Sovereign Defaults, External Debt, and Real Exchange Rate Dynamics
Sovereign Defaults, External Debt, and Real Exchange Rate Dynamics

Author: Mr.Tamon Asonuma

Publisher: International Monetary Fund

Published: 2016-02-25

Total Pages: 48

ISBN-13: 1498387624

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Emerging countries experience real exchange rate depreciations around defaults. In this paper, we examine this observed pattern empirically and through the lens of a dynamic stochastic general equilibrium model. The theoretical model explicitly incorporates bond issuances in local and foreign currencies, and endogenous determination of real exchange rate and default risk. Our quantitative analysis replicates the link between real exchange rate depreciation and default probability around defaults and moments of the real exchange rate that match the data. Prior to default, interactions of real exchange rate depreciation, originated from a sequence of low tradable goods shocks with the sovereign’s large share of foreign currency debt, trigger defaults. In post-default periods, the resulting output costs and loss of market access due to default lead to further real exchange rate depreciation.

Estimating the Equilibrium Real Exchange Rate
Estimating the Equilibrium Real Exchange Rate

Author: Mr.Tarhan Feyzioglu

Publisher: International Monetary Fund

Published: 1997-09-01

Total Pages: 25

ISBN-13: 1451853173

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An equilibrium exchange rate is here defined as the level that is consistent with simultaneous internal and external balances as specified in Montiel (1996). Exogenous “fundamental” variables determining these balances are identified. Along the lines of Edwards (1994), a reduced form is estimated with the cointegration technique for Finland for the period 1975-95. The estimation produced a reasonable set of equilibrium exchange rates that appreciate with positive shocks to the terms of trade, world real interest rates, and the productivity differential between Finland and its trading partners.

Exchange Rate Economics
Exchange Rate Economics

Author: Peter Isard

Publisher: Cambridge University Press

Published: 1995-09-28

Total Pages: 298

ISBN-13: 9780521466004

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This book describes and evaluates the literature on exchange rate economics. It provides a wide-ranging survey, with background on the history of international monetary regimes and the institutional characteristics of foreign exchange markets, an overview of the development of conceptual and empirical models of exchange rate behavior, and perspectives on the key issues that policymakers confront in deciding whether, and how, to try to stabilize exchange rates. The treatment of most topics is reasonably compact, with extensive references to the literature for those desiring to pursue individual topics further. The level of exposition is relatively easy to comprehend; the historical and institutional material (part I) and the discussion of policy issues (part III) contain no equations or technical notation, while the chapters on models of exchange rate behavior (part II) are written at a level intelligible to first-year graduate students or advanced undergraduates. The book will enlighten both students and policymakers, and should also serve as a valuable reference for many research economists.

The Impact of Oil-Related Income on the Equilibrium Real Exchange Rate in Syria
The Impact of Oil-Related Income on the Equilibrium Real Exchange Rate in Syria

Author: Maher Hasan

Publisher: International Monetary Fund

Published: 2008-08-01

Total Pages: 32

ISBN-13: 145187054X

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This paper examines the impact of oil-related income, among other fundamentals, on the equilibrium real effective exchange rate (ERER) in Syria. After reviewing the evolution of the Syrian multiple exchange rate regime since 1960 and assessing alternative measures for the exchange rate, the paper analyzes the impact of oil-related income on the ERER in the context of a behavioral equilibrium exchange rate model. The analysis concludes that ERER appreciates with higher oil-related income, productivity and net foreign assets, but, at odds with the conventional wisdom, depreciates with higher government expenditures given that an increase in expenditures usually translates into higher imports and weaker current account position. In light of the projected real shocks associated with the depletion of oil and the change in other fundamentals in the context of the ongoing transition to a market economy, a more flexible regime would serve Syria better in the future.

Differences in Income Elasticities and Trends in Real Exchange Rates
Differences in Income Elasticities and Trends in Real Exchange Rates

Author: Paul R. Krugman

Publisher:

Published: 1988

Total Pages: 56

ISBN-13:

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One might expect that differences in income elasticities in trade and/or differences in growth rates among countries would give rise to strong secular trends in real exchange rates; for example, fast-growing countries might need steady depreciation to get the world to accept their growing exports. In fact, however, income elasticities are systematically related to growth rates by the "45-degree rule", under which fast-growing countries appear to face high income elasticities of demand for their exports, while having low income elasticities of import demand. The net effect of this relationship between elasticities and growth rates is that secular trends in real exchange rates are much smaller than one might otherwise have expected: relative PPP holds fairly well. This paper documents the existence of a "45-degree rule", and suggests an explanation in terms of increasing returns and product differentiation.

Exchange Rate Policy in Developing Countries
Exchange Rate Policy in Developing Countries

Author: Mr.Mohsin S. Khan

Publisher: International Monetary Fund

Published: 1991-05-15

Total Pages: 38

ISBN-13: 9781557752093

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This paper addresses analytical aspects of exchange rate policy and emphasizes the relationship among exchange rate flexibility, financial discipline, and international competitiveness.