Can Europe recover without credit?

Data from 135 countries covering five decades suggests that creditless recoveries, in which the stock of real credit does not return to the pre-crisis level for three years after the GDP trough, are not rare and are characterised by remarkable real GDP growth rates: 4.7 percent per year in middle-income countries and 3.2 percent per year in high-income countries. However, the implications of these historical episodes for the current European situation are limited, for two main reasons. First, creditless recoveries are much less common in high-income countries, than in low-income countries which are financially undeveloped. European economies heavily depend on bank loans and research suggests that loan supply played a major role in the recent weak credit performance of Europe. There are reasons to believe that, despite various efforts, normal lending has not yet been restored. Limited loan supply could be disruptive for the European economic recovery and there has been only a minor substitution of bank loans with debt securities. Second, creditless recoveries were associated with significant real exchange rate depreciation, which has hardly occurred so far in most of Europe. This stylised fact suggests that it might be difficult to re-establish economic growth in the absence of sizeable real exchange rate depreciation, if credit growth does not return.

Mining and Energy Boom, Dutch Disease and Informality in Colombia: a DSGE Approach

The paper develops a Dynamic Stochastic General Equilibrium (DSGE) model, which assesses the macroeconomic and labor market effects derived from simulating a positive shock to the stochastic component of the mining-energy sector productivity. Calibrating the model for the Colombian economy, this shock generates a whole increase in formal wages and a raise in tax revenues, expanding total consumption of the household members. These facts increase non-tradable goods prices relative to tradable goods prices, then real exchange rate decreases (appreciation) and occurs a displacement of productive resources from the tradable (manufacturing) sector to the non-tradable sector, followed by an increase in formal GDP and formal job gains. This situation makes the formal sector to absorb workers from the informal sector through the non-tradable formal subsector, which causes informal GDP to go down. As a consequence, in the net consumption falls for informal workers, which leads some members of the household not to offer their labor force in the informal sector but instead they prefer to keep unemployed. Therefore, the final result on the labor market is a decrease in the number of informal workers, of which a part are in the formal sector and the rest are unemployed.

Empirical evidence of S-curves in the Colombian

The Marshall-Lerner condition, the J-curve and S-curve have emerged as theoretical and empirical foundations developed for the study of the interaction between exchange rates and international patterns of bilateral trade -- They have a significant bearing on thedevelopment of public policy, and are of equal interest to the academic and professional communities -- The most recently developed of these theories, the S-Curve, is named after the theorized short-run behavior to be found in the cross-correlation function of the real exchange rate and the trade balance -- Considering this theoretical context, the paper seeks empirical evidence of the existence of the S-Curve in the bilateral trade in commodity and non-commodity goods between Colombia and the United States and Venezuela, its main trading partners, for the yearly quarters between 1994:1 and 2009:4

Studies on the international effects of real shocks

This doctoral thesis addresses the macroeconomic effects of real shocks in open economies in flexible exchange rate regimes. The first study of this thesis analyses the welfare effects of fiscal policy in a small open economy, where private and government consumption are substitutes in terms of private utility. The main findings are as follows: fiscal policy raises output, bringing it closer to its efficient level, but is not welfare-improving even though government spending directly affects private utility. The main reason for this is that the introduction of useful government spending implies a larger crowding-out effect on private consumption, when compared with the `pure waste' case. Utility decreases since one unit of government consumption yields less utility than one unit of private consumption. The second study of this thesis analyses the question of how the macroeconomic effects of fiscal policy in a small open economy depend on optimal intertemporal behaviour. The key result is that the effects of fiscal policy depend on the size of the elasticity of substitution between traded and nontraded goods. In particular, the sign of the current account response to fiscal policy depends on the interplay between the intertemporal elasticity of aggregate consumption and the elasticity of substitution between traded and nontraded goods. The third study analyses the consequences of productive government spending on the international transmission of fiscal policy. A standard result in the New Open Economy Macroeconomics literature is that a fiscal shock depreciates the exchange rate. I demonstrate that the response of the exchange rate depends on the productivity of government spending. If productivity is sufficiently high, a fiscal shock appreciates the exchange rate. It is also shown that the introduction of productive government spending increases both domestic and foreign welfare, when compared with the case where government spending is wasted. The fourth study analyses the question of how the international transmission of technology shocks depends on the specification of nominal rigidities. A growing body of empirical evidence suggests that a positive technology shock leads to a temporary decline in employment. In this study, I demonstrate that the open economy dimension can enhance the ability of sticky price models to account for the evidence. The reasoning is as follows. An improvement in technology appreciates the nominal exchange rate. Under producer-currency pricing, the exchange rate appreciation shifts global demand toward foreign goods away from domestic goods. This causes a temporary decline in domestic employment.

The impact of exchanges rates on international real estate portfolio allocation

This paper, examines whether the asset holdings and weights of an international real estate portfolio using exchange rate adjusted returns are essentially the same or radically different from those based on unadjusted returns. The results indicate that the portfolio compositions produced by exchange rate adjusted returns are markedly different from those based on unadjusted returns. However following the introduction of the single currency the differences in portfolio composition are much less pronounced. The findings have a practical consequence for the investor because they suggest that following the introduction of the single currency international investors can concentrate on the real estate fundamentals when making their portfolio choices, rather than worry about the implications of exchange rate risk.

Diferencial de juros e taxa de câmbio: um estudo empírico sobre o Brasil pós-plano real

Esta dissertação procura examinar a relação entre taxas de juros e os movimentos da taxa de câmbio, a partir da paridade descoberta de juros (PDJ). Foi utilizado o procedimento pressupondo expectativas racionais e foi testada a validade da PDJ com dados da economia brasileira desde o Plano Real (julho de 1994) até agosto de 2006. Encontramos evidências que levam à rejeição da PDJ no longo prazo. Além disso, foi examinada a validade da PDJ sem a necessidade de utilizar a hipótese de expectativas racionais, foram utilizadas as previsões de câmbio dos analistas financeiros, publicadas no Boletim Focus de novembro de 2001 a novembro de 2006. Também encontramos evidências que levam à rejeição da PDJ no Brasil.

Debt management in Brazil: evaluation of the Real Plan and challenges ahead

The Brazilian domestic debt has posed two challenges to policy-makers: it has grown very fast and its maturity is extremely short. This has prompted fears that a default or a compulsory lengthening scheme would be imposed. Here, we analyse the domestic public debt management experience in Brazil, searching for policy prescriptions for the next few years. After briefiy reviewing the recent domestic public debt history, we decompose the large rise in federal bonded debt during 1995-2000, searching for its macroeconomic causes. The main culprits are the extremely high interest payments-which, unti11998, were caused by the weak fiscal stance and the quasi-fixed exchange-rate regime; and since 1999, by the impact ofthe currency depreciation On the dollar-indexed and the externai debt-, and the accumulation of assets of doubtful value, much of which may have to be written off in the future. Simulation exercises of the net debt path for the near future underscore the importance of a tighter fiscal stance to prevent the debt-GDP ratio from growing further. Given the need to quickly lengthen the debt maturity, our main policy advice is to foster, and rely more on, infiation-linked bonds.

Notes on cyclical tendency to the overvaluation of the real

This note addresses the question “To what extent financial regulation in Brazil was effective in neutralizing the tendency to the overvaluation of the exchange rate in Brazil since the 1994 Real Plan?” Aiming at answering this question, this note is organized as follows: after this short introduction, we briefly describe the Brazilian exchange rate behavior after the Real Plan, emphasizing its key role in keeping prices stable. In section 3, the recent measures adopted by the Brazilian Central Bank (BCB) aiming at avoiding the overvaluation of real will be summarized. In section 4, we argue in favor of a new policy mix that could avoid overvaluation of the currency. Finally, some issues will be raised in order to effectively neutralize the overvaluation of real.

The Real Plan: Stabilization and destabilization

The paper analyzes Brazil's Real Plan, an exchange-rate based stabilization program, implemented in 1994, which mixed a spectacular price stabilization with some serious macroeconomic destabilization. The paper focuses on two of these imbalances: the consumption boom and the financial destabilization; showing that the former represented nothing the reverse side of a collapsed investment boom, which, in turn, led to the financial (banking) crisis. We hold that these instabilities were produced by a policy arrangement in which monetary and fiscal policies alone had to compensate for a largely appreciated, almost fixed, exchange rate anchor. (C) 2000 Elsevier Science Ltd. All rights reserved.

Plano real e a nova realidade brasileira

This paper analyzes the Real Plan and its effects on two administrations of President Fernando Henrique Cardoso (FHC), a period which extends from 1995 to 2002. To this end, the study includes a brief review of the problems faced by previous plans, especially the Cruzado Plan and the reasons for the belief that it has been successfull in relation to inflation control. Additionally, seeking to describe the process of moving to the new currency towards stabilization, the paper describes the theoretical foundations of the Plan. In sequence, it defines the backround of both international and domestic monetary reform which was one important part of the Plan and therefore the reasons for the implementation of the monetary reform. Subsequently the paper deals with the effects of the Plan on the economy as a whole, covering also the way the economic measures were taken concerning the Mexican and Asian crisis, the policies used fot the exchange rate, interest rate, fiscal accounts, balance of payments, among other factors and the relationship between them. Hence, it describes the immediate and the long-term consequences of stabilization program in terms of output, employment, public deficit and debt. Therefore, it is important to note the various junctures to which the economy was exposed, and also to point out the challenges and obstacles arising from these changes for growth, which was sometimes fast, sometimes slowing down - the so-called stop and go. Of course, facts as the moving to floating exchange rate regime, the adoption of inflation targeting regime and the adoption of fiscal responsibility law along with the primary surplus policy were able to create a new economic environment and to contribute to later success of the Cardoso years

Bilateral exchange rates and jobs

We study the labor market effects of realignment in fixed bilateral exchange rates, such as China's peg to the US dollar. We employ the open economy model by de Melo and Robinson to identify the core parameters of the real, trade side of the economy driving the unemployment effects of bilateral exchange rate realignment. A small open economy version of the model is explored analytically and a large multicountry version numerically. Analytics in the small open economy model show that unemployment effects of adjusting of a bilateral peg hinge on the fraction exported to and imported from the trading partner. A larger fraction exported to and a smaller fraction imported from the trading partner make it more likely that revaluation of a trading partner's currency has beneficial effects. Numerics in the large economy model show that Chinese revaluation can generate both positive and negative unemployment effects depending upon underlying parameter values. Adverse unemployment effects can go along with an improving trade balance.

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.

The management of foreign exchange exposure on business contracts overseas

This thesis is a piece of applied research. It is the result of a joint project between the University of Aston Interdisciplinary Higher Degrees Scheme and International Aeradio plc (IAL). It considers the structure and organisation of overseas business and the effects that exchange rate movements have on financial performance. It looks in detail at a series of overseas contracts and factors which affect the monitoring and performance of those contracts. From this initial research is developed a series of conceptual models which attempt to capture the effects of foreign exchange rate movements on contract costing, the monitoring of performance on overseas contracts and a measure of company wide exposure. These models are then considered in the context of real IAL generated data and circumstances. The work is finally considered in the context of a survey of other companies with a similar mode of undertaking overseas business with the aim of placing the work in a general context.

Empirical study of exchange rates in Brazil, Canada and the Caribbean

This dissertation examines the monetary models of exchange rate determination for Brazil, Canada, and two countries in the Caribbean, namely, the Dominican Republic and Jamaica. With the exception of Canada, the others adopted the floating regime during the past ten years.^ The empirical validity of four seminal models in exchange rate economics were determined. Three of these models were entirely classical (Bilson and Frenkel) or Keynesian (Dornbusch) in nature. The fourth model (Real Interest Differential Model) was a mixture of the two schools of economic theory.^ There is no clear empirical evidence of the validity of the monetary models. However, the signs of the coefficients of the nominal interest differential variable were as predicted by the Keynesian hypothesis in the case of Canada and as predicted by the Chicago theorists in the remaining countries. Moreover, in case of Brazil, due to hyperinflation, the exchange rate is heavily influenced by domestic money supply.^ I also tested the purchasing power parity (PPP) for this same set of countries. For both the monetary as well as the PPP hypothesis, I tested for co-integration and applied ordinary least squares estimation procedure. The error correction model was also used for the PPP model, to determine convergence to equilibrium.^ The validity of PPP is also questionable for my set of countries. Endogeinity among the regressors as well as the lack of proper price indices are the contributing factors. More importantly, Central Bank intervention negate rapid adjustment of price and exchange rates to their equilibrium value. However, its forecasting capability for the period 1993-1994 is superior compared to the monetary models in two of the four cases.^ I conclude that in spite of the questionable validity of these models, the monetary models give better results in the case of the "smaller" economies like the Dominican Republic and Jamaica where monetary influences swamp the other determinants of exchange rate. ^

Econometric models in foreign exchange market

According to the significance of the econometric models in foreign exchange market, the purpose of this research is to give a closer examination on some important issues in this area. The research covers exchange rate pass-through into import prices, liquidity risk and expected returns in the currency market, and the common risk factors in currency markets. Firstly, with the significant of the exchange rate pass-through in financial economics, the first empirical chapter studies on the degree of exchange rate pass-through into import in emerging economies and developed countries in panel evidences for comparison covering the time period of 1970-2009. The pooled mean group estimation (PMGE) is used for the estimation to investigate the short run coefficients and error variance. In general, the results present that the import prices are affected positively, though incompletely, by the exchange rate. Secondly, the following study addresses the question whether there is a relationship between cross-sectional differences in foreign exchange returns and the sensitivities of the returns to fluctuations in liquidity, known as liquidity beta, by using a unique dataset of weekly order flow. Finally, the last study is in keeping with the study of Lustig, Roussanov and Verdelhan (2011), which shows that the large co-movement among exchange rates of different currencies can explain a risk-based view of exchange rate determination. The exploration on identifying a slope factor in exchange rate changes is brought up. The study initially constructs monthly portfolios of currencies, which are sorted on the basis of their forward discounts. The lowest interest rate currencies are contained in the first portfolio and the highest interest rate currencies are in the last. The results performs that portfolios with higher forward discounts incline to contain higher real interest rates in overall by considering the first portfolio and the last portfolio though the fluctuation occurs.