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This study examines the effect of exchange rate regimes on foreign direct investment (FDI) flow for West African Monetary Zone (WAMZ). The Arellano Panel Correction for Serial Correlation and Heteroskedaticity option of the Within Estimator for fixed-effect panel data model as well as the Dynamic Panel Data Instrumental Variable Approach by Anderson and Hsiao [(1981). Estimation of dynamic models with error components. Journal of the American Statistical Association, 76, 598–606] for the countries selected based on the data availability for the period 1980–2016 were used. The fixed exchange rate regime was found to hamper FDI flow in the zone, while intermediate policy had a significantly positive effect in facilitating FDI flow during periods of declining foreign reserves and narrowing current account balance in WAMZ. This implies that the transmission of the effect of exchange rate regimes on FDI inflows depends on the positions of the foreign reserves and current account balance in the zone. The study therefore recommends the need for monetary authorities to be cautious in managing their exchange rates especially in periods of depleting foreign reserves and narrowing current account so as not to deter the much needed FDI inflow. [ABSTRACT FROM AUTHOR]

The arrangements for international trade and payments embodied in the Bretton Woods agreements reflected two aspects of the experience of the interwar period. On the one hand, many economists felt that a domestic policy aimed at full employment, could at times, be inconsistent with fixed exchange rates and a liberal trade policy. On the other hand, the attempts of individual countries to free domestic policy from the constraints of the balance of payments, by unilateral devaluations, or by protectionist devices, led to retaliation, competitive devaluations, and competitive increases in trade restrictions, which disrupted international trade. [ABSTRACT FROM AUTHOR]

The article discusses how anti-recessionary policies involving low interest rates might put pressure on the foreign reserve position of the United States by bringing about a conversion of foreign-held dollar balances in gold. The article also examines the influence of monetary and fiscal measures on current account. The article's general conclusion is that those movements in foreign holdings between gold and dollar assets throughout the years, which could be attributed to interest-rate changes, account for only a small fraction of total foreign dollar holdings.

Why have emerging market economies (EMEs) been stockpiling international reserves? We find that motives have varied over time; vulnerability to current account shocks was relatively important in the 1980s but, as EMEs became more financially integrated, factors related to the magnitude of potential capital outflows gained importance. Reserve accumulation as a by-product of undervalued currencies has also become more important since the Asian crisis. Correspondingly, using quantile regressions, we find that the reason for holding reserves varies according to the country's position in the global reserves distribution. High-reserve holders, who tend to be more financially integrated, are motivated by insurance against capital account rather than current account shocks and are more sensitive to the cost of holding reserves than are low-reserve holders. Currency undervaluation is a significant determinant across the reserves distribution, albeit for different reasons. [ABSTRACT FROM AUTHOR]

Previous literature believes that a commercial depreciation is associated with higher financial premium and more depletion of foreign reserves. This study re-investigates this belief. Analytical results indicate that a commercial depreciation with higher financial premium and more depletion of foreign reserves depend on the combined influences of the conditions that individuals are impatient as well as foreign interest rates are bigger than time preference rates rather than only policies of commercial depreciation. Non-distortion taxation does not solve the balance-of-payments difficulties. An exact negative relationship between foreign reserves and the financial premium cannot be found. [ABSTRACT FROM AUTHOR]

Currency devaluation or depreciation is said to temporarily worsen a country’s trade balance and improve it later, an effect that is called the J-Curve. Previous research that tested the J-Curve for Brazil used the country’s aggregate trade flows with the rest of the world and did not find support for the phenomenon. In this article, we consider the trade flows between Brazil and a major trading partner, the United States, disaggregating their trade flows by commodity. We then test the empirical validity of the J-Curve for each of the 92 industries that trade between the two countries. We find support for the phenomenon in 31 industries. Therefore, disaggregation by industry seems to yield some support for the phenomenon. [ABSTRACT FROM PUBLISHER]

We use panel probit models with unobserved heterogeneity, state dependence and serially correlated errors in order to analyse the determinants and the dynamics of current account reversals for a panel of developing and emerging countries. The likelihood-based inference of these models requires high-dimensional integration for which we use efficient importance sampling. Our results suggest that current account balance, terms of trades, foreign reserves and concessional debt are important determinants of current account reversal. Furthermore, we find strong evidence for serial dependence in the occurrence of reversals. While the likelihood criterion suggest that state dependence and serially correlated errors are essentially observationally equivalent, measures of predictive performance provide support for the hypothesis that the serial dependence is mainly due to serially correlated country-specific shocks related to local political or macroeconomic events. [ABSTRACT FROM AUTHOR]

This paper investigates the changing pattern and efficacy of sterilization within emerging market countries as they liberalize markets and integrate with the world economy. We estimate the marginal propensity to sterilize foreign asset accumulation associated with net balance of payments inflows, across countries, and over time. We find that the extent of sterilization of foreign reserve inflows has risen in recent years to varying degrees in Asia as well as in Latin America, consistent with greater concerns about the potential inflationary impact of reserve inflows. We also find that sterilization depends on the composition of balance of payments inflows. [ABSTRACT FROM AUTHOR]

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The article explores some of the accounting and tax considerations for foreign exchange differences in China. On June 17, 2008, the renminbi (Rmb) extended its gains to 20%. A number of factors have brought about the appreciation. Externally, China has been under pressure to revalue its currency to redress the balance of payments trade surplus on the current account since joining the World Trade Organization (WTO). Internally, China's cumulative foreign exchange reserve is the largest in the world. This rapid rise in the value of the Rmb brought about challenges in the way which foreign exchange differences should be accounted for under the new Professional Regulation Commission (PRC) Generally Accepted Accounting Principles (GAAP).

India's foreign exchange reserves have risen rapidly since the balance-of-payment crisis in 1991 to over US$155 billion by mid-2006. India is now the fifth largest Asian reserve holder. Despite this, scant attention has been paid to the rationale for and impact of reserves accumulation in India. This paper estimates the extent of de facto sterilization and capital mobility concurrently for the period 1990:q1-2004:q4. While India appears to have sterilized capital inflows quite aggressively, as the extent of de facto capital mobility continues to rise, it might become increasingly difficult to continue to sterilize going forward. [ABSTRACT FROM AUTHOR]

The optimal reserve level theory aims to protect the economy against external shocks to its balance of payments, providing the international liquidity needed in emergency situations. The methodological applications available have limitations that compromise the results of the analysis of the optimal level in Colombia. This article offers an alternative approach to optimal international reserves and a consistent methodological framework to overcome these limitations and add trust to the monetary authorities and international agents. [ABSTRACT FROM AUTHOR]

Abstract: Using a small macroeconometric model that examines the determinants of India''s trade and inflation, this paper addresses the effects of a reform policy package similar to those implemented in 1991. Policy simulations using dynamic simulation method compare the responses to devaluation with the responses to tight credit policy. It is shown that the trade balance effects of tight credit policy are more enduring than that of devaluation, conditional on inflation being modelled in an open economy context. The simulations demonstrate that the devaluation actually worsens trade balance and hence devaluation cannot be an option in response to a negative trade shock, whereas the reduction in domestic credit reflecting demand contraction can produce a desirable improvement in the trade balance. [Copyright &y& Elsevier]

El artículo presenta resultados obtenidos por un modelo económico que analiza la influencia sobre la demanda de reservas internacionales y balanza de pagos en América Latina. Los resultados sugieren que las importaciones contestan a la disponibilidad total de reservas. Además, el incremento del déficit es obvio en los países en vías de desarrollo a causa de el aumento tremendo en los precios de petróleo.

The collapse of a fixed exchange rate is typically marked by one or more balance of payments crises in which speculators acquire a large portion of the central bank's foreign reserves as the bank attempts in vain to support its currency. Economists have long attributed such crises to inappropriate domestic policies that ultimately place the central bank in the uncomfortable position of offering speculators a one-sided bet. When asset holders have perfect foresight and the current peg must eventually be abandoned, profit maximization dictates that a sharp attack on the central bank's reserves occur at some point on the economy's path. This article demonstrates the existence of circumstances in which balance of payments crises may indeed be purely self-fulfilling events rather than the inevitable result of unsustainable macroeconomic policies. Such crises are apparently unnecessary and collapse an exchange rate that would otherwise have been viable. They reflect not irrational private behavior, but an indeterminacy of equilibrium that may arise when agents expect a speculative attack to cause a sharp change in government macroeconomic policies.

The suggested model of the demand for reserves is based on government welfare maximizing behavior under uncertainty. Random disturbances in the balance of payments can either be financed with reserves or eliminated by changes of internal variables provoked by so-called balance-of-payments adjustment policies. Thus, there is an "objective" tradeoff between reserves and adjustment policies on the one hand and a "subjective" tradeoff between the opportunity cost of reserves holdings and the variability of internal variables induced by adjustment policies on the other hand. This basic idea can be found in the fundamental contributions of Clark and Kelly. Their basic assumptions, however, are a caricature of actual central bankers' behavior. On the one hand, the monetary authorities are not restricted to expenditure-changing policies as a means of altering reserve holdings. In addition, diminishing returns or increasing disutilities from larger doses of any adjustment policy call for a mixture of available adjustment policies. Uncertainty is another factor breaking down the simple pairing of n instruments with n targets and argues for the efficiency of assigning several adjustment policies to the balance-of-payments target on the basis of the ordinary diversification principle. Another set of issues arises concerning the speed of implementation of this "optimum mix" of adjustment policies, which is neither continuous nor symmetrical above and below the desired level of reserves. It is not irrational for central banks to give high priority to the internal stability target in case of temporarily persistent balance-of-payments surpluses and to give equal priority to internal and external stability targets in case of persistent deficits. [ABSTRACT FROM AUTHOR]

The article examines the post-devaluation of reserves and prices under neoclassical assumptions. The re-introduction of neoclassical assumptions into balance of payments theory was done by economists M. C. Hahn in 1959 and F. Kemp in 1962. By making the assumptions that all goods were gross substitutes and normal, they were able to demonstrate the proposition that in the period in which a small devaluation by the home country takes place, (a) the balance of payments of that country improves; (b) the prices of the two commodities, expressed in home currency, increase but not proportionately with the price of foreign exchange; and (c) the foreign currency prices of the two commodities decrease, but not proportionally with the fall in the price of the home country's currency. In the first years of this decade, a further theorem was discovered which provided the rationale for the Hahn-Kemp results. It is that (1) a devaluation is equivalent, in its effects on the model's real variables and monetary variables expressed in home currency, to an equiproportional increase in the foreign money stock of the same percentage amount as the increase in the price of foreign currency; and (2) a devaluation is equivalent, in its effects on the real variables and the monetary variables expressed in foreign currency, to an equiproportional decrease in the home money stock of the same percentage amount.

Commodity markets and bond markets in a small, fixed-exchange-rate economy. This paper opens up Metzler's macro-model for the small-country, fixed-exchange-rate case by explicitly disaggregating between traded and non-traded goods and between domestic bonds and foreign bonds. The distinction between stocks and flows carries over to that between the stock capital account (the level of reserves) and the flow capital and trade accounts (the balance of payments). Fiscal policy in non-traded goods causes an increase in reserves and has an ambiguous influence on the trade account. Monetary policy in domestic bonds worsens the trade account and has an ambiguous effect on the level of reserves. [ABSTRACT FROM AUTHOR]

The article presents the estimation of the cost of adjustment to external disequilibria. The stability of an economy may be upset by disequilibria in the commercial and financial relationships between the domestic economy and the economies of other nations. These disequilibria will either be stochastic or structural in nature. The cost of adjustment to stochastic disequilibria may be defined as the change in national income required to alter temporarily the balance of payments by one monetary unit, there by offsetting the disequilibrium by one monetary unit. That is, the cost of adjustment A is a ratio A=dV/dQ. On an a priori basis, the cost of adjustment f under expenditure changing policies can be quantified as the reciprocal of the marginal propensity to import m. In the context of the above discussion the A Model of Reverse Demand. In general form, the demand for reserves can be written as E(R)* =R[Q,H,A,W] RQ0,RH<0,RA>0,RW>0.

In the 20 years since 1969, international reserves have shown considerable increases, that seem to be far in excess of any long-term global need. This was a consequence of the prominent role that the dollar continued to play in the monetary system, which made it easy for the United States to finance balance of payments deficits in its own currency, increasing the amount of dollars in reserves. In addition the Eurodollar market made international reserves to some extent demand/determined: there was a very elastic supply of liquidity in this market. These developments in international reserves have inflationary consequences. To prevent such consequences in the future, central banks should set up a systematic surveillance system for international liquidity together with the IMF and BIS. An essential instrument in this context would be for the United States to finance its balance of payments deficits in foreign currencies in world capital markets. [ABSTRACT FROM AUTHOR]

In a recent article (Coghlan, 1978b) I outlined a model of the money supply which laid emphasis on the demand for credit as opposed to the more usual exogenous issue of high powered money. This argument was developed within the context of a closed economy, and the objective of this paper is to extend the analysis to an open economy, in particular to derive the implications of this view for the international monetary approach to the balance of payments. This is not simply an abstract academic exercise, but should be of practical relevance; particularly given the growing importance of this latter approach in analysing and interpreting economic behaviour and policy.
The paper is divided into three quite distinct, but inter-related, parts. The next section argues that the international monetarist approach is deficient in not recognising an independent demand for credit, in addition to the demand for money. Because our main concern is with the practical application of the monetary approach, this is followed by an analysis of UK monetary and balance of payments statistics in order to demonstrate how the monetary approach can be interpreted in practice. This analysis reveals clearly the scope which exists for governments to sterilize external flows, and the implication for non-symmetrical adjustment is briefly discussed in the final section. [ABSTRACT FROM AUTHOR]

This comment seeks to strengthen the basic policy conclusion of Hipple's paper by showing that even in the case in which Hipple concedes Claassen's conclusion it in fact does not necessarily hold because the limit of the reserve stock may still not be finite despite the negative serial correlation of the disturbances.
For the sake of clarity it will be very useful to reproduce Hipple's Figure 1 as it illustrates very nicely the nature of the problem. We think of the present as t = 0. In future time periods the expected level of reserves will, from equation (2), be given by R, the initial stock. This time path is given by line ab. Actual time paths above or below ab are said to be in the cumulative surplus or deficit region, respectively. Lines ad, ae and ac represent the time paths for each of the three separate cases referred to above. For argument's sake, they have been drawn below ab.
We have succeeded in showing that time path ac, corresponding to the case of serially correlated self-correcting disturbances does not in fact converge in general to ab but, as the other two paths, descends into the cumulative deficit region (see dotted line ac<'>). Hence we disagree with Hipple's statement that under case 3 a complete return to R is really not necessary as "reserves will ultimately return to R due to stochastic forces." As shown above, these stochastic forces are of such a nature that eventual convergence to the R level is not guaranteed.[2]
Hence arguing that in the third case infrequent adjustment is clearly the better policy due to the seemingly self-correcting nature of the process is not correct. The third case, in fact, is no different from the first two, at least as far as the behavior of the reserve stock in the limit is concerned. [ABSTRACT FROM AUTHOR]

Under the gold-exchange standard, national currencies have supplemented gold as an international means of payment. Investigation of these policies is essential in assessing the adequacy of international reserves and the urgency of reducing the U.S. balance of payments deficit. This article extends and tests Kenen's model on reserve policies of central banks and show its implications for the U.S. balance of payments policy. Kenen built his model around a global function for central banks' reserve-asset preferences. If the foreign assets of nonofficical holders become very large, there is always a danger that the central banks will be flooded with dollars once these assets are liquidated. Such large-scale liquidations are most likely to occur when reserve currencies are weak and when it is most awkward to convert dollars into gold. The U.S. short-term investment position (official and private) is a very important determinant of reserve policies, while the return on dollar holdings plays only a minor role. The U.S. balance of payments measures will be more successful in reducing the gold drain, if they are aimed at countries that hold relatively few dollars as international reserves.

The article presents a discussion on international liquidity. According to professor Peter B. Kenen, the stock of reserve assets is adequate, for now and for the foreseeable future. In Continental Europe, there is now probably a better equilibrium in the basic balance of payments between industrial countries than in recent years. A relative calm has descended on the foreign exchanges, and the short-term need for reserves has in a sense been reduced. Nevertheless, there are a number of considerations that argue against a too complacent view. The primary indicator of the desirability of larger or smaller international reserves is the deflation/inflation situation of the world, and particularly of those countries whose financial policies are likely to be influenced by the state of their reserves. The tendency to a decline in the propensity of countries to hold their reserves in the form of foreign exchange has occurred despite the possibly abnormally high level of the Canadian proportion of foreign exchange, the new willingness of the U.S. to hold foreign exchange reserves, the rather artificial increase in exchange reserves associated with bilateral swap transactions and the general restoration of confidence in the international exchanges.

Examines the effect of reserve price scheme for wool on the balance of payments and gross national product. Influence on national income; Analysis on the elasticity of demand for wool and reserve price; Determination on the marginal rate of taxation on wool growers income.

The article discusses various issues related to the demand for international reserves. There is not sufficient evidence to reject the "import-target ratio hypothesis." The import-target reserve ratio hypothesis yields results as good as the "disturbance hypothesis" in terms of the economists Peter B. Kenen-Elinor B.Yudin criterion, even with the crude method of determining the target ratios employed above. The level of international reserves a country holds is not only a result of its experience with balances of payments but also a result of the economic policies it follows. The "disturbance hypothesis" excludes the possibility of policy variations among countries and implicitly assumes that all countries will react identically to variations in their balance of payments. Consequently the "disturbance hypothesis," at best, is a short-run explanation of the demand for international reserves. The target ratio hypothesis, on the other hand, is capable of accommodating basic policy changes in a particular country, and in the more general logarithmic form of equation, certain structural and institutional changes in the international monetary system affecting all countries reserve holding behavior.

The article presents information on international reserves. If economists could measure the need for reserves, they might be able to agree on the right way to reform the international monetary system. Most of the economists who propose drastic reform do so because they anticipate a shortage of reserves. Those who advocate more gradual change believe that reserves are adequate now and for the next several years some even believe that reserves are excessive. It is even difficult to measure the stock of reserves, as the several reserve assets and reserve credits now in use are not perfect substitutes for one another; equal amounts of gold, currency and credit may make unequal contributions to a nation's external liquidity. Governments have many reasons for holding reserve assets, including the requirements of domestic monetary legislation or long-standing custom. But the paramount reason for holding reserves is the commitment to maintain stable exchange rates in the lace of payments disturbances. Trade and private service flows, government transactions and capital movements are subject to several disturbances like secular, cyclical, seasonal and random.

International reserves held by the monetary authorities of countries are not used to finance international transactions but to allow the maintenance of fixed exchange rates through intervention by the monetary authorities in the foreign-exchange market. That is to say, international reserves are held by the monetary authorities for precautionary motives namely, to be able to finance temporary balance-of-payments deficits. This forestalls the need for immediate adjustment to the imbalances and allows the country to pursue more independent domestic policies in the face of external disturbances. It is clear that the quantity of international reserves required for this purpose is closely related to the magnitude of the imbalances in the balance of payments. The International Monetary Fund and several economists cling to the traditional reserves/imports ratio as a measure of the adequacy of international reserves, but it is generally recognized that this ratio is useful only insofar as the volume of trade and the size of the imbalances are correlated.

Focuses on the adequacy of international reserve stocks. Comparison between ideal and actual reserve levels; Influence of income on the balance of payments; Description of reserve stock.

Se presentan noticias que tratan de la economía de los Estados Unidos. Se prevía que la recuperación económica continuaría durante un largo periodo. Se hablan de medidas para suprimir la reserva obligatoria de plata. Se esperaba que la balanza de pagos quedara equilibrada a finales de 1963.