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This study investigates the issue of trilemma versus dilemma in relation to monetary autonomy. We construct a long‐term interest rate independence index (LRI) apart from the conventional monetary policy independence evaluated on the basis of the short‐term interest rate independence index (SRI). LRI intends to capture the independence of domestic financial conditions and the monetary policy in a broad sense. Empirical results are as follows. On the basis of SRI, trilemma holds well, in which trade‐offs between SRI and international capital mobility and between SRI and exchange rate stability are found. This outcome is consistent with the findings of many past studies that support trilemma. However, on the basis of LRI, dilemma holds after the global financial crisis because only the trade‐off between LRI and international capital mobility exists. This result is consistent with the conclusion of Rey (2013), which emphasized the huge effects of the global financial cycle on the domestic financial condition owing to the integration of international financial markets. Empirical results settle the issue between trilemma and dilemma. [ABSTRACT FROM AUTHOR]

We review developments in monetary policy and exchange rate regimes in Norway since the Bretton Woods system collapsed. Norway has traditionally had a monetary policy regime geared towards exchange rate stability. The long history with fixed exchange rates as "normalcy" may be one factor which explains the rather late transition to inflation targeting in Norway. This "fear of floating" may seem hard to explain today. We look at five episodes, in 1992, 1998, 2008, 2014 and 2020, respectively, through the lens of the prevailing monetary regime in real-time. What if we had reacted "as if" under the opposite regime? [ABSTRACT FROM AUTHOR]

This study examines the impact of exchange rate changes on Vietnam’s export-import dynamics during a transitioning exchange rate regime. Utilizing the Autoregressive Distributed Lag (ARDL) model, our findings indicate that global income and import levels are crucial in bolstering exports, assuming other variables remain constant. Additionally, we uncover that the real effective exchange rate (REER) and money supply significantly influence import patterns, with a central exchange rate mechanism enhancing export volumes by approximately 0.14% compared to a fixed peg system. The Nonlinear ARDL (NARDL) analysis further reveals the long-term asymmetric impacts of REER on trade. By applying a threshold model, we also explore the effects of global income and import volumes on export structural changes, as well as the influence of money supply and REER on import adjustments. The research concludes with policy suggestions to aid Vietnam’s economic growth and trade sustainability within its exchange rate framework.

This study investigates the effects of monetary policy credibility and the open economy trilemma on monetary policy efficiency in developing countries. Based on a sample of 28 developing countries, the findings reveal that monetary policy credibility increases monetary policy efficiency. The results also show that central banks in developing countries have more efficient monetary policies when they choose a policy arrangement contrary to the 'middle‐ground convergence'; but, to the extent they accumulate international reserves, it allows them to move to a middle‐ground strategy. Regarding the trilemma, the estimates suggest when monetary policy is independent, monetary policy is more efficient. Furthermore, when financial openness and exchange rate stability are deepened, central banks become less efficient in conducting monetary policy. However, when countries hold higher levels of international reserves, the positive effect of monetary autonomy on monetary policy efficiency decreases and the negative effect of financial liberalisation on monetary policy efficiency decreases. [ABSTRACT FROM AUTHOR]

This paper uses Reiterative Truncated Projected Least Squares to estimate the effects of US monetary and fiscal policy on Australia using quarterly data between 1960 and 2022. When Australia had a fixed exchange rate (1960–1983), both US fiscal and monetary policies were positively correlated with Australia's GDP, which fits the predictions of a small-country IS/LM/BP model with relatively immobile capital. When Australia had a flexible exchange rate (1984–2022), US fiscal policy was positively correlated with Australia's GDP, but US monetary policy was negatively correlated with Australia's GDP, which fits the predictions of a large-country IS/LM/BP model. [ABSTRACT FROM AUTHOR]

In the research, we evaluated the equilibrium real effective exchange rate of the convertible mark and identified a significant deviation of the real effective exchange rate of the convertible mark concerning the equilibrium level, especially during the period of the coronavirus pandemic and global inflation growth. During the period of globally high inflation, the main determinant of REER appreciation was the faster growth of BH price from foreign prices and slower growth of productivity in BH compared to the environment, and to a lesser extent the growth of the domestic real interest rate and changes in terms of exchange. In addition to these appreciation pressures, the impact of uncovered interest rate parity on the depreciation of REER was expressed, due to the extremely restrictive monetary policy of the ECB and the lower degree of restrictiveness of the monetary policy in BH, from the aspect of the level of foreign and domestic interest rates. The volatility of the REER deviation from the equilibrium REER is higher in crisis periods. The isolated determinants of REER of the convertible mark provide a good analytical basis for the creation of BH monetary policy and regulation of the banking sector.

The paper explores the interconnections between foreign capital flows and the exchange rate regime switching in developing countries. We formulate the exchange rate regime switching as annual time series of binary/ordered variables employing de facto classification of exchange rate arrangements and regress them on the financial account capital flows for a panel of 28 developing countries which experienced change in their exchange rate regime during the period 2000-2016. Employing probit and logit regression, we discover the FDI, portfolio flows and changes in reserve assets to precede and/or coincide with switching. Specifically, accumulation of foreign reserves increases the probability of switching from floating to peg, while their spending coincides with exits from pegged regimes; at the same time, outflows of FDI and portfolio investments tend to accompany exchange rate regime liberalization, although the evidence on that is less consistent. [ABSTRACT FROM AUTHOR]

Copyright of Bankarstvo Magazine is the property of Association of Serbian Banks and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Abstract This paper studies the impact of exchange rate regimes on monetary autonomy, by applying a propensity score matching (PSM) model for 174 countries over the period 1970–2017. The PSM technique, that we used here to account for self-selection bias and endogeneity, reveals that the average treatment effect of flexible exchange rates on monetary autonomy is statistically significant, providing support for the impossible trinity. We also find that the effect of flexible exchange rates on monetary autonomy is more prominent in advanced economies than in emerging and developing ones. Furthermore, we show that the global financial recession (GFC) affects the monetary autonomy responses to flexible exchange rates. In particular, the GFC causes an increase in the level of monetary autonomy in countries adopting flexible exchange rates during the post-crisis period. [ABSTRACT FROM AUTHOR]

This article investigates the role of monetary policies in the success of exchange rate regime transition and the mitigation of related risks. We adopted a comparative methodology for three types of regime switches using 3 GARCH family models and data from 6 African countries over two decades. Our main findings are that a gradual and well-prepared transition improves its outcome and allows the market more flexibility in absorbing domestic and external volatilities, even during a crisis. The results of this study will provide policymakers with a road map to succeed in the exchange rate regime transition and mitigate the inherent risks. [ABSTRACT FROM AUTHOR]

ABSTRACT This paper discusses three interdependent topics. The first is that the economic reforms implemented in Latin America after the mid-1980s were not sufficient to ensure exchange rate stability in the region. The second is that there are favorable conditions to start the process of macroeconomic convergence between Latin American countries. The third topic refers to the strategic role to be played by Argentina, Brazil, Canada, and Mexico as reducing the degree of asymmetry generated by the presence of the American economy.

Given the profound structural changes in the national economy and its increasingly increased openness to the outside world, the transition to a more flexible exchange rate regime constitutes a fundamental reform in order to strengthen the competitiveness of the economy. its resilience to exogenous shocks and the level of its potential growth. However, the transition to more flexibility is not without risk, it would be accompanied by massive inflows of foreign capital motivated mainly by expectations of appreciation of the national currency and the interest rate differential, which will result in excess bank liquidity and excessive growth of reserves causing greater inflationary pressures and aggravation of financial fragilities and exchange rate risk. The objective of this article is therefore to question the capacity of the Moroccan economy through its macroeconomic fundamentals, its financial markets and its institutions, to support the transition to a new stage in the process of flexibilization of the exchange rate regime. The results show that this transition still has to wait, the ground needs to be further prepared.

We estimate the effect of sovereign credit rating events on the foreign exchange market. Using entropy balancing—a treatment effect methodology that properly addresses the possible self‐selection and endogeneity biases related to rating events—we find robust evidence that a positive (negative) sovereign credit rating event significantly increases (decreases) on average exchange rates, with a larger magnitude for negative events. This effect remains significant under flexible (but not under fixed) exchange rate regimes, and displays asymmetries related to the size of the rating event: in particular, only negative large (i.e., above one notch) rating events trigger a significant response of exchange rates. Lastly, we unveil important nonlinearities related to the initial value of the rating, suggesting a possible amplification mechanism: the impact of positive (negative) rating events is stronger in absolute value if ratings are initially high (low). [ABSTRACT FROM AUTHOR]

The objective of this study is to analyze the role of exchange rate regime on real exchange rate misalignment in sub-Saharan African (SSA) countries. At first, to determine equilibrium exchange rates, we use the BEER (Behavioral Equilibrium Exchange Rate) approach and the estimation techniques following the Cross-Sectional Augmented-Autoregressive Distributed Lags (CS-ARDL) approach that accounts for time dynamics, cross-sectional heterogeneity, and cross-sectional dependence. Then, the degree of exchange rate misalignment is evaluated. Finally, the system Generalized Method of Moments (GMM) estimation method is used to determine the role of exchange rate regime on exchange rate misalignment. The results show that countries have an average overvaluation of 9.52%. Furthermore, real exchange rate misalignment is larger and more persistent in countries with fixed exchange rate regimes than in countries with floating exchange rate regimes. A more flexibility currency is associated with less real exchange rate misalignment. As a policy implication, SSA countries need to prioritize floating (flexible or intermediate) over fixed regimes to contain the level of real exchange rate misalignment and to correct the real exchange rate misalignment persistence. [ABSTRACT FROM AUTHOR]

Estimating the real exchange rate misalignment from the equilibrium value and exploring the factors affecting its changes is crucial for both economic policymakers and economic agents. Among the various factors affecting exchange rate misalignment, the exchange rate regime, has received less attention in experimental studies. Accordingly, the present paper seeks to find out the answer to the question of how real exchange rate misalignment is affected by different exchange rate regimes. In other words, in which of the exchange rate regimes is the exchange rate misalignment less and in which one it is higher? To answer the question, the propensity score matching approach has been used. For this purpose, we have used data from 116 developing countries with different exchange rate regimes in 2019. Other factors such as real exchange rate misalignment in the previous period, inflation, the quality of institutions and financial development have been considered as match variables to net the effect of the exchange rate regime on real exchange rate misalignment and to separate the effects of other variables. The results showed that the real exchange rate misalignment from its equilibrium level has responded significantly to the type of exchange rate regime adopted by the countries, so that the floating exchange rate regime increases the real exchange rate misalignment in the selected developing countries wherever implemented. It can be argued that factors such as high exchange rate fluctuations, a more drastic adjustment in the price level, and speculative bubbles or contagion effects in the floating exchange rate regime have led to an increase in these misalignments.

Globally, research on exchange rate regimes have mainly centred on their influences on international trade flows, foreign direct investment, and economic growth while the empirical nexus between exchange rate regimes and international tourists’ inflow has been scarcely explored in South Africa. The country has consistently witnessed an increasing inflow of tourists since the 1990s to date, hence, the importance of international tourism inflow in South Africa cannot be overemphasised as it has implications on the economy, employment generation, and as a source of revenue. Also, the nexus between the exchange rate regime and international tourism inflow in South Africa has not garnered sufficient empirical attention. Therefore, this research investigates the impact of the exchange rate regime on international tourists’ inflow in South Africa over the period 1990 to 2020. Secondary data on the international tourists’ receipt, GDP income per capita, inflation rate, and exchange rate were derived from the World Bank Development Indicators while the binary variable is used as a measure of the exchange rate regime. The collected data was analysed using the ordinary least squares (OLS). Findings from the study reveal that the existing floating exchange rate regime supports the international tourists’ inflow, but its significant impact as a major driver of inflow is yet to be felt in South Africa. The study, however, established that per capita GDP and domestic exchange rate depreciation significantly promote international tourists’ inflow in the country.

The main purpose of this study is to investigate the extent and manner of the impact of political economy factors on the de facto exchange rate regime in developing countries and to extract implications for the political economy of the Iranian exchange rate regime. In this study, using ordered logit and probit models, we examine the impact of trade, financial, and political economy factors on the real exchange rate regime in middle-income developing countries during the period 1996-2012. The results of the research show that in the sample, an increase in the size of the economy increases the likelihood of choosing a floating exchange rate regime, and an increase in institutional quality, government strength, the power of interest groups, the level of democracy, and oil rents increases the likelihood of choosing a fixed exchange rate regime. Another conclusion is that the political economy factors have different effects on the choice of exchange rate regime in developing countries with upper-than-average incomes and developing countries with lower-than-average incomes. As a result, given that in developing countries the political economy factors have a significant impact on the choice of exchange rate regime, and since the influence of political economy factors on the choice of exchange rate regime leads to the adoption of a non-optimal currency system, policymakers in these countries need to reconsider how they choose the currency system. Also, according to the experimental results of this study, developing countries with poor institutional quality such as Iran are not able to maintain a stable exchange rate regime.

Copyright of Itobiad: Journal of the Human & Social Science Researches / İnsan ve Toplum Bilimleri Araştırmaları Dergisi is the property of Itobiad: Journal of the Human & Social Science Researches and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Over the last decade economists have debated whether a country's exchange rate regime explains how it weathered the Great Recession. As Denmark is the only OECD country with a conventional currency peg, its experience brings unique perspective to the debate. After the collapse of Lehman Brothers in the fall of 2008, the Danish central bank raised the policy rate to defend the euro peg. The spread to the euro area was not normalized until the summer of 2009. Using the synthetic control method, I ask whether Denmark performed worse during 2009-2018 than the synthetic doppelganger, where the doppelganger is made up of comparable OECD countries with flexible exchange rates. I find that Danish real GDP per capita as a percentage of doppelganger ditto has on average been around 95 % to 98 % . Results are consistent across different specifications and samples. [ABSTRACT FROM AUTHOR]

This paper examines how US monetary policy uncertainty (MPU) affects RMB deviations from covered interest parity (CIP) and how this effect is influenced by China's capital controls, the RMB exchange rate regime, and international reserves that constrain the transmitting channel of US MPU shocks. Our findings show that US MPU has a spill-over effect and creates deviations from RMB CIP. Capital controls insulate uncertainty shocks and alleviate the US MPU spill-over effect. There are some evidence that international reserves alleviate and the liberalised RMB exchange rate regime magnifies the spill-over effect. However, their effects become insignificant in the presence of capital controls. Moreover, the US MPU effect on RMB CIP deviations becomes prominent after the 2008 global financial crisis. [ABSTRACT FROM AUTHOR]

Moving away from a fixed exchange rate in 2005, China has gradually enlarged the band of fluctuations of Renminbi (RMB) and implemented various reforms on its central parity to have a more flexible exchange rate regime. This paper studies the nature of the exchange rate regime in China since the exchange regime reform of August 2015. Relying on the self-exciting threshold autoregressive (SETAR) model, it identifies endogenously the band of inaction beyond which the People's bank of China (China's central bank) starts to intervene in the foreign exchange market to restrict further fluctuations. Based on the comparison of the estimated threshold with the official band, this paper shows that the RMB/USD exchange rate followed an intermediate regime similar to the crawling band but with only one single threshold of intervention which is much lower than the upper boundary of the announced band.

Copyright of Revue Académique des Études Sociales et Humaines is the property of Hassif Benbouali University of Chlef and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Globally, research on exchange rate regimes have mainly centred on their influences on international trade flows, foreign direct investment, and economic growth while the empirical nexus between exchange rate regimes and international tourists' inflow has been scarcely explored in South Africa. The country has consistently witnessed an increasing inflow of tourists since the 1990s to date, hence, the importance of international tourism inflow in South Africa cannot be overemphasised as it has implications on the economy, employment generation, and as a source of revenue. Also, the nexus between the exchange rate regime and international tourism inflow in South Africa has not garnered sufficient empirical attention. Therefore, this research investigates the impact of the exchange rate regime on international tourists' inflow in South Africa over the period 1990 to 2020. Secondary data on the international tourists' receipt, GDP income per capita, inflation rate, and exchange rate were derived from the World Bank Development Indicators while the binary variable is used as a measure of the exchange rate regime. The collected data was analysed using the ordinary least squares (OLS). Findings from the study reveal that the existing floating exchange rate regime supports the international tourists' inflow, but its significant impact as a major driver of inflow is yet to be felt in South Africa. The study, however, established that per capita GDP and domestic exchange rate depreciation significantly promote international tourists' inflow in the country. [ABSTRACT FROM AUTHOR]

Copyright of Journal of Economics Business & Finance Research / Ekonomi İşletme ve Maliye Araştırmaları Dergisi is the property of Irfan Ersin and its content may not be copied or emailed to multiple sites or posted to a listserv without the copyright holder's express written permission. However, users may print, download, or email articles for individual use. This abstract may be abridged. No warranty is given about the accuracy of the copy. Users should refer to the original published version of the material for the full abstract. (Copyright applies to all Abstracts.)

Indonesia's economy has been in its worst period. At that time, economic growth was below zero percent. One of the reasons is the high volatility of exchange rates in 1997-1998 when the exchange rate regime was transferred from managed floating to free-floating. Now, the high volatility of the exchange rate is feared to have an impact on the economy, especially economic growth, because it is one of the main focuses of the government's current achievements. Therefore, this study aims to see whether volatility impacts Indonesia's economic growth, especially in two different exchange rate regimes, managed floating and free-floating. This empirical research is based on quarterly data for 1994 - 2020, using the estimation method of Generalized Autoregressive Conditional Heteroskedasticity (GARCH) and Vector Autoregressive Model (VAR). The result shows that exchange rate volatility has a significant negative effect on economic growth, while the exchange rate regime moderates the impact of exchange rate volatility on economic growth.

Price stability is the ultimate objective of the State Bank of Vietnam (SBV). In addition, in a small export-led economy, such as Vietnam, the study of exchange rate volatility is crucial for the country’s economy due to its impact on inflation via exchange rate pass-through (ERPT). This study investigated ERPT in Vietnam by employing both autoregressive distributed lag (ARDL) and nonlinear-ARDL (NARDL) approaches with data spanning from January 2009 to May 2020. Our main findings suggest that the exchange rate and money supply are the two most important factors influencing the consumer price index (CPI) and explain the change in the CPI structure using the threshold model. In addition, the transition to a central-rate mechanism successfully lowered the inflation rate in Vietnam. Furthermore, the NARDL model displays short- and long-run exchange rate asymmetries. Based on this evidence, several policy implications are provided to support price-level stability.

This article investigates the effects of the different exchange rate regimes on business cycles comovement between advanced and emerging countries. We use the Granger Causality test (VAR model) on panel data to examine the causal relationships. Our findings show the existence of a bidirectional causal relationship between output comovement and the exchange rate regimes. We check the robustness of our results by applying Dumitrescu-Hurlin (2012) panel causality test that confirms our findings. Furthermore, the impulse response functions illustrate that business cycles comovement between advanced and emerging economies responds positively and significantly to the exchange rate regimes of these two groups of countries in the short term. However, the positive effect begins to wane before being negative from the third quarter and the fifth quarter for emerging economies and developed economies, respectively.

A key challenge facing most developing economies today is how to simultaneously maintain monetary independence, exchange rate stability, and financial integration, subject to the constraints imposed by the impossible trinity. In this paper, we contribute to the literature by examining and comparing alternative macroeconomic policy choices for a developing economy with growth shocks. To that end, we introduce a three-sector "almost small" open economy macroeconomic model, and calibrate this model to proxy the China in 2005 when it made the transition from being an economy that was bounded by the impossible trinity. We design two alternative macroeconomic policy regimes and apply the calibrated model to analyze both the short-run and the long-run responses to several domestic and external growth shocks, which appeared important for a developing economy like China during its economic reform period in the 2000s. The model simulation shows that most growth shocks cause an expansion in the real GDP level. Moreover, greater flexibility in the exchange rate allows the central bank to conduct independent monetary policy, the benefit from which increases as financial capital becomes more internationally mobile. Our findings draw policy implication for those developing countries considering alternative macroeconomic policy regimes to achieve sustainable economic growth. [ABSTRACT FROM AUTHOR]

The volatility of oil price as a key energy resource for modern economies has a significant impact on the macroeconomic situation. In addition to affecting aggregated production, consumption, employment and inflation, oil shocks can affect the economy in a more nuanced way. One consequence of the turmoil in the oil market may be a shift in the employment structure between the tradable and non-tradable sectors, which we investigate in this paper. The aim of this study is to test how oil price volatility affects the structure of employment in Central and Eastern European countries. Our main hypothesis is that oil price volatility causes a temporal employment reallocation between tradable and non-tradable sectors. To verify this assumption, we created Interacted Panel VAR (IPVAR), which showed that the shocks of oil price volatility affect the employment structure and this impact is conditioned by the level of dependence on energy imports and the exchange rate regime. The constructed impulse response functions showed that, in general, oil price volatility causes a temporal fall in relative employment in the manufacturing (tradable) sector. For periods of an above-average import of energy, the exchange rate regime does not matter for the response of the structure of employment. Inversely, when countries are less dependent on imports of energy, the exchange rate regime matters for shock absorption—for floats, oil price shocks cause a temporal fall in relative employment in manufacturing, whereas for pegs, there is a slight relative increase in employment in manufacturing. [ABSTRACT FROM AUTHOR]

This paper explores the relationship between real exchange rate (RER) misalignments and economic fundamentals with respect to the exchange rate regime choice. In a first step, using the technical inefficiency model, we measure RER misalignments and, more specifically, RER overvaluation. In a second step, we assess the effects of the main economic indicators and the choice of a country's exchange rate regime on RER overvaluation. Our empirical findings, based on nonlinear specifications and impulse response functions of Panel Vector Auto Regression (PVAR) estimations, reveal that for developing countries, and during the expansion and peak phases of the business cycle, the floating exchange rate regime may be used as a policy tool to contain the pressure in the exchange rate, and so limit overvaluation. Our findings also reveal that in the context of fixed and intermediate exchange rate regimes, an expansionary monetary policy is an effective tool to stabilize exchange rate fluctuations and mitigate overvaluation. • We estimate exchange rate misalignment by using a semi-parametric approach based on a technical inefficiency model. This approach allows us to address the well-known puzzle that fundamental variables provide little help in predicting changes in exchange rate models. •By means of an impulse response function estimation of the PVAR model, we evaluate the response of both overvaluation and economic fundamentals to different shocks. •Our empirical findings reveal that economic and monetary expansions appear to be associated with lower overvaluations. However, our evaluation of the impact of an increase in growth rate with respect to exchange regimes leads us to conclude that the more flexible the currency regime, the lower the misalignment. [ABSTRACT FROM AUTHOR]

We use the taper tantrum to measure the effects of a sudden depreciation of the exchange rate. We treat this announcement in the United States of America as an exogenous shock in emerging markets and use a difference‐in‐differences approach. We show that, before the tantrum, the impact of exchange rate changes on inflation is low in both the control and the treatment groups. However, the tantrum increased the gap between groups and impacted inflation regardless of the exchange rate regime or central bank practices. Nevertheless, inflation in economies with flexible exchange rate, inflation target, or highly credible central bank is less exposed to depreciations. [ABSTRACT FROM AUTHOR]

In the Tunisian context, the issue of the misalignment of the real exchange rate has arisen for some time for some reason, a question that has intensified after the adoption of the floating regime. In this article, we will look at the assessment of the effects, if any, of the misalignment of the real effective exchange rate (REER) to its equilibrium value over the period from 1986 to 2015. The results show that the equilibrium level of the long-run exchange rate depends on productivity, the terms of trade and government spending. Two sub-periods are noted, that of a positive mismatch (undervaluation) from 1986 to 2003 followed by another negative mismatch (overvaluation) from 2004 to 2015. Such a result can be explained by the orientation of Tunisia towards the flexibility of the real exchange rate which in turn is likely to reduce the degree of imbalance of the real exchange rate. Similarly, the Tunisian authorities must adopt gradual reforms in their decisions on liberalization and financial integration and they are called upon to strengthen their trade and exchange policies to meet the challenge of the new international financial architecture. Finally, concerning the misalignment, we found the difference between the observed exchange rate and the equilibrium exchange rate is very low, especially since the implementation of the structural adjustment plan.

This article estimates the extent and speed of exchange rate pass-through (ERPT) in seven Caucasus and Central Asia (CCA) countries using monthly data over the January 1995–May 2020 period. The estimations are performed using the local projections method. We find that the average pass-through in the CCA is about 10% on impact and about 25% after 12 months. There is no evidence of asymmetric ERPT with respect to the size and the sign of exchange rate changes. The pass-through is broadly unchanged in fixed versus floating exchange rate regimes. There has been a downward shift in the speed of ERPT in the aftermath of the global financial crisis as CCA countries have entered a relatively low inflation environment. The pass-through estimates could be used by the CCA monetary authorities for inflation projections. The absence of nonlinearities in the pass-through with respect to the exchange rate regime suggests that transition from fixed to floating exchange rate regimes in the region is not likely to impose additional inflationary costs. [ABSTRACT FROM AUTHOR]

This paper analyses the behaviour of the external adjustment path for the four main economies in the euro area. I find a structural break in the behaviour of the net external position at the time of the introduction of the euro for France, Italy and Spain, pointing out that the inception of the common currency changed their external adjustment process. Germany does not show this structural break, being its external position more affected by other events such as the country reunification in 1989. I also find that France and Italy will adjust the net external position mainly through the valuation component, while Germany and Spain will restore their external balance mostly through the trade component. The common currency area could have exacerbated Germany's net creditor position as the evolution of the euro has reacted to the external adjustment needs of debtor countries such as Italy and Spain. [ABSTRACT FROM AUTHOR]

Through the analysis of the interactions between monetary policy strategy and exchange rate regimes adopted in Morocco, the particularity of this article is that it does not study the impact of exchange rate policy and/or monetary policy on economic indicators, but rather to that, it analyzes the implication of the reform affecting exchange rate policy on the need for another reform affecting monetary policy. I thus show in this article that inflation targeting, which Bank Al-Maghrib plans to adopt following the gradual abandonment of the exchange rate anchor, is not adapted to the nature of economic shocks in Morocco and would only penalize the Moroccan economy. I therefore recommend as an alternative strategy, the possible adoption of nominal GDP targeting instead of inflation targeting, in order to improve the transmission of monetary policy to economic activity.

Price stability is the ultimate objective of the State Bank of Vietnam (SBV). In addition, in a small export-led economy, such as Vietnam, the study of exchange rate volatility is crucial for the country's economy due to its impact on inflation via exchange rate pass-through (ERPT). This study investigated ERPT in Vietnam by employing both autoregressive distributed lag (ARDL) and nonlinear-ARDL (NARDL) approaches with data spanning from January 2009 to May 2020. Our main findings suggest that the exchange rate and money supply are the two most important factors influencing the consumer price index (CPI) and explain the change in the CPI structure using the threshold model. In addition, the transition to a central-rate mechanism successfully lowered the inflation rate in Vietnam. Furthermore, the NARDL model displays short- and long-run exchange rate asymmetries. Based on this evidence, several policy implications are provided to support price-level stability. [ABSTRACT FROM AUTHOR]

This article investigates the effects of the different exchange rate regimes on business cycles comovement between advanced and emerging countries. We use the Granger Causality test (VAR model) on panel data to examine the causal relationships. Our findings show the existence of a bidirectional causal relationship between output comovement and the exchange rate regimes. We check the robustness of our results by applying Dumitrescu-Hurlin (2012) panel causality test that confirms our findings. Furthermore, the impulse response functions illustrate that business cycles comovement between advanced and emerging economies responds positively and significantly to the exchange rate regimes of these two groups of countries in the short term. However, the positive effect begins to wane before being negative from the third quarter and the fifth quarter for emerging economies and developed economies, respectively. [ABSTRACT FROM AUTHOR]

We investigate the long-term effect of domestic currency depreciation on external debt for a panel of 41 emerging economies over the years 1999–2019 based on quarterly data. Using heterogeneous panel cointegration methods, we find that domestic currency depreciation leads to an increase in the external debt to GDP ratio over the long-term and it might, therefore, reduce the sustainability of external debt. This is particularly the case for larger depreciations, while smaller depreciations might even reduce the external debt burden over the long-term for more developed emerging economies. Poorer emerging economies face a greater increase in external debt burden following domestic currency depreciation. We also find that higher exchange rate volatility and the use of floating exchange rates contribute to a greater increase in external debt burden over the long-term following currency depreciation. Furthermore, we find asymmetric effects of exchange rate depreciation on external debt: greater central bank independence limits the effect of currency depreciation on external debt, while higher financial development and illicit financial flows augment the effect of depreciation on external debt. • We study the effect of currency depreciation on external debt in emerging countries. • Nominal depreciation contributes to an increase in external debt burden. • The effect is long-term and depreciation might reduce external debt sustainability. • The effect is asymmetric and stronger in poorer emerging economies. • The effect is weaker due to greater central bank independence and lower volatility. [ABSTRACT FROM AUTHOR]

We document comparative evidence on invoicing currency and exchange rate passthrough (ERPT) before and after an importer has switched from a de facto peg to a floating exchange rate regime. Our study utilizes customs data of Malawian imports from across the globe, at Harmonized System (HS) 8-digit level. We demonstrate that: (1) the share of U.S. dollar invoicing increased by 9.4 percent and exchange rate passthrough also increased after the regime switch; (2) a fixed exchange rate regime limits pass-through of the bilateral exchange rate by about 20 percentage points. (3) When invoicing currency is considered however, we find that this difference in the regimes holds and ultimately, the difference in the pass-through of the two regimes is explained solely by the dollar exchange rate. However, the USD exchange rate is in itself not particularly larger than the ERPT of other currencies such as the euro and the South African rand. Given that flexible regimes are usually associated with a greater ability to absorb real external shocks in a small open economy, the policy implication is to for monetary policy to consider these heterogeneities when considering the exchange rate risk and impact on domestic prices in developing countries like Malawi, and to promote competitive market structures in developing countries. [ABSTRACT FROM AUTHOR]

Public foreign currency borrowing is a common problem of emerging markets. Scholars named it the original sin of foreign debt. It has a proven negative influence on economic growth and development, undermining financial stability, and increasing the probability of monetary crises. The roots of the original sin often lay in emerging markets’ institutional underdevelopment, with low-quality monetary policy, inappropriate exchange rate regime choice, and exchange rate mismanagement being stated among the most important causes. This paper evaluates the influence of the exchange rate policy on the emission of foreign currency sovereign bonds in emerging markets. The relationship is estimated using panel data and GMM approach, with exchange rate regime type (both de jure and de facto) and real exchange rate volatility serving as explanatory variables. The findings reveal that fixed exchange rate regime and high real exchange rate volatility is promoting the foreign currency borrowing. Thus countries that want to reduce the burden of the original sin should lean towards a more flexible exchange rate policy while maintaining their real exchange rate stable.

China’s increasing trade volume and continuous integration with global financial markets have strengthened the influences of the renminbi on the exchange rates of different currencies. Previous studies find closer co-movements between the renminbi and other currencies. This paper is novel to investigate the underlying determinants of the comovement further, using panel data of over thirty-four countries. Our results show that stronger bilateral trade and financial linkages with China have a positive association with the currency co-movement. Moreover, countries with greater flexibility in exchange rate regimes show stronger co-movements. These findings imply that growing co-movements are the consequence of autonomous decisions at the market rather than that of management by governments or central banks.