Multiple Exchange Rate Regime Research Articles

How can a strong currency or drop in oil prices raise inflation and the black-market premium?

Based on the case of Venezuela, an oil exporter with a multiple exchange rate regime, this paper explains two counterintuitive phenomena. First, a fall in oil revenue can drive a steep rise in inflation by reducing foreign exchange for imports and raising the fiscal deficit financed by money growth. Second, when foreign exchange is rationed, a devaluation of the official exchange rate could produce a transitory fall in inflation by reducing the fiscal deficit and subsidies for buying foreign exchange. The paper also shows that the black market exchange rate can be rising far faster than overall inflation if it is driven by prices in the most distorted goods markets. The channels emphasized in this paper for determining inflation and the black market exchange rate are novel in the literature and may provide avenues of future research on commodity exporters and foreign exchange constraints.

The long-run impact of exchange rate regimes on international tourism flows

Notwithstanding the systematic inclusion of an exchange rate variable of some form in studies examining international tourism flows, hardly any research has been carried out to test for a possible exchange rate regime effect. Drawing from recent advances in exchange rate regime classifications, this paper begins to fill this gap by investigating the impact of exchange rate regimes on international tourism flows. The study employs a system generalized methods of moments (SYS-GMM) estimation for tourist arrivals on a panel of 27 Organization for Economic Co-operation and Development (OECD) and non OECD countries for the period 1980–2011. The results identify multiple exchange rate regime effects and support the importance of maintaining a relatively stable exchange rate to attract international tourist arrivals.

Costs of Myanmar's multiple exchange-rate regime

Myanmar's multiple exchange-rate regime creates various economic distortions. This paper describes the exchange-rate practices in Myanmar and develops a model of foreign exchange markets to estimate the welfare costs imposed by the current regime. Our analysis suggests that the equilibrium exchange rate could be around 400–500 kyat per US dollar, and trade openness measured using the equilibrium rate increases to more than 20% of gross domestic product (GDP) from less than 1% in the official statistics. The total welfare loss caused by the current regime is estimated to be in the order of 14–17% of GDP.

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.

Efficiency Costs of Myanmar's Multiple Exchange Rate Regime

Efficiency Costs of Myanmar's Multiple Exchange Rate Regime

The Impact of Oil-Related Incomeon the Equilibrium Real Exchange Rate in Syria

This paper examines the impact of oil-related income, among other fundamentals, on the equilibrium real effective exchange rate (ERER) in Syria. After reviewing the evolution of the Syrian multiple exchange rate regime since 1960 and assessing alternative measures for the exchange rate, the paper analyzes the impact of oil-related income on the ERER in the context of a behavioral equilibrium exchange rate model. The analysis concludes that ERER appreciates with higher oil-related income, productivity and net foreign assets, but, at odds with the conventional wisdom, depreciates with higher government expenditures given that an increase in expenditures usually translates into higher imports and weaker current account position. In light of the projected real shocks associated with the depletion of oil and the change in other fundamentals in the context of the ongoing transition to a market economy, a more flexible regime would serve Syria better in the future.

The Impact of Oil-Related Income on the Equilibrium Real Exchange Rate in Syria

This paper examines the impact of oil-related income, among other fundamentals, on the equilibrium real effective exchange rate (ERER) in Syria. After reviewing the evolution of the Syrian multiple exchange rate regime since 1960 and assessing alternative measures for the exchange rate, the paper analyzes the impact of oil-related income on the ERER in the context of a behavioral equilibrium exchange rate model. The analysis concludes that ERER appreciates with higher oil-related income, productivity and net foreign assets, but, at odds with the conventional wisdom, depreciates with higher government expenditures given that an increase in expenditures usually translates into higher imports and weaker current account position. In light of the projected real shocks associated with the depletion of oil and the change in other fundamentals in the context of the ongoing transition to a market economy, a more flexible regime would serve Syria better in the future.

Welfare Effects of Uzbekistan's Foreign Exchange Regime

In addition to transferring about 16 percent of GDP from exporters to importers, Uzbekistan's quasi-fiscal multiple exchange rate regime generates identifiable welfare losses of 2-8 percent of GDP on import markets and up to 15 percent on export markets. These excess burdens have increased substantially with the growing difference among exchange rates. The welfare analysis allows some conclusions regarding the optimal reform strategy: (i) welfare losses will decline overproportionally as exchange rates unify, (ii) exchange rate unification should be supplemented by changing the explicit fiscal system; (iii) at a minimum, Uzbekistan would benefit from moving to an explicit fiscal regime.

Foreign exchange reform in Iran: Badly designed, badly managed

The paper first highlights the undesirable economic consequences of the multiple exchange rate regime adopted in Iran soon after the Islamic Revolution. It then critically assesses the government's March 1993 attempt to unify the exchange rates from two perspectives: 1. (a) the pace, timing, and the rate chosen for unification, 2. (b) the design, administration, and therefore the effectiveness of government's safety net policies to overcome the adverse welfare effects of the attempted unification. It identifies some of the fundamental political economy obstacles to the exchange rate reform in particular and economic liberalization in general, and draws policy implications for the future course of the reform and the economy.

Foreign Exchange Markets in Russia: Understanding the Reforms

This paper analyzes and interprets the changes that took place in Russia's exchange rate system during 1992. The multiple exchange rate regime that existed in Russia prior to July 3, 1992, created strong incentives for exporters to refrain from repatriating foreign exchange earnings, induced both importers and exporters to participate in unofficial markets for foreign exchange, and encouraged international barter transactions. Efforts to manage the exchange rate through heavy foreign exchange intervention were unsuccessful. The July 3, 1992, unification of the multiple exchange rate system provides important and general lessons for rectifying undesirable conditions caused by poorly implemented exchange rate policy.

Effect of 1972 Devaluation on Pakistan's Balance of Trade

In most of the developing economies, a rapid growth of G.N.P. invariably implies a larger import bill. Capital goods necessary for development have to be imported and a higher level of income in turn implies an increase in the import of consumption goods. On the other hand, demand for primary goods, which are main exports of developing countries, is inelastic. Moreover, the develop¬ing countries face serious problems in selling their manufactured products in the world market, partly due to their relatively inefficient industrial structure and partly due to the restrictive import policies of the developed countries. This results in a deficit in the balance of payments of many developing countries. To meet the deficit, import restrictions and export encouragement policies are followed instead of devaluation, which is resisted on both economic and non- economic grounds. This study has as its objective an analysis of the effects of the: devaluation of Pakistani rupee in May 1972, which changed the par value of Pakistan's rupee from Rs. 4.76 to Rs. 11.00 per U.S. dollar. Prior to the 1972 devaluation, imports were restricted through tariffs and quotas. In addition, certain pro¬ducts could be imported only under bonus and cash-cum-bonus lists. On the other hand, exports were encouraged through Export Bonus Scheme, Pay-As- You-Earn Scheme, and similar other incentives. These measures led to a multiple exchange rate regime. These measures may have had some beneficial effects in the short run but as Soligo and Stern [26] have shown over the long run, they led to a misallocation of resources. Pakistan devalued her currency in May 1972, as stated by the then Minister of Finance in his speech, to end the flow of foreign exchange abroad, stop over invoicing of imports and under invoicing of exports, correct the misallocation of resources, curb uneconomic import