Current Exchange Rate Regime Research Articles

РЕЖИМ ВАЛЮТНОГО КУРСУ ЯК ОБ’ЄКТ РЕГУЛЯТОРНОЇ ПОЛІТИКИ ДЕРЖАВИ В УМОВАХ ВІДКРИТОСТІ НАЦІОНАЛЬНОЇ ЕКОНОМІКИ

The article summarizes the patterns of development of exchange rate policy in Ukraine as the transition from administrative to economic methods of regulating the foreign exchange market in the process of increasing the degree of its liberalization. It is shown that the evolution of the exchange rate regime is described by the following chain: fixed, currency corridor, flexible, adjustable-floating, floating. The change in the objects of monetary targeting took place in the following sequence: credit channel, monetary aggregates, exchange rate, inflation. The main task of the NBU's exchange rate policy is to ensure price stability, and an additional one is the impact on the hryvnia exchange rate. It is determined that currently the main instrument of the NBU's monetary policy is the interest rate, and foreign exchange interventions are ancillary to the inflation targeting and floating exchange rate, which acts as a compensator for negative foreign exchange shocks and supports the competitiveness of producers. It is shown that within the current exchange rate regime in Ukraine foreign exchange interventions are carried out on the principles of reducing the role, scale and frequency as the currency market is liberalized, non-interference in its fundamental trends, priority of foreign exchange demand by foreign exchange market participants. and transparency of the criteria for the participation of entities in auctions and bidding. It is argued that the purpose of foreign exchange interventions is: replenishment of official foreign exchange reserves, smoothing the shortcomings of the foreign exchange market in case of its limited ability to self-regulate, loss of benchmarks for pricing, high exchange rate volatility, which negatively affects the currency security of the state and businesses. It is established that between foreign exchange interventions and the interest rate there is a transmission mechanism to strengthen the main instrument in regulating the foreign exchange and monetary markets on the principles of effectiveness of its consequences for the economy in case of adequate perception of NBU signals.

Determinants of International Reserves in Nigeria

Over the past decades, nations have accumulated international reserves to leverage foreign counterparts or protect themselves against external shocks resulting from integration. The factors identified by researchers as contributing to international reserve accumulation, however, have primarily been market factors. This study sets out to identify some distinct factors of the Nigerian economy. This is accomplished using annual data from 1970 to 2016. Several econometric methods, including the unit root test and Granger causality, were applied to test two hypotheses. The results showed substantial long-run correlations between the variables examined. Thus, the Error Correction Methodology (ECM) was used to investigate short-term and long-term relationships. Findings reveal that the accumulation of foreign reserves was significantly influenced in the long run only by aggregate exports EXPT and trade openness OPN since both variables were statistically significant at 5 percent. At the specified beak-point, there was an important structural change. Finally, Nigeria’s level of international reserves was significantly impacted by the quality of its institutions. Thus, the study recommends that policymakers maintain the current exchange rate regime in order to ensure world competitiveness. The research also suggested that the government take steps to improve and build strong institutions in order to promote transparency and accountability.

ADAPTATION TO EXTERNAL SHOCKS WITHIN THE CURRENCY BOARD SYSTEM ON THE EXAMPLE OF THE BALTIC COUNTRIES AND BOSNIA AND HERZEGOVINA

One of the most important economic policy issues, especially in the post-transition countries, is exchange rate regime (ERR), i.e. the question of optimal exchange rate regime that would stimulate economic growth and propagate macroeconomic stability. For small and EU-oriented countries like Bosnia and Herzegovina (B&H), the EU accession processes and character of countries' economic cycle phase are usually highlighted among many factors. The choice of the appropriate exchange rate system is determinated by the specific characteristics of individual countries, time moment and the characteristics of the external shock occurrence. It is generally accepted that monetary instabilities are treated by fixation and real economic shocks by exchange rate fluctuations. An important criterion for assessing the adequacy of the current exchange rate regime is its response to external shocks, such as the Great Recession in 2008. While flexible exchange rate regime is used as an automatic stabilizer, fixed exchange rates place certain restrictions. The process of macroeconomic adjustment in the Baltic States is an example of how large macroeconomic imbalances can be reduced without adjusting the nominal exchange rate and how the currency board can be successfully used as a stage in the euro introduction process. The aim of this paper is to give a comparative overview of the currency board introduction in Bosnia and Herzegovina and the Baltic countries, results achieved and reactions to external shocks (Great Recession in 2008) within this exchange rate arrangement, so conclusions that could be valuable in post-COVID 19 recovery can be drawn. Key words: exchange rates, currency board, external shocks

Modeling the relationship between the Russian ruble exchange rate and oil prices: Markov regime switching approach

This paper examines the relationship between the Russian ruble/US dollar exchange rate and global oil prices using autoregressive model with Markovian regime shifts. Empirical analysis on daily data for 2009–2019 shows that exchange rate dynamics is best described by three regimes, characterized as follows: 1) weak exchange rate reaction to oil price shocks — low conditional volatility of exchange rate changes; 2) strong reaction — moderate volatility; 3) strong reaction — high volatility. Regime 3 covers crisis periods, when ruble depreciated substantially. Regime 1 prevailed during the period of managed exchange rate arrangement lasted until November 2014. After adoption of a floating exchange rate and inflation targeting policy, regime 1 became regularly identified since mid-2017. This result can be attributed to the introduction in 2017 of a new budget rule, aimed to reduce dependence of exchange rate on oil price fluctuations. Switches between regimes could also be due to fluctuations in the uncertainty measured by the indices of geopolitical risk and economic policy uncertainty for Russia. It is also shown that the model with three regimes outperforms the random walk and linear models of the ruble exchange rate in an out-of-sample fit exercise. The proposed model can be used for identifying the current exchange rate regime in real time, scenario analysis of the consequences for the ruble exchange rate under alternative oil price trajectories, as well as in developing strategies for hedging currency risks by the private sector.

Towards a floating RMB exchange rate regime

ABSTRACTThe main challenge of China’s current exchange rate regime is that with large and frequent interventions, the RMB exchange rate cannot adequately respond to the changes in economic fundamentals. This will lead to unilateral exchange rate expectations and large-scale capital inflows or outflows. In addition, large and frequent foreign exchange market interventions have a negative impact on economic structural optimisation, RMB internationalisation, and foreign investment. Two strategies can be used to introduce a floating exchange rate system: one is a free-floating exchange rate, and the other is wide range fluctuation against a basket of currencies. The latter is a transitional option before introduction of the former: a free-floating exchange rate.

External Commercial Borrowings and Balance Sheet Effects of Exchange Rate in India: A Firm Level Analysis

The depreciation of currency expected to increase the cost of borrowing of the firms that denominate debt in foreign currency and thus adversely affect the investment and net worth of the firms. This study examines the effect of currency depreciation on investment of those firms that hold external commercial borrowings (ECB) in India. The sample data comprises non-financial firms for the period 2004 to 2015 and panel regression quantifies the balance sheet and competitiveness effect. This study does not find significant negative effect of rupee depreciation on investment of ECB indebted firms. This study shows that sample ECB firms have some natural hedge against exchange rate volatility. The performance of listed firms in terms of investment and income is better than that of unlisted firms. The findings of the study imply the effectiveness of current exchange rate regime and prudential norms laid by RBI for external commercial borrowings.

Simulation Study of General Equilibrium Analysis of Exchange Rate

With the improvement of our openness and the pressure of RMB appreciation in recent years, studies the equilibrium exchange rate is extremely important. First,the article introduces the background and current status of the equilibrium exchange rate. Second,the article is not innovative empirical analysis in the past, but through the simulation method by CD and CES production function, use the program to calculate the equilibrium exchange rate .By changing the amount of money supply and labor supply of country 1 and country 2 to observe whether the exchange rate changes.Finally,we know that the change of labor supply does not affect equilibrium exchange rate, changes in the money supply affect the equilibrium exchange rate, exchange rate changes and to analyze the reasons for the appreciation or depreciation of the currency. Finally, a brief introduction to the current exchange rate regime and its reforms.

Verifying China's exchange rate regime: it is a discretionary crawling peg to the US dollar!

This paper investigates the evolution of China's exchange rate regime after the announced shift to a managed floating exchange rate regime with reference to a basket of currencies in July 2005. We find that the RMB basket is essentially a one currency basket of the US dollar. In view of this finding and that the exchange rate of RMB against the US dollar has been crawling upward in an on–and–off manner and at a slow yet erratic rate after the regime shift, China's current exchange rate regime can best be characterised as a discretionary crawling peg to the US dollar. We suggest that a discretionary crawling peg to the US dollar is the optimal and logical choice for China and it will probably be quite some time before China moves to a freely floating exchange rate regime or only to a managed floating exchange rate regime in the real sense.

The Recent Exchange Rate Fluctuations

The recent exchange rate fluctuations in India have been a matter of concern for the policymakers and general public. The current exchange rate regime in India, known as managed float, has evolved through a long process of searching for an appropriate policy regime for India. Since exchange rates are relative prices of two currencies it is generally affected by the relative productivity differential and real wage rates in the long-run. However, the bubbles arising out of speculation plays a major role in determining the exchange rates in the short-run. The present scenario about the exchange rate fluctuations in India has been caused to a large extent by the deteriorating current account balance and the adverse expectations associated with it. However, the question of intervention by the government in the exchange rate market should be decided on the basis of the impact of such exchange rate fluctuations on the real effective exchange rate and the possible effects on the employment situation in the country.

SEMI-NONPARAMETRIC ESTIMATES OF CURRENCY SUBSTITUTION BETWEEN THE CANADIAN DOLLAR AND THE U.S. DOLLAR

In this paper we investigate the issue of whether a floating currency is the right exchange rate regime for Canada or whether Canada should consider a currency union with the United States. In the context of the framework recently proposed by James L. Swofford, we use a semi-nonparametric flexible functional form—the asymptotically ideal model (AIM), introduced by William A. Barnett and A. Jonas—and pay explicit attention to the theoretical regularity conditions of neoclassical microeconomic theory, following the suggestions of William A. Barnett and William A. Barnett and Meenakshi Pasupathy. Our results indicate that U.S. dollar deposits are complements to domestic (Canadian) monetary assets, suggesting that Canada should continue the current exchange rate regime, allowing the exchange rate to float freely with no intervention in the foreign exchange market by the Bank of Canada.

The EME Enlargement and the Choice of the Euro Conversion Rates: Theoretical and Empirical Issues

The paper deals with the choice of the nominal euro conversion rates for the acceding countries upon their accession to EMU. The paper reviews theoretical models of equilibrium exchange rates as well as discusses their interpretation and the ensuing policy recommendations. Problems with empirical estimations of existing models are addressed. It is argued that despite several equilibrium exchange rate theories not all of them are useful for the real policy choice of the nominal conversion rate. This and the intrinsic uncertainty of equilibrium exchange rate estimates lead to the conclusion that the range of 'optimal' euro conversion rates is quiet wide and other issues must be taken into account. In particular, a smooth transition to the euro conversion rate and minimisation of risks of potential shocks to the economy should be the key concern. Consequently, recommendations for the selection of nominal conversion rates are largely dependent on the current exchange rate regime.

Efficiency Costs of Myanmar’s Multiple Exchange Rate Regime

Myanmar's multiple exchange rate system creates various economic distortions. This paper describes the exchange rate practices in Myanmar, develops a model of foreign exchange markets, and presents the efficiency costs imposed by quasi-fiscal operation under the current exchange rate regime. The results of our model-based analyses indicate that the equilibrium exchange rate under the unified market could be at around K 400-500 per U.S. dollar, and using the equilibrium exchange rate (instead of the official exchange rate) as the accounting rate increases trade openness to more than 20 percent from less than 1 percent measured by official statistics. The total efficiency loss caused by the current multiple exchange rate regime is estimated at about 14-17 percent of GDP in 2006/07.

On the current RMB exchange rate regime affecting the effectiveness of monetary policy

The current exchange rate regime of China is just like the US dollar-pegged exchange rate regime, which weakens the effectiveness of monetary policy but increases the effectiveness of fiscal policy. Since the scope of implementing the fiscal policy is quite narrow, it is necessary to promote the effectiveness of monetary policy by enlarging the elasticity of the RMB exchange rate regime so as to stimulate the rapid development of the Chinese economy effectively.