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This paper analyzes long-term exchange rate modeling. The paper reviews the literature that tests for a unit root in real exchange rates and the closely related work on testing for a unit root in the residual from a regression of the nominal exchange rate on relative prices. It argues that the balance of evidence is supportive of the existence of some form of long-term exchange rate relationship. The paper highlights that the form of this relationship, however, does not accord exactly with a traditional representation of the long-term exchange rate.
This paper describes early contributions of Staff Papers to international economics. The paper highlights that Staff Papers has, since its inception in 1950, been an important vehicle for the dissemination of research done by the IMF staff. This paper discusses three areas in which articles published in Staff Papers up until the 1970s made major contributions to the literature in international economics. The areas covered are: the absorption approach and the monetary theory of the balance of payments; the Mundell-Fleming model; and foreign trade modeling.
This paper provides a critical survey of the literature on politico-institutional determinants of the government budget. We organize our discussion around two questions: Why did certain OECD countries, but not others, accumulate large public debts? Why did these fiscal imbalances appear in the last twenty years rather than sooner? We begin by discussing the “tax smoothing” model and conclude that this approach alone cannot provide complete answers to these questions. We then proceed to a discussion of political economy models, which we organize into six groups: (1) models based upon opportunistic policy makers and naive voters with “fiscal illusion”; (2) models of intergenerational redistributions; (3) models of debt as a strategic variable, linking the current government with the next one; (4) models of coalition governments; (5) models of geographically dispersed interests; and (6) models emphasizing the effects of budgetary institutions. We conclude by briefly discussing policy implications.
This special issue brings together world-renowned experts to provide a systematic and critical analysis of the costs and benefits of financial globalization. Contributors include Kenneth Rogoff, Maurice Obstfeld, Dani Rodrik, and Frederic S. Mishkin.
This last issue for 2005 comprises seven new papers, including a contribution to the journal's occasional Special Data Section about domestic debt markets in Sub-Saharan Africa, and also an in-depth look at the internal job market for entry-level economists at the IMF. The remaining articles cover toics as diverse as: modeling of asset markets, exchange rates in developing countries, international bank claims on Latin America, the effectiveness of "early warning" systems, and the use (by emerging market countries) of the IMF's Special Data Dissemination Standard (SDDS).
This paper empirically investigates the monetary impact of banking crises in Chile, Colombia, Denmark, Japan, Kenya, Malaysia, and Uruguay during 1975–98. Cointegration analysis and error correction modeling are used to research two issues: (i) whether money demand stability is threatened by banking crises; and (ii) whether crises lead to structural breaks in the relation between monetary indicators and prices. Overall, no systematic evidence that banking crises cause money demand instability is found. The paper also analyzes inflation targeting in the context of the IMF-supported adjustment programs.
This first issue of IMF Staff Papers for 2005 contains 7 papers that discuss: whether output recovered after the Asian crisis; the value of a country's trading partners to its own economic growth; whether interdependence is a factor in understanding the spread of currency crises; can remittance payments from expatriates be a reliable source of capital for economic development?; total factor productivity; designing a VAT for the energy trade in Russia and Ukraine; and lastly, a discussion of the reasons for central bank intervention in ERM-I since 1993
This paper focuses on exchange rate economics. Two main views of exchange rate determination have evolved since the early 1970s: the monetary approach to the exchange rate (in flexible-price, sticky-price, and real interest differential formulations); and the portfolio balance approach. In this paper, the literature on these views is surveyed, followed by a discussion of the empirical evidence and likely future developments in the area of exchange rate determination. The literature on foreign exchange market efficiency, exchange rates and “news,” and international parity conditions is also reviewed.
New technologies are driving transformational changes in the global financial system. Virtual currencies (VCs) and the underlying distributed ledger systems are among these. VCs offer many potential benefits, but also considerable risks. VCs could raise efficiency and in the long run strengthen financial inclusion. At the same time, VCs could be potential vehicles for money laundering, terrorist financing, tax evasion and fraud. While risks to the conduct of monetary policy seem less likely to arise at this stage given the very small scale of VCs, risks to financial stability may eventually emerge as the new technologies become more widely used. National authorities have begun to address these challenges and will need to calibrate regulation in a manner that appropriately addresses the risks without stifling innovation. As experience is gained, international standards and best practices could be considered to provide guidance on the most appropriate regulatory responses in different fields, thereby promoting harmonization and cooperation across jurisdictions.
The recent crisis has redrawn attention to financial globalization. Dilip Das examines under what circumstances it can be welfare-enhancing and lead to rapid economic growth. Written in an accessible style, the book gives the latest insights on the topic.