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Fear of Appreciation and Current Account Adjustment

2022
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Release : 2022
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Book Synopsis Fear of Appreciation and Current Account Adjustment by : Paul Bergin

Download or read book Fear of Appreciation and Current Account Adjustment written by Paul Bergin. This book was released on 2022. Available in PDF, EPUB and Kindle. Book excerpt: This paper finds that limited exchange rate flexibility in the form of "fear of appreciation" significantly slows adjustment of current account imbalances, providing novel support for Friedman's conjecture regarding exchange-rate flexibility. We present a new stylized fact: floaters have faster convergence than peggers for current account deficits, but not so for surpluses. A striking implication is that current account surpluses are more persistent than deficits on average. We provide evidence that this asymmetry is associated with a one-sided muting of exchange rate appreciations. We develop a multi-country DSGE model augmented with an asymmetric exchange rate policy to represent fear of appreciation; when solved to a third-order approximation, it can explain greater persistence of current account surpluses compared to deficits.

Fear of Appreciation and Current Account Adjustment

2022 International economic relations
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Release : 2022
Genre : International economic relations
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Book Synopsis Fear of Appreciation and Current Account Adjustment by : Paul Bergin

Download or read book Fear of Appreciation and Current Account Adjustment written by Paul Bergin. This book was released on 2022. Available in PDF, EPUB and Kindle. Book excerpt: This paper finds that limited exchange rate flexibility in the form of "fear of appreciation" significantly slows adjustment of current account imbalances, providing novel support for Friedman's conjecture regarding exchange-rate flexibility. We present a new stylized fact: floaters have faster convergence than peggers for current account deficits, but not so for surpluses. A striking implication is that current account surpluses are more persistent than deficits on average. We provide evidence that this asymmetry is associated with a one-sided muting of exchange rate appreciations. We develop a multi-country DSGE model augmented with an asymmetric exchange rate policy to represent fear of appreciation; when solved to a third-order approximation, it can explain greater persistence of current account surpluses compared to deficits.

Fear of Appreciation

2012
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Release : 2012
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Book Synopsis Fear of Appreciation by : Eduardo Levy-Yeyati

Download or read book Fear of Appreciation written by Eduardo Levy-Yeyati. This book was released on 2012. Available in PDF, EPUB and Kindle. Book excerpt: In recent years the term "fear of floating" has been used to describe exchange rate regimes that, while officially flexible, in practice intervene heavily to avoid sudden or large depreciations. However, the data reveals that in most cases (and increasingly so in the 2000s) intervention has been aimed at limiting appreciations rather than depreciations, often motivated by the neo-mercantilist view of a depreciated real exchange rate as protection for domestic industries. As a first step to address the broader question of whether this view delivers on its promise, the authors examine whether this "fear of appreciation" has a positive impact on growth performance in developing economies. The authors show that depreciated exchange rates appear to induce higher growth, but that the effect, rather than through import substitution or export booms as argued by the mercantilist view, works largely through the deepening of domestic savings and capital accumulation.

External Adjustment

2004 Balance of trade
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Release : 2004
Genre : Balance of trade
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Book Synopsis External Adjustment by : Maurice Obstfeld

Download or read book External Adjustment written by Maurice Obstfeld. This book was released on 2004. Available in PDF, EPUB and Kindle. Book excerpt: "Gross stocks of foreign assets have increased rapidly relative to national outputs since 1990, and the short-run capital gains and losses on those assets can amount to significant fractions of GDP. These fluctuations in asset values render the national income and product account measure of the current account balance increasingly inadequate as a summary of the change in a country's net foreign assets. Nonetheless, unusually large current account imbalances, especially deficits, should remain high on policymakers' list of concerns, even for the richer and less credit-constrained countries. Extreme imbalances signal the need for large and perhaps abrupt real exchange rate changes in the future, changes that might have undesired political and financial consequences given the incompleteness of domestic and international asset markets. Furthermore, of the two sources of the change in net foreign assets -- the current account and the capital gain on the net foreign asset position -- the former is better understood and more amenable to policy influence. Systematic government attempts to manipulate international asset values in order to change the net foreign asset position could have a destabilizing effect on market expectations"--NBER website

Preventing Currency Crises in Emerging Markets

2002-11-15 Business & Economics
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Release : 2002-11-15
Genre : Business & Economics
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Book Rating : 944/5 ( reviews)

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Book Synopsis Preventing Currency Crises in Emerging Markets by : Sebastian Edwards

Download or read book Preventing Currency Crises in Emerging Markets written by Sebastian Edwards. This book was released on 2002-11-15. Available in PDF, EPUB and Kindle. Book excerpt: Economists and policymakers are still trying to understand the lessons recent financial crises in Asia and other emerging market countries hold for the future of the global financial system. In this timely and important volume, distinguished academics, officials in multilateral organizations, and public and private sector economists explore the causes of and effective policy responses to international currency crises. Topics covered include exchange rate regimes, contagion (transmission of currency crises across countries), the current account of the balance of payments, the role of private sector investors and of speculators, the reaction of the official sector (including the multilaterals), capital controls, bank supervision and weaknesses, and the roles of cronyism, corruption, and large players (including hedge funds). Ably balancing detailed case studies, cross-country comparisons, and theoretical concerns, this book will make a major contribution to ongoing efforts to understand and prevent international currency crises.

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