Exchange Rate Stabilization and IMF High Interest Rate Policy: A Critical Reconsideration Using a Dynamic Model

This paper examines whether the IMF high interest rate policy was suitable for crisis-ridden East Asian economies. Using an "overshoot" model similar to that of Dornbusch's (1976), it shows that this sort of policy might cause an unnecessary deflationary adjusting process and have no effect on containing the real depreciation of exchange rates in the long run. The study also demonstrates that Thai economic data coincides quite well with the model presented here. Finally, it points out that the high interest policy itself might provoke high risk-premium, the existence of which, in turn, justifies the policy. This means that the policy has a self-fulfilling property. In conclusion, a "one-size-fits-all" adaptation of high interest rate policy in a currency crisis is very dangerous in general, and was inappropriate for East Asia. The desirable policy would have been to let currencies depreciate and keep interest rates stable.

Central bank intervention and exchange rate behaviour : empirical evidence for India

This paper examines the causal relationship between central bank intervention and exchange returns in India. Using monthly data from December 1997 to December 2011, the empirical results derived from the CCF approach of Cheung and Ng (1996) suggest that there is causality-in-variance from exchange rate returns to central bank intervention, but not vice versa. These findings are robust in the sense that they hold in cases where the returns were measured from either the spot rate or the forward rate. Therefore, the results of this paper suggest that the Indian central bank has intervened in the foreign exchange market to respond to exchange rate volatility, although the volatility has not been influenced by central bank intervention in the form of net purchases of foreign currency in the market.

FTA in international finance : impacts of exchange rates on FTA utilization

This paper investigates how exchange rates affect the utilization of a free trade agreement (FTA) scheme in trading. Changes in exchange rates affect FTA utilization by two ways. The first way is by changing the excess profits gained by utilizing the FTA scheme, and the second way is by promoting the compliance of rules of origin. Our theoretical models predict that the depreciation of exporters' currency against that of importers enhances the likelihood of FTA utilization through those two channels. Furthermore, our empirical analysis, which is based on rich tariff-line-level data on the utilization of FTA schemes in Korea's imports from ASEAN countries, supports the theoretical prediction. We also show that the effects are smaller for more differentiated products.

Impacts of foreign exchange auctions on the informal market rate in Myanmar

Since the abolition of the official peg and the introduction of a managed float in April 2012, the Central Bank of Myanmar has operated the daily two–way auctions of foreign exchange aimed at smoothing exchange rate fluctuations. Despite the reforms to the foreign exchange regime, however, informal trading of foreign exchange remains pervasive. Using the daily informal exchange rate and Central Bank auction data, this study examines the impacts of auctions on the informal market rate. First, a VAR analysis indicates that the official rate did not Granger cause the informal rate. Second, GARCH models indicate that the auctions did not reduce the conditional variance of the informal rate returns. Overall, the auctions have only a quite modest impact on the informal exchange rate.

Determinants of inbound tourists in Cambodia : a dynamic panel data approach

Understanding the determinants of tourism demand is crucial for the tourism sector. This paper develops a dynamic panel model to examine the determinants of inbound tourists to Siem Reap airport, Phnom Penh airport, and land and waterway borders in Cambodia. Consistent with the consumer theory of tourism consumption, a 10% increase in the origin country GDP per capita is predicted to increase the number of tourist visits to Siem Reap airport by 5.8%. A 10% increase in the real exchange rate between the origin country and Cambodia is predicted to decrease the number of tourist visits by 0.89%. In contrast, the number of foreign tourists in a previous period has little effect on the number of foreign tourists in the current period. Additionally, the determinants are different by the mode of entry to Cambodia.