Browsing by Subject "F32"

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  • 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
  • Woo, Wing Thye (2018)
    BOFIT Policy Brief 7/2018
    Our principal policy suggestion to China is that, because China’s economy in 2018 is very different from that in 1978, there should be more reciprocity in China’s trade and investment relations with the advanced economies. China should not only give national treatment in the near future to foreign firms but should also set up a mechanism to start easing up on foreign acquisition of Chinese firms in a manner that is consistent with China’s national security concerns. Our principal policy suggestion to the US is to stop equating strategic competition with economic competition. Strategic competition is normally a zero-sum game while economic competition is usually a zero-sum game in the short-run, but generally creates a win-win outcome in the long-run. National economic dynamism and economic resilience emerge from international economic competition and not from sheltering domestic high-tech firms permanently.
  • Lukkarila, Johanna (2003)
    Suomen Pankin keskustelualoitteita 3/2003
    Monet maat ovat 1990-luvun alun jälkeen luopuneet kiinteän mutta ajoittain muutettavan valuuttakurssin järjestelmästä.Tässä työssä arvioidaan, miten Aasian tapahtumien jälkeen kehitellyt niin kutsutut kolmannen sukupolven valuuttakriisimallit selittävät Aasian kriisiä.Lisäksi teorioita ja Aasian tapahtumia verrataan Venäjän ja Turkin viimeisiin rahoituskriiseihin.Tarkastelu osoittaa, etteivät perinteiset teoriat ole menettäneet merkitystään kriisien selittäjinä.Uusia malleja ja mallien yhdistämistä kuitenkin tarvitaan, sillä viimeaikaisiin kriiseihin on yhä useammin liittynyt sekä pankki- että valuuttakriisien piirteitä.Avain-sanat: valuuttakriisit, pankkikriisit, kehittyvät markkinat, Aasia, Turkki, Venäjä JEL-luokittelu: F31, F32, F41
  • Kortelainen, Mika (2007)
    Bank of Finland Research Discussion Papers 9/2007
    We present a two country DGE model and estimate it using Bayesian techniques and euro area and US quarterly data for 1977 2004. In analysing the current accounts we find that a lower US rate of time preference or a higher dollar risk premium could render the deficit sustainable, but that these could push the interest rate to the zero bound. Secondly, we find that fiscal policy is not sufficiently effective to improve the current account although the zero bound is not hit. Key words: current account, zero bound, policy coordination JEL classification numbers: E61, F32
  • Şen, Hüseyin; Kaya, Ayşe (2016)
    BOFIT Discussion Papers 3/2016
    ​This study empirically examines the validity of the twin and triple deficits hypotheses using bootstrap panel Granger causality analysis and an annual panel data set of six post-communist countries (Russia, Poland, Ukraine, Romania, the Czech Republic, and Hungary) from 1994 to 2012. Our findings, based on panel data analysis under cross-sectional dependence and country-specific heterogeneity, support neither the twin deficits hypothesis nor its extended version, the triple deficits hypothesis, for any of the countries considered. In other words, we find no Granger-causal relationship between budget deficits and trade (or current account) deficits or among budget deficits, private savings-investment deficits, and trade deficits.
  • Cheung, Yin-Wong; Herrala, Risto (2013)
    BOFIT Discussion Papers 22/2013
    Published in Pacific Economic Review, 19: 1 (2014), pp. 112–134
    We study the renminbi (RMB) covered interest differential - an indicator of the effectiveness of capital controls. It is found that the differential is not shrinking over time and, in fact, appears larger after the global financial crisis than before. That is, capital controls in China are still substantial and effective. In addition to exchange rate changes and volatilities, the RMB covered interest differential is affected by credit market tightness indicators. The marginal explanatory power of these macroeconomic factors, however, is small relative to the autoregressive component and the dummy variables that capture changes in China's policy. Keywords: NDF implied RMB interest rate, capital controls, asymmetric response, macro determinants, credit market tightness JEL: E44, F31, F32.
  • Knight, John; Wang, Wei (2011)
    BOFIT Discussion Papers 15/2011
    Published in The World Economy, Vol. 34, Issue 9, pp. 1476-1506, September 2011
    In recent years China has experienced two forms of extreme macroeconomic imbalance: an expenditure imbalance in the sense of very high investment and very low consumption, giving rise to rapid capital accumulation; and an imbalance between expenditure and pro-duction, producing external imbalance, i.e. a huge surplus on the current account of the balance of payments. Both imbalances imply a low rate of time discount by both govern-ment and society: consumption in the present is forgone in favour of consumption in the future. The paper examines how these imbalances came about, and goes on to consider whether they can be sustained and how they might be redressed. There is no evidence that the rapid capital accumulation has reduced the rate of profit on capital and thus the incen-tive to invest. However, persistent external imbalance poses a threat to investment if it ge-nerates excess liquidity and asset bubbles. The current account surplus rose remarkably in the years 2004-7. This was associated with exogenous increases in competiveness and in saving, both attributable to the economic reform policies. On current policies, the surplus is likely to rise again once the world economy recovers from its recession. This poses three sorts of problems, each of which is examined in turn: difficulties for macroeconomic stabi-lization policies; risk of capital loss on the foreign exchange holdings; and the threat of re-taliation by China's trading partners. A combination of internal and external policies will be required to redress the imbalance. Keywords: China; investment; consumption; current account; exchange rate; external im-balance; macroeconomic imbalance. JEL Classification: E21; E22; E61; F32; F41; F51.
  • Comunale, Mariarosaria (2015)
    BOFIT Discussion Papers 28/2015
    Using the IMF CGER methodology, we make an assessment of the current account and price competitiveness of the Central Eastern European Countries (CEEC) that joined the EU between 2004 and 2014. We present results for the “Macroeconomic Balance (MB)” approach, which provides a measure of current account equilibrium based on its determinants together with mis-alignments in real effective exchange rates. We believe that a more refined analysis of the mis-alignments may useful for the Macroeconomic Imbalance Procedure (MIP). This is especially the case for these countries, which have gone through a transition phase and boom/bust periods since their independence. Because such a history may have influenced a country’s performance, any evaluation must take account of each country’s particular characteristics. We use a panel setup of 11 EU new member states (incl. Croatia) for the period 1994-2012 in static and dynamic frameworks, also controlling for the presence of cross-sectional dependence and checking specifically for the role of exchange rate regimes, capital flows and global factors. We find that the estimated coefficients of the determinants meet with expectations. Moreover, the foreign capital flows, the oil balance, and relative output growth seem to play a crucial role in explaining the current account balance. Some global factors such as shocks in oil prices or supply might have played a role in worsening the current account balances of the CEECs. Having a pegged exchange rate regime (or being part of the euro zone) affects the current account positively. The real effective exchange rates behave in accord with the current account gaps, which clearly display cyclical behaviour. The CAs and REERs come close to equilibria in 2012 in most of the countries and the rebalancing is completed for some countries that were less misaligned in the past, such as Poland and Czech Republic, but also for Lithuania. When Foreign Direct Investment (FDI) is introduced as a determinant for these countries, the misalignments are larger in the boom periods (positive misalignments) whereas the negative misalignments are smaller in magnitude.
  • Nieminen, Mika; Heimonen, Kari; Tohmo, Timo (2017)
    BOFIT Discussion Papers 20/2017
    Published in Open Economies Review, 30, 2, 2019, 319–341
    This study provides novel evidence on the impact of labor market institutions on current account dynamics. Our results suggest that a high degree of coordination of wage bargaining has a positive effect on the current account balance over the long run. This result is not driven entirely by wage moderation induced by centralized wage setting, however. A high degree of coordination of wage bargaining is associated with a slower current account adjustment toward its long-run equilibrium. This result seems theoretically plausible; the aggregate shocks in the exporting sector are largely driven by idiosyncratic shocks and the presence of idiosyncratic shocks increases the importance of labor market flexibility. This analysis of the impact of labor market institutions on current account balances complements the existing empirical current account literature focused on macroeconomic and financial measures.
  • Fromlet, Hubert (2014)
    BOFIT Policy Brief 15/2014
    During and after the Central Committee’s Third Plenum in November 2013, China announced far-reaching reforms in the spheres of marketization and economic deregulation that included financial markets. While the speed of the rollout of China’s planned reforms is still unknown, officials repeatedly reference the great opportunities for guiding China onto a healthier, more sustainable social and economic track. The risks of such ambitious marketization and deregulation plans need to be considered in the context of speed and sequencing of reforms of the financial sector. We currently lack the skills for overcoming the famously low predictability of financial crises. The areas for skill improvement largely relate to market psychology (behavioral finance) and the understanding of history and macrofinancial aggregates. The much-undervalued discipline of behavioral finance has started to come into its own over the past 10 to 15 years, including the awarding of the 2013 Nobel Prize Robert in Economics to Robert Shiller for his efforts at understanding the psychology of financial markets. This year’s Nobel Prize winner, Jean Tirole, also considers behavioral aspects in his work. Sweden has had two serious banking crises in the past 30 years. The first – and most serious – crisis occurred in the early 1990s, while a smaller crisis took place at the end of the last decade. Both were foreseeable. The first crisis emerged as Swedish banking entered uncharted deregulation waters, a situation Chinese reformers will themselves inevitably confront. Swedish research findings with respect to sequencing, speed of reforms and behavioral finance apply nicely to the Chinese discussion. The italicized discussion focuses on what the Swedish deregulation experience means for Chinese policy choices, but most of these observations are generally relevant for policymakers in emerging markets in Asia and elsewhere. Publication keywords: financial deregulation, Asia, Sweden
  • Hamano, Masashige; Pappadà, Francesco (2020)
    Bank of Finland Research Discussion Papers 1/2020
    This paper revisits the case for exible vs. fixed exchange rate regime in a two-country model with firm heterogeneity and nominal wage rigidity under incomplete financial markets. Dampening nominal exchange rate fluctuations simultaneously stabilizes the firm turnover in the export market. When firms are homogeneous and low productive, the fixed exchange rate regime dominates the flexible one because it reduces the fluctuations in labor demand arising from entry and exit of exporters following a demand shock. We also show that an alternative regulation policy in the export market does not rule out the possible adoption of a managed floating regime.
  • Funke, Michael; Rahn, Jörg (2004)
    BOFIT Discussion Papers 14/2004
    Published in World Economy vol. 28, no 4 (2005), pp. 465-489
    Given that the value of China s currency has been hot topic recently, this paper explores the equilibrium levels of China s real and nominal exchange rates.Employing a Johansen cointegration framework, we focus on the behavioral equilibrium exchange rate (BEER) and permanent equilibrium exchange rate (PEER) models.Our results suggest that, while the renminbi is somewhat undervalued against the dollar, the misalignment is not nearly as exaggerated as many popular claims. JEL Classifications: F31, F32, F41, C32 Keywords: Renminbi, Yuan, China, Exchange Rate, Equilibrium Exchange Rate
  • 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
  • Filardo, Andrew J.; Siklos, Pierre L. (2013)
    BOFIT Discussion Papers 5/2013
    Published in Emerging Markets Finance and Trade, Volume 52, Issue 2, 2016: 364-381.
    This paper examines past evidence of prolonged periods of reserve accumulation in Asian emerging market economies and the direct and indirect implications for monetary stability through the potential impact of such episodes on financial stability. The empirical research focuses on identifying periods of prolonged interventions and correlations with key macro-financial aggregates. Related changes in central bank balance sheets are also examined, especially in periods when the interventions are linked to strong capital inflows. In particular, we consider whether changes in the central bank's balance sheet from prolonged intervention lead to spillovers to the balance sheet of the private sector. We explore the possible forms of the spillovers and the consequences on asset prices (e.g., housing prices, equity prices, the growth in domestic credit). Policy implications are drawn. Finally, we propose a new indicator of reserves adequacy and excessive foreign exchange reserves accumulation based on a factor model. Two broad conclusions emerge from the stylized facts and the econometric evidence. First, the best protection against costly reserves accumulation is a more flexible exchange rate. Second, the necessity to accumulate reserves as a bulwark against goods price inflation is misplaced. Instead, there is a strong link between asset price movements and the likelihood of accumulating foreign exchange reserves that are costly. Keywords: foreign exchange reserves accumulation, monetary and financial stability JEL Classification system: F41, F32, E44, D52
  • Korhonen, Tapio (2016)
    Suomen Pankki. Yleistajuiset selvitykset. A 117
    Rahoitusmarkkinoilla on kaksi perinteistä ydintehtävää: luoda rahaa ja välittää rahoitusta rahoitusylijäämäisiltä sektoreilta rahoitusalijäämäisille sektoreille. Rahoitusmarkkinoiden kolmanneksi perustehtäväksi on viime vuosikymmeninä kehittynyt laaja toiminta jälki- ja johdannaismarkkinoilla. Tässä katsauksessa esitellään käytännönläheisesti näiden rahoitus- ja valuuttamarkkinoiden perustoimintojen luonnetta ja toimintojen liittymistä toisiinsa. Lähtökohta on kokonaistaloudellinen. Koko kansantalous toimii tiukempien rajoitteiden alaisena kuin sen yksittäiset talousyksiköt. Aluksi käsitellään rahan luomista ja ominaisuuksia sekä valuuttamarkkinoiden toimintaa. Mahdollisuus luoda rahaa tuo mukanaan inflaatioon ja rahapolitiikkaan liittyvät kysymykset. Rahapolitiikan tarkastelu painottuu politiikan käytännön toteutukseen.Samalla esitetään rahamarkkinoiden vakauteen, sääntelyyn ja säännöstelyyn liittyviä näkökohtia. Euroalueen rahapolitiikkaan ja vakauteen sisältyy runsaasti omia, osin vaikeitakin erityistekijöitä. Katsauksen jälkiosassa käydään läpi rahoituksen välitystä kansantaloudessa eli eri sektoreiden rahoitusta, kansantalouden rahoitustasapainoa sekä rahoitus- ja arvopaperimarkkinoiden tehokkuutta, vakautta, informaatiota ym. koskevia kysymyksiä. Analysoitavana on myös keskeisiä maksutaseen ja kansainvälisten rahoitusmarkkinoiden tasapaino-ongelmia. Viimeisessä luvussa paneudutaan eläkkeiden rahastoinnin osin varsin hämmentävään ongelmaan koko kansantalouden tasolla. Tarkastelun kohteena on ennen kaikkea kansantalouden rahoituksen melko pysyviä perusilmiöitä. Kuvauksen yhteydessä esitellään kuitenkin esimerkinomaisesti myös jonkin verran markkinakehitystä viime vuosilta ja vuosikymmeniltä Suomesta, euroalueelta ja maailmantaloudesta. Varsinainen historiakatsaus tämä teos ei kuitenkaan ole. Suuri osa tekstistä pohjautuu kirjoittajan Suomen Pankissa eri aikoina eri tarkoituksia varten laatimiin muistioihin.
  • Norring, Anni (2022)
    BoF Economics Review 1/2022
    This paper gives an overview on the use of macroprudential policy measures (MPMs) and capital flow management measures (CFMs) by emerging economies, and reviews literature on the effectiveness of these measures in containing the effects of large and volatile capital flows. The main findings of the paper are the following: First, major EMEs tend to use both MPMs and CFMs more than AEs. Second, the empirical evidence on the effectiveness of CFMs remains mixed. Third, there is indicative evidence that MPMs can contain the effects of capital flow volatility. Lastly, there is still little research into the interaction of CFMs and MPMs.
  • Pancrazi, Roberto; Seoane, Hernán D.; Vukotic, Marija (2019)
    Bank of Finland Research Discussion Papers 25/2019
    We examine the welfare effects of bailouts in economies exposed to sovereign default risk. When a government of a small open economy requests a bailout from an international financial institution, it receives a non-defaultable loan of size G that comes with imposed debt limits. The government endogenously asks for the bailout during recessions and repays it when the economy recovers. Hence, the bailout acts as an imperfect state contingent asset that makes the economy better off. The bailout duration is endogenous and increases with its size. The bailout size creates non-trivial tradeoffs between receiving a larger amount of relatively cheap resources precisely in times of need on the one hand, and facing longer-lasting financial constraints and accumulated interest payments, on the other hand. We characterize and quantify these tradeoffs and document that welfare gains of bailouts are hump-shaped in the size of bailout loans.
  • Komulainen, Tuomas; Lukkarila, Johanna (2003)
    BOFIT Discussion Papers 5/2003
    Published in Emerging Markets Review vol 4, no 3 (2003), pp. 248-272
    The study examines the causes of financial crises in 31 emerging market countries during 1980 2001.It estimates a probit model using 23 macroeconomic and financial sector variables.Traditional variables such as unemployment and inflation, as well as several indicators of indebtedness such as private sector liabilities and the foreign liabilities of banks explain currency crises rather well, and it appears currency crises occur in tandem with banking crises.Indeed, in emerging market countries the vulnerability to crisis is exacerbated by situations involving large liabilities that permit sudden capital outflows.Increases in indebtedness followed the liberalization of capital flows and domestic financial sectors. Author Keywords: Currency crises; Banking crises; Emerging markets; Liberalization; Probit model JEL classification codes: F31; F32; F41; F47