Great Depression recovery: The role of capital controls

Kris James Mitchener , Kirsten Wandschneider 18 August 2014

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The use of capital controls as a policy tool – especially as a stopgap to ward off financial crises – is controversial. For example, in 1998, Malaysia was castigated by policymakers and financial markets for imposing capital controls in response to the East Asian financial crisis. In 2010, however, the IMF revised its stand against capital controls, recognising that sudden capital surges can pose risks for some countries, and acknowledging that controls on capital inflows may be part of a toolkit that countries use to ward off financial crises (Ostry et al. 2010).

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Topics:  Economic history Exchange rates International finance Monetary policy

Tags:  exchange rates, financial crises, capital controls, gold standard, East Asian financial crisis, Great Depression

New price adjustments reshape the world, yet again

Angus Deaton, Bettina Aten 16 July 2014

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When the international comparison project (ICP) published its latest estimates of purchasing power parity (PPP) exchange rates in April (World Bank 2014), there was considerable surprise and some consternation. Poor countries became richer overnight, at least relative to the rich countries; expressed in US dollars, world average GDP increased. There was a large downward revision of global income inequality. By some calculations, e.g. Chandy and Kharas (2014) and Dykstra et al.

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Topics:  Development Exchange rates

Tags:  exchange rates, World Bank, PPP

Eurozone external adjustment and real exchange rate movements: The role of firm productivity distribution

Filippo di Mauro, Francesco Pappadà 02 June 2014

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A corollary of the Eurozone crisis has been an unusually large current-account surplus for the Eurozone as a whole, resulting from a combination of strong external demand and rapid readjustment of external accounts in the Eurozone countries that had previously accumulated large imbalances.

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Topics:  Europe's nations and regions Exchange rates

Tags:  eurozone, exchange rates, productivity, imbalances, exports, rebalancing

The transmission of Federal Reserve tapering news to emerging financial markets

Joshua Aizenman, Mahir Binici, Michael M Hutchison 04 April 2014

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The quantitative easing (QE) policies of the US Federal Reserve in the years following the crisis of 2008–2009 included monthly securities purchases of long-term Treasury bonds and mortgage-backed securities totalling $85 billion in 2013. The cumulative outcome of these policies has been an unprecedented increase of the monetary base, mitigating the deflationary pressure of the crisis.

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Topics:  Exchange rates International finance Monetary policy

Tags:  exchange rates, Federal Reserve, asset prices, emerging markets, stock markets, Credit Default Swaps, tapering

Managing the exchange rate: It's not how much, but how

Atish R Ghosh, Jonathan D Ostry, Mahvash Saeed Qureshi 02 April 2014

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The choice of exchange rate regime is a perennial issue faced by emerging markets. Conventional wisdom, especially after the emerging markets crises of the late 1990s, was the bipolar prescription: countries should choose between either floats (the soft end of the prescription) or hard pegs (monetary union, dollarisation, currency board). The thinking was that intermediate regimes (conventional pegs, horizontal bands, crawling arrangements, managed floats) left countries more susceptible to crises.

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Topics:  Exchange rates

Tags:  exchange rates, emerging markets, managing floats

The credit cycle and vulnerabilities in emerging economies: the case of Latin America

Julián Caballero, Ugo Panizza, Andrew Powell 02 April 2014

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Over recent years credit growth in Latin America has been very strong, and countries have become more reliant on foreign bond issuances. These phenomena are linked, and in Caballero et al. (2014), we argue that they may have led to vulnerabilities which domestic and international supervisors are not well-equipped to assess.

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Topics:  Exchange rates Financial markets International finance

Tags:  exchange rates, Latin America, carry trade, credit conditions, original sin

How did the Global Financial Crisis misalign East Asian currencies?

Eiji Ogawa, Zhiqian Wang 19 January 2014

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Some East Asian countries experienced a serious currency crisis in 1997. The crisis was blamed on both the de facto US dollar peg system and double mismatches of domestic financial institutions’ balance sheets in terms of currency and maturity. Following the Asian currency crisis, recognition of the importance of regional monetary cooperation has steadily grown. Specifically, the monetary authorities of most East Asian countries have come to perceive the importance of monitoring intra-regional exchange rates.

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Topics:  Exchange rates International finance

Tags:  exchange rates, financial crisis, global financial crisis, currency crisis, East Asian financial crisis

Policymaking in crises: Pick your poison

Kristin Forbes, Michael W Klein 24 December 2013

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In 2010, the Brazilian finance minister Guido Mantenga declared a ‘currency war’ because of the harmful effects of the strengthening of the real. He blamed the currency’s appreciation on easy money in advanced countries, and to a lesser extent on reserve accumulation in some emerging markets. More recently, concerns were raised by slides in the values of the Indian rupee – which lost 18% of its value against the dollar between February and August – and by the fall in the value of the Indonesian rupiah – which has lost almost a quarter of its value against the US dollar in 2013.

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Topics:  Exchange rates Macroeconomic policy

Tags:  exchange rates, foreign exchange reserves, India, Indonesia, global financial crisis, capital controls, Brazil, currency war

Tapering talk: The impact of expectations of reduced Federal Reserve security purchases on emerging markets

Barry Eichengreen, Poonam Gupta 19 December 2013

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In May 2013, Federal Reserve officials first began to talk of the possibility of the US central bank tapering its securities purchases from $85 billion a month to something lower. A milestone to which many observers point is 22 May 2013, when Chairman Bernanke raised the possibility of tapering in his testimony to Congress. This ‘tapering talk’ had a sharp negative impact on economic and financial conditions in emerging markets.

Three aspects of that impact are noteworthy:

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Topics:  Exchange rates Monetary policy

Tags:  exchange rates, monetary policy, Federal Reserve, emerging markets, capital controls, Macroprudential policies, Capital inflows, currency war, tapering

Are exchange rates predictable?

Barbara Rossi 14 November 2013

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The predictability of exchange rates is a crucial question in international finance and macroeconomics. Policy decisions of central banks and policymakers all over the world rely, directly or indirectly, on exchange rate forecasts. The same holds for private business and practitioners' decisions. Discussions in policy circles and forecasting businesses often revolve around the difficult theme of forecasting exchange rates, as the recent discussions about currency wars and international monetary-policy coordination during the recent financial crisis have shown.

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Topics:  Exchange rates

Tags:  exchange rates, random walk, predictions, forecasting

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