French-German Interest Rate Differentials and Time-Varying Realignment Risk

French-German Interest Rate Differentials and Time-Varying Realignment Risk
Author: Mr.Francesco Caramazza
Publisher: International Monetary Fund
Total Pages: 28
Release: 1993-01-01
Genre: Business & Economics
ISBN: 1451931336

This paper explores the determinants of expected rates of realignment of the French franc/Deutsche mark exchange rate during the period 1987-1991. It does so by first estimating expected parity changes and then relating these to economic variables that are believed to influence agents’ realignment expectations. Time-varying expected rates of realignment are estimated in two ways: one, by adjusting short-term euromarket interest rate differentials for the expected rate of change of the FF/DM exchange rate within the EMS fluctuation band and two, by the differential in the yield on long-term government bonds. The behavior of the exchange rate within the band is found to be consistent with mean reversion and the expected change is nontrivial. Thus, by filtering out the expected mean reversion within the band from short-term interest rate differentials more precise measures of expected changes in the central parity are obtained. Realignment expectations are found to be closely related to the evolution of fundamental economic variables and, for shorter horizons, the position of the franc in the fluctuation band.

Adjustment and Growth in the European Monetary Union

Adjustment and Growth in the European Monetary Union
Author: Francisco Torres
Publisher: Cambridge University Press
Total Pages: 406
Release: 1993-10-21
Genre: Business & Economics
ISBN: 052144019X

The Maastricht Treaty, signed in December 1991, set a timetable for the European Community's economic and monetary union (EMU) and clearly defined the institutional policy changes necessary for its achievement. Subsequent developments have demonstrated, however, the importance of many key issues in the transition to EMU that were largely neglected at the time. This volume reports the proceedings of a joint CEPR conference with the Banco de Portugal, held in January 1992. In these papers, leading international experts address the instability of the transition to EMU, the long-run implications of monetary union and the single market for growth and convergence in Europe. They also consider the prospects for inflation and fiscal convergence, regional policy and the integration of financial markets and fiscal systems. Attention focuses on adjustment mechanisms with differentiated shocks, region-specific business cycles and excessive industrial concentration and the cases for a two-speed EMU and fiscal federalism.

The Economics of Exchange Rates

The Economics of Exchange Rates
Author: Lucio Sarno
Publisher: Cambridge University Press
Total Pages: 334
Release: 2003-01-09
Genre: Business & Economics
ISBN: 1139435043

In the last few decades exchange rate economics has seen a number of developments, with substantial contributions to both the theory and empirics of exchange rate determination. Important developments in econometrics and the increasingly large availability of high-quality data have also been responsible for stimulating the large amount of empirical work on exchange rates in this period. Nonetheless, while our understanding of exchange rates has significantly improved, a number of challenges and open questions remain in the exchange rate debate, enhanced by events including the launch of the Euro and the large number of recent currency crises. This volume provides a selective coverage of the literature on exchange rates, focusing on developments from within the last fifteen years. Clear explanations of theories are offered, alongside an appraisal of the literature and suggestions for further research and analysis.

Capital Mobility

Capital Mobility
Author: Leonardo Leiderman
Publisher: Cambridge University Press
Total Pages: 400
Release: 1994-07-14
Genre: Business & Economics
ISBN: 9780521454384

This edited volume examines capital mobility in both industrialised and developing countries.

Fiscal Policy and Interest Rates in the European Union

Fiscal Policy and Interest Rates in the European Union
Author: Klaas Knot
Publisher: Edward Elgar Publishing
Total Pages: 232
Release: 1996-01-01
Genre: Business & Economics
ISBN: 9781781959657

This is an extensive study concerned with the potential effects of fiscal policy on financial markets in the EU. It takes into account the gradual liberalization of capital movements through Western Europe & the framework of the European Monetary System.

On Exchange Rates

On Exchange Rates
Author: Jeffrey A. Frankel
Publisher: MIT Press
Total Pages: 468
Release: 1993
Genre: Business & Economics
ISBN: 9780262061544

These seventeen essays provide an accessible and thorough reference for understanding the role of exchange rates in the international monetary system since 1973, when the rates were allowed to float. The essays analyze such issues as exchange rate movements, exchange risk premia, investor expectations of exchange rates and behavior of exchange rates in different systems. Frankel's sound empirical treatment of exchange rate questions shows that it is possible to produce work that is interesting from a purely intellectual viewpoint while contributing to practical knowledge of the real world of international economics and finance.The essays have been organized in a way that provides an introduction to the field of empirical international finance. Part I documents the steady reduction in barriers to international capital movement and leads logically to part II, which explains how exchange rates are determined. Both monetary and portfolio-based models are surveyed in part II, providing a clear transition to the topic of part III; the possible existence of an exchange risk premium. Part IV applies the tools discussed in earlier sections to explore various policy questions related to exchange rate expectations such as whether foreign exchange intervention matters and whether the European monetary system had become credible by 1991. Each part begins with a detailed introduction explaining not only the central issues of that section but also suggesting connections with other essays in the book.Jeffrey A. Frankel is Professor of Economics at the University of California, Berkeley.

Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models

Stochastic Devaluation Risk and the Empirical Fit of Target Zone Models
Author: Giuseppe Bertola
Publisher:
Total Pages: 44
Release: 1991
Genre: Foreign exchange
ISBN:

This paper proposes a tractable and realistic nonlinear model of exchange rate dynamics, and argues that its predictions are consistent with available empirical evidence on exchange rate and interest differential behavior in real-life target zones. In our model, the exchange rate fluctuates between given boundaries for random lengths of time and jumps discretely when devaluations occur. We allow for stochastic variability in the likelihood and size of devaluations, and we provide explicit solutions for the stochastic processes followed by the exchange rate and by the expected rate of depreciation. The model produces realistic patterns of covariation between exchange rates and interest rate differentials, and provides interesting interpretations of available empirical evidence. We also specify how to infer devaluation risk from target zone data.

Modern Perspectives on the Gold Standard

Modern Perspectives on the Gold Standard
Author: Tamim Bayoumi
Publisher: Cambridge University Press
Total Pages: 432
Release: 1996
Genre: Business & Economics
ISBN: 0521571693

Currency crises in Europe and Mexico during the 1990s provided stark reminders of the importance and the fragility of international financial markets. These experiences led some commentators to conclude that open international capital markets are incompatible with financial stability. But the pre-1914 gold standard is an obvious challenge to the notion that open capital markets are sources of instability. To deepen our understanding of how this system worked, this volume draws together recent research on the gold standard. Theoretical models are used to guide qualitative discussions of historical experience, while econometric methods are used to help the historical data speak clearly. The result is an overview of the gold standard, a survey of the relevant applied research in international macroeconomics, and a demonstration of how the past can help to inform the present.

IMF Staff papers, Volume 43 No. 3

IMF Staff papers, Volume 43 No. 3
Author: International Monetary Fund. Research Dept.
Publisher: International Monetary Fund
Total Pages: 188
Release: 1996-01-01
Genre: Business & Economics
ISBN: 1451973446

This paper examines the volatility and predictability of emerging stock markets. A range of measures suggests that, despite perceptions to the contrary, the volatility of emerging markets may have fallen rather than risen on average. Also, although the autocorrelations in emerging market returns appear to turn negative at horizons of a year or more, the magnitude of these return reversals is not that much larger than reversals in some mature markets. One interpretation of the results would be that emerging markets have not consistently been subject to fads or bubbles, or at least no more so than in some industrial countries.