de jure and de facto. These findings will be tested against the empirical data on exchange rate movements and changes in central banks' international reserves. The paper concludes with a discussion on practical choices which CIS countries have in respect of their future monetary policy regimes. Keywords: monetary policy, CIS, financial openness, inflation JEL: E42, E58, P24, P52
  • Funke, Michael; Mihaylovski, Petar; Zhu, Haibin (2015)
    BOFIT Discussion Papers 9/2015
    The paper sheds light on the interplay between monetary policy, the commercial banking sector and the shadow banking sector in mainland China by means of a nonlinear stochastic general equilibrium (DSGE) model with occasionally binding constraints. In particular, we analyze the impacts of interest rate liberalization on monetary policy transmission as well as the dynamics of the parallel shadow banking sector. Comparison of various interest rate liberalization scenarios reveals that monetary policy results in increased feed-through to the lending and investment under complete liberalization. Furthermore, tighter regulation of interest rates in the commercial banking sector in China leads to an increase in loans provided by the shadow banking sector.
  • Chen, Yu-Fu; Funke, Michael; Glanemann, Nicole (2010)
    BOFIT Discussion Papers 6/2010
    Published in Studies in Nonlinear Dynamics and Econometrics, 2013; 17(4): 373-393
    This paper provides a modelling framework for evaluating the exchange rate dynamics of a target zone regime with undisclosed bands. We generalize the literature to allow for asymmetric one-sided regimes. Market participants' beliefs concerning an undisclosed band change as they learn more about central bank intervention policy. We apply the model to Hong Kong's one-sided currency board mechanism. In autumn 2003, the Hong Kong dollar appreciated from close to 7.80 per US dollar to 7.70, as investors feared that the currency board would be abandoned. In the wake of this appreciation, the monetary authorities finally revamped the regime as a symmetric two-sided system with a narrow exchange rate band. Keywords: Currency Board Arrangement, Target Zone Model, Hong Kong JEL-Classification: C61, E42, F31, F32
  • Horvath, Julius (2003)
    BOFIT Discussion Papers 15/2003
    The first part of this paper is a review of significant papers in the vast literature on optimum currency area (OCA) theory.The author focuses on the main classical contributions, then considers modern treatment of OCA theory.The second part considers empirical literature on the types of geographical areas that might constitute optimum currency areas, particularly with respect to asymmetry and symmetry of shocks.JEL classification: E42, F33
  • Laine, Tatu (ed.) (2015)
    Bank of Finland. Scientific monographs. E 50
    This simulator seminar book includes twelve chapters dealing with various aspects of quantitative analysis of financial market infrastructures. The topics include, among others, systemic risks, participant behavior, and new monitoring methods of various payment systems. The methodologies vary from payment system simulations to other types of quantitative analysis based e.g. on artificial neural networks as well as GARCH models. These studies have been presented in the Bank of Finland’s simulator seminars during 2012–2014.
  • Honkapohja, Seppo (2012)
    Bank of Finland Research Discussion Papers 36/2012
    The financial liberalization in the four Nordic countries (Denmark, Finland, Norway, and Sweden) that took place mostly in the 1980s led to a major financial crisis in three of those countries. The crises in Finland, Norway, and Sweden are among the deepest financial crises in advanced market economies since World War II. Denmark experienced some banking problems but managed to avoid a systemic crisis. This paper reviews the process of liberalization and discusses the reasons why Finland, Norway, and Sweden drifted into financial and economic crises. Keywords: financial repression, credit rationing, capital account controls, financial deregulation JEL classification numbers: E42, F36, G28
  • Mayes, David G.; Korhonen, Vesa (2007)
    BOFIT Discussion Papers 16/2007
    Published in International Economics, No 107, Issue 3, 2006
    We consider the likely economic impact and prospects for monetary integration among Belarus, Kazakhstan, the Russian Federation and Ukraine as part of the Single Economic Space they have agreed to set up. A monetary union among these countries poses three interesting issues for the structure and process of integration: they have already been members of a wider currency union that collapsed, so it is necessary to handle the problems of history; secondly the union would be of very unequal size with the Russian Federation outweighing the others taken together, so we must consider how the national interests would be balanced; lastly natural resources, particularly oil and gas pose problems for dependence and for the determination of the external exchange rate. JEL codes: F16, E63, E42 Key words: Monetary union, CIS, economic integration
  • Aalto-Setälä, Ville; Schindler, Robert M. (2006)
    Bank of Finland Research Discussion Papers 30/2006
    Nominal rigidities have an important role in macro models used for the analysis of monetary policy.Recently, attractive prices (also known as price points) have often been referred to as one important potential explanation of nominal rigidities.An increased interest on attractive prices as an explanation for price rigidities rests on online pricing, in the context of which it has been shown that prices are rigid also on the internet, where physical costs are not important.Our empirical analyses using micro data on consumer prices in Finland indicate that a specific form of attractive prices 9-ending prices have a considerable effect on pricing dynamics.The results of the study show that changes to prices with 9 endings are more often decreases than are changes to prices with other endings.Price changes to 9-ending prices are also of smaller size than are changes to other endings. Key words: rigidity, price endings, attractive prices, 9-prices JEL classification numbers: E42, D01