Exchange Rate Mechanism Research Articles

Węgiel w polsko-radzieckich stosunkach gospodarczych

Polish coal played an important role in economic relations between the People's Republic of Poland and the USSR. Its resources constituted an important element of the Soviet policy towards Poland. In 1946–1953, the forced deliveries of black fuel were a kind of donation. The Soviet authorities explained them with losses in war reparations as a result of the transfer of German lands on the Oder and Nysa Łużycka to Poland, with rich coal resources in Silesia. The Soviet Union also did not refrain from taking over some of the Polish coal deposits as a result of the forced correction of the borders in the east in 1951. Deliveries of "reparative" coal at lower prices brought Poland serious financial losses and inhibited the development of economic relations with Western countries. The export of coal under trade agreements concluded from 1945 was also economically unfavorable. The Soviet authorities imposed both excessive quotas and difficult financial conditions. From 1949, for this purpose, they used the price and exchange rate mechanism applied by the Council for Mutual Economic Assistance. Only in the 1960s did it become beneficial for Poland, and in the following decades it brought losses. The export of coal to the USSR, which in the 1980s amounted to 30% of total exports, caused a deficit of fuels on the domestic market, made it difficult to use the existing economic potential and maintain an adequate standard of living of the population. The political transformation after 1989, which introduced market regulations to foreign trade, led to the collapse of coal exports to the USSR.

Are stable cryptocurrencies exempted from impossible trinity?

PurposeWhile monetary autonomy is self-explanatory for cryptocurrencies such as Bitcoin with predetermined supply path, it is of great interest to probe into the monetary structures of Stablecoins. In these supply contracts and expands and capital restrictions apply due to the existence of reserves as the exchange rate arrangement adheres to a price rule.Design/methodology/approachEver since the launch of Bitcoin and its offspring, examination of cryptocurrencies' trading activity from the empirical finance viewpoint has received much attention and continues to do so. The particular monetary arrangements found in Stable cryptocurrencies (colloquially referred to as Stablecoins), however, have not been properly (1) classified and (2) studied within an empirical international finance and banking context. This paper provides an empirical framework analogous to Impossible Trinity for exploring monetary arrangements across Stablecoins wherein reserves are held as price stability is targeted.FindingsThe study findings of existence of the degree of achievement along the three dimensions of the Impossible Trinity hypothesis, namely monetary independence, exchange rate stability and financial openness for a representative sample able to cover all varieties of Stablecoins, provide fresh empirical insights and arguments to this growing literature with respect to the success of their embedded exchange rate stabilization mechanisms. While the hypothesis can be supported for all cryptocurrencies in question, the trade-off combination among exchange rate stability, capital openness and monetary independence varies with the categorical types of Stablecoins.Research limitations/implicationsIf Stable cryptocurrencies, therefore, claim the role of global monetary assets freed from sovereign limits and national boundaries, it is critical to explore whether they adhere to traditional monetary frameworks. It goes without saying that in this work the author does not use a complete catalogue of all the available Stablecoins, rather a complete catalogue of all the possible asset classes of Stablecoins. While there is a significant difficulty in finding Algorithmic Stablecoins and, so far, there is plethora of Stable Token initiatives, a broader sample to further examine these under this paper's empirical framework is suggested. Enrichment of the robustness analysis by constructing additional proxies, possibly building time series for the proposed cmo1 subindex and using additional estimation methods is encouraged.Practical implicationsStablecoins have been developed aiming to address the issue of excessive price variation in cryptocurrencies such as Bitcoin. Holders of Stablecoins enjoy the combined advantages of using a blockchain-based digital infrastructure in fulfilling the functions of store of value and media of exchange and of using a traditional currency, which merely plays the role of the unit of account (and in some circumstances the trusted reserve to which is convertible to). Understanding the varieties of Stablecoins and quantifying the components for success of their price stabilization may result in designing better Stablecoins.Social implicationsBlockchain and cryptocurrencies have introduced new challenges to money and banking. Cryptocurrencies, which independently float such as Bitcoin, have gained the interest so far due to price variation that allows for gains. But these should be by far not considered to be a substitute to traditional means of payment. Lately, Stablecoins have increasingly gained attention for that USD Tether/Bitcoin pair (a Stablecoin pegged to the US dollar at parity) has outrun the US dollar/Bitcoin pair as the most traded pair in digital exchanges marking the strong position and high demand for Stablecoins.Originality/valueThis approach uncovers the varieties of Stablecoins with respect to their monetary constraints compared to the rest of the cryptocurrencies, which independently float. In this paper, the author provides a conceptual framework for the analysis of the exchange rate mechanisms conditional on Stablecoin asset classes accompanied with an empirical study from the monetary viewpoint. This is the first work in this attempt. The empirical framework employed is analogous to the traditional theory of international monetary economics referred to as Impossible Trinityz.Peer reviewThe peer review history for this article is available at: https://publons.com/publon/10.1108/JES-06-2020-0279

Structural Changes in the RMB Exchange Rate Mechanism

This paper examines structural changes in the exchange rate mechanism of China. For this purpose, we propose a predictive regression model that incorporates three factors of influence on the central parity rate: a smoothing factor, a market factor, and a basket factor. We first apply the model to analyze the effects of twelve exchange rate reforms since 2005, treating these reforms as pre-determined structural breaks. Among other results, we find that the main impact of introducing “counter-cyclical factor” is to weaken the role of the basket factor. Furthermore, we estimate structural breaks in data, assuming that the number and dates of breaks are unknown. We find that the majority of estimated breaks occur within the neighborhood of exchange rate reforms and that the “8.11” reform of 2015 is arguably the most important structural change after 2005 in the econometric sense.

An empirical study of the real effective exchange rate and foreign direct investment in Vietnam

Foreign direct investment (FDI) inflows to Vietnam have increased significantly in recent years. Theoretically, capital inflows will put pressure on the overvaluation of local currencies in countries, despite different exchange rate mechanisms. So, the problem facing the Vietnamese government is the need to examine the relationship between the exchange rate and FDI in order to develop effective policies. This study examined the relationship between the exchange rate and FDI in Vietnam in the period of 2005–2019 using the VAR (vector autoregression) model based on quarterly frequency data. The new points of this study are: (i) using the real effective exchange rate (REER) of the Vietnamese currency with 143 major trading partners of Vietnam; and (ii) adding two control variables into the VAR model to examine the relationship between the exchange rate and FDI in Vietnam – a case study for developing countries. The findings show that, firstly, there is a positive causal relationship between FDI and Vietnam’s real effective exchange rate. Secondly, trade openness has a positive impact on FDI and REER in Vietnam. Thirdly, economic growth has an impact on REER, but no statistically significant impact on FDI was found. The findings can provide useful information to help policymakers plan and make decisions on future policies and support further research studies.

PENGARUH EFFECTIVE TAX RATE, TUNNELING INCENTIVE, EXCHANGE RATE DAN MEKANISME BONUS PADA KEPUTUSAN TRANSFER PRICING PERUSAHAAN (Studi Empiris Pada Perusahaan Manufaktur yang terdaftar pada Bursa Efek Indonesia Periode 2015-2019)

This study aims to determine the effect of Effective Tax Rate, tunnelling Incentive, Exchange Rate and Bonus Mechanism on Transfer Pricing decisions in companies. In this study Transfer Pricing is measured by the presence or absence of sales to special parties. The population in this study are Manufacturing Companies listed on the Indonesia Stock Exchange 2015-2019 which were 17 companies. This research uses the purpose sampling method. The analysis technique used is logistic regression analysis. The results of his research indicate that tunnelling Incentive negatively affects the transfer pricing decision and the effective tax rate, exchange rate, bonus mechanism does not affect the transfer pricing decision

Systemic Debt Crises in International Disequilibrium System

Global Savings Glut (GSG) hypothesis has become the predominant and official theory attempted to explain the global financial crisis of 2008 and the Great Recession of 2008 – 2009. “… it is impossible to understand this crisis without reference to the global imbalances” (Bernanke, 2009). Any possible “global imbalance” must be connected to the international terms of trade and international exchange rate mechanism. GSG theory argues that the overwhelming credit (debt) growth occurred in the U.S. prior 2008, was due to savings made by certain trading partners, which resulted for the U.S. to have a persistent Current Account deficit and prevented the ability to increase interest rates by the U.S. monetary authorities to reduce current account deficit, as significant capital inflows from those countries took place. Yet, the paper observes that debt crises take place in countries where there are Current Account surpluses. This conundrum needs to be examined. Hence, the paper finds that another empirically verifiable proposition could possibly be used to explain the systemic debt crises better.

Roadmap for the adoption of the euro in Hungary: dangers and opportunities

In April 2003, the EU Accession Agreement was officially signed for the Czech Republic, Estonia, Cyprus, Hungary, Latvia, Lithuania, Malta, Poland, Slovenia and the Slovak Republic. These countries are destined to become EU members in May 2004. As part of the “acquis communautaire”, participation in the new version of the exchange rate mechanism (ERM II), and subsequently in the European Monetary Union (EMU) is obligatory for all new EU members (no opt-out clause is available). Therefore, the question today for the accession countries is no longer whether or not to enter the eurozone but rather the time horizon when the entry should happen.
 Journal of Economic Literature (JEL) code: E42, E58, F33.

Pengaruh Debt Covenant, Profitability, Exchange Rate, Mekanisme Bonus Pada Transfer Pricing

This study aims to analyze the effect of Debt Covenant, Profitability, Exchange Rate, and Bonus Mechanisms on the company’s decision to do Transfer Pricing. The independent variable in this study is transfer pricing which is proxied by the sale of related parties. The independent variables in this study are Debt Covenant, Profitability, Exchange Rate, and Bonus Mechanisms. This study used data from financial statements or annual reports of companies listed on the Indonesia Stock Exchange. The population of this study are all companies listed on the Indonesia Stock Exchange except for finance sector in 2016-2018. The results of the analysis of this study indicated that the Profitability variable influences the company’s decision to do Transfer Pricing, while Debt Covenant, Exchange Rate and Bonus Mechanism indicated that the variable did not affect the company’s decision to do Transfer Pricing

Why is the euro punching below its weight?

SUMMARY On the twentieth anniversary of its inception, the euro has yet to expand its role as an international currency. We document this fact with a wide range of indicators including its role as an anchor or reference in exchange rate arrangements – which we argue is a portmanteau measure – and as a currency for the denomination of trade and assets. On all these dimensions, the euro comprises a far smaller share than that of the US dollar. Furthermore, that share has been roughly constant since 1999. By some measures, the euro plays no larger role than the Deutschemark and French franc that it replaced. We explore the reasons for this underperformance. While the leading anchor currency may have a natural monopoly, a number of additional factors have limited the euro’s reach, including lack of financial centre, limited geopolitical reach and US and Chinese dominance in technology research. Most important, in our view, is the comparatively scarce supply of (safe) euro-denominated assets, which we document. The European Central Bank’s (ECB's) lack of policy clarity may have also played a role. We show that the euro era can be divided into a ‘Bundesbank-plus’ period and a ‘Whatever it Takes’ period. The first shows a smooth transition from the European Exchange Rate Mechanism and continued to stabilize German inflation. The second period is characterized by an expanding ECB arsenal of credit facilities to European banks and sovereigns.

Unexpected Currency Volatility and Global Technological Innovation Activities

We investigate the real effects of foreign exchange (FX) volatility on technological innovation. Using a 32-market, three-decade sample, we show that heightened FX volatility associates with significantly lower firm-level RD it is weaker for firms with derivatives hedging, with higher sales, and in countries with better financial development. We also use FX regime changes and the collapse of the European Exchange Rate Mechanism to support a causal interpretation.

Why is the Euro Punching Below its Weight?

On the twentieth anniversary of its inception, the euro has yet to expand its role as an international currency. We document this fact with a wide range of indicators including its role as an anchor or reference in exchange rate arrangements—which we argue is a portmanteau measure—and as a currency for the denomination of trade and assets. On all these dimensions, the euro comprises a far smaller share than that of the US dollar. Furthermore, that share has been roughly constant since 1999. By some measures, the euro plays no larger a role than the Deutschemark and French franc that it replaced. We explore the reasons for this underperformance. While the leading anchor currency may have a natural monopoly, a number of additional factors have limited the euro’s reach, including lack of financial center, limited geopolitical reach, and US and Chinese dominance in technology research. Most important, in our view, is the comparatively scarce supply of (safe) euro-denominated assets, which we document. The European Central Bank’ lack of policy clarity may have also played a role. We show that the euro era can be divided into a “Bundesbank-plus” period and a “Whatever it Takes” period. The first shows a smooth transition from the European Exchange Rate Mechanism and continued to stabilize German inflation. The second period is characterised by an expanding ECB arsenal of credit facilities to European banks and sovereigns Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at www.nber.org.

The run-up to the global financial crisis: A longer historical view of financial liberalization, capital inflows, and asset bubbles

Using forecast error and sensitivity analyses with a vector error correction model for the US economy, we find that the specific exogenous shocks that contributed to the run-up to the global financial crisis of 2007–2009 vary across the three time periods (1980–1988; 1989–1997; and 1998–2006) that are known for distinctive historical events. Deregulation in the 1980s and capital inflows in the early and mid-1990s triggered by the collapse of the European exchange rate mechanism contributed significantly to changes in real house prices. However, capital inflows after the Asian financial crises in 1997 were driven in large part by rising asset prices. Thus, there were interesting changes in the nature of exogenous shocks and directions of causality through the three sub-periods. These results are robust even after controlling for the exogenous global factors partly determining short-run changes in capital flows, asset prices, and per capita real GDP. We conclude that all of the short run changes in response to financial deregulation starting in the 1980s, surges in capital inflows in the early 1990s, and people's expectation of ever-rising asset prices in the late 1990s and early 2000s culminated in the crisis of 2007–2009.

Exchange Rate Mechanism II and the risk of currency crisis – empiricism and theory

Exchange Rate Mechanism II and the risk of currency crisis – empiricism and theory

Economic crises and suicides between 1970 and 2011: time trend study in 21 developed countries

BackgroundExisting research on the relationship between economic recessions and suicides has almost completely concentrated on the most recent global financial crisis (2008). We provide the most comprehensive explanation to date...

How can experts help governments think?: inaugural lecture

ABSTRACTBritain’s exit from the European Exchange Rate Mechanism in 1992 and the Second Iraq War in 2003 are two infamous examples of disastrous policy, but governments blunder all the time – whatever party is in power. Infrastructure projects overrun. The aims and techniques of different departments clash. Scandals erupt among officials and politicians. Controversies stymie attempts at agreement and consensus. But why exactly do these failures happen? Are they more or less widespread than in the private sector? And can studying British governments’ decision-making across the twentieth century improve it in the future? In his May 2018 inaugural lecture, Professor O'Hara recommended a slow, deliberative, transparent, democratic and above all humble and sensitive approach in order to avoid another Black Wednesday or ruinous war – an approach in contrast to the populist tone of much recent debate.

Структура чинників зовнішнього середовища підприємств

Introduction. It is determined that strategic changes are the reaction of the enterprise to the environmental fac-tors influence. In order to predict and plan the strategic changes implementation, it is necessary to identify the struc-ture of environmental factors. The purpose of the article. The article is devoted to the justification of factors groups of the external indirect environment influence on the enterprises functioning of agricultural engineering. Results. Methods of environmental analysis (PESTLE, T.E.M.P.L.E.S, STEEPLE, SWOT, ETOM, EFAS, QUEST) are generalized. The uniqueness of these methods was determined by the similarity of factors groups and methods of expert evaluation using the point scale and the specific gravity of the coefficients. The generalization of fac-tors groups that are singled out by the researchers is presented. It is determined that the most common are political and economic. It is proved that a group of socio-political factors should be shaped by: the level of political stability, national security priorities, the level of corruption and the activity of public organizations. The definition of the term «institute» is given, and the external environment can be represented as institutional, which has necessitated the separation of institutional and legal factors, the group of which includes protectionist policy, legislation, level of democracy, taxes and tariffs, industrial infrastructure and investment climate. The largest group of economic factors are: inflation rate, price dynamics, unemployment, exchange rate, credit and financial mechanism, level of specialization, cooperation and concentration, as well as the stage of the economic cycle. Considering the peculiarity of machine-building enterprises competitiveness, the scientific and technological factors are highlighted that combine the life cycle of technology, the introduction of new products, innovative and energy-saving technologies, the level of global progress as a whole. The groups of socio-demographic and international factors are less influential. Conclusions The conducted structuring of the enterprises external environment of the studied industry allows to analyze their impact on the basis of expert evaluation. The obtained results allow to substantiate the methods of stra-tegic change management at the enterprise. Key words: external environment, factors, agricultural engineering, institute, structure.

Migration as an adjustment mechanism in the crisis? A comparison of Europe and the United States 2006–2016

The question of whether migration can be an equilibrating force in the labour market is an important criterion for an optimal currency area. It is of particular interest currently in the context of high and rising levels of labour market disparities, in particular within the Eurozone where there is no exchange-rate mechanism available to play this role. We shed some new light on this question by comparing pre- and post-crisis migration movements at the regional level in both Europe and the United States, and their association with asymmetric labour market shocks. We find that recent migration flows have reacted quite significantly to the EU enlargements in 2004 and 2007 and to changes in labour market conditions, particularly in Europe.Indeed, in contrast to the pre-crisis situation and the findings of previous empirical studies, there is tentative evidence that the migration response to the crisis has been considerable in Europe, in contrast to the United States where the crisis and subsequent sluggish recovery were not accompanied by greater interregional labour mobility in reaction to labour market shocks. Our estimates suggest that, if all measured population changes in Europe were due to migration for employment purposes – i.e. an upper-bound estimate – up to about a quarter of the asymmetric labour market shock would be absorbed by migration within a year. However, in the Eurozone the reaction mainly stems from migration of third-country nationals. Even within the group of Eurozone nationals, a significant part of the free mobility stems from immigrants from third countries who have taken on the nationality of their Eurozone host country.

The impact of remittances on Sudan’s economic growth: does the exchange rate matter?

PurposeThe purpose of this paper is to investigate the presence of the Dutch disease hypothesis through examining the remittance-growth nexus using annual data for Sudan covering the period 1977-2015. The paper seeks to answer the following critical questions: what is the impact of remittance on Sudanese economy? How exchange rate influences the impact of remittance on growth? To what extent the impact of remittance on growth differs between the short and long run.Design/methodology/approachThe paper employs the autoregressive distributive lag (ARDL) technique because of its several advantages.FindingsThe ARDL results show evidence against the existence of such a hypothesis. More specifically, the results show that over time, due to the structured nature of the economy, remittances may affect economic growth negatively through several mechanisms including the depreciation rather than the appreciation of the exchange rate.Originality/valueAfter 2011 and the secession of South Sudan, Sudan lost more than 80 per cent of foreign exchange revenues which reflected in the sharp gap between the official rate and the parallel exchange rate equal to 150 per cent. To lessening this gap, the attention was given to expatriates to encourage them to transfer their remittances through official channels. Since remittance and exchange rate mechanism may affect growth positively or negatively, no study addressed this possibility. This is the first empirical study in this matter that considers both the temporary and the permanent impacts.

FACTORS AFFECTING THE FLUCTUATION OF EXCHANGE RATE IN VIETNAM

ABSTRACT This article provides a brief overview of exchange rate and exchange rate mechanism in Vietnam over the last time. In addition, the author applies GARCH model to calculate the fluctuation of the real exchange rate and the correction model to examine the effect of factors on the fluctuation of exchange rate. The article found that most of the factors taken into account, such as economic growth, interest rate, money supply and nominal exchange rate, affect the fluctuation of the real exchange rate. Based on that, according to the author, the State Bank of Vietnam should control the real exchange rate instead of controlling the nominal exchange rate as it currently does, and appropriate measures should be taken for macro variables to minimize impacts on fluctuation of exchange rate. Keywords Exchange rate, amplitude, real exchange rate, nominal exchange rate, the State Bank of Vietnam.

The choice of exchange rate regime for Czech koruna in the context of ERM II participation and the related risks

Participation in the exchange rate mechanism ERM II (one of the Maastricht criteria – exchange rate stability) is compatible with certain exchange rate regimes only. The aim of this paper is to find arguments for choosing one of these regimes. The starting point is the current strategy of the euro introduction in the Czech Republic, and the expressed concerns about the risks associated with fixing of the exchange rate. The used method is analysis of data on the currency participation in ERM II and searching for analogies of Czech koruna. The analysis consists of the identification of exchange rate regimes used before and after ERM II so that to determine the duration of ERM II involvement. Fixing of the exchange rate in the regime peg with a band of oscillation of 15% in both directions is the working hypothesis. Criteria of the so-called normal fluctuations margins and the so-called severe tension are also discussed. Development trend of the CZK/EUR exchange rate is examined. The outcome of the research is finding the risks associated with this exchange rate regime. It is the risk of a narrow fluctuation band (2.25%) in depreciation direction and the risk in the form of foreign exchange intervention or interest rate differential at excessive appreciation of the exchange rate.