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Openness and equilibrium determinacy under interest rate rules
Openness and equilibrium determinacy under interest rate rules

... The most recent decade has witnessed an increasing popularity of inflation-targeting policy. Some central banks have explicitly switched to inflation targeting (e.g., New Zealand, Canada, the United Kingdom, Sweden, Australia, the Czech Republic, and Poland), and many other countries are moving toward ...
Exchange rate regimes in Latin America
Exchange rate regimes in Latin America

3AECO – 6 Exchange rates - Economics Teachers` Association of
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East African Community: Pre-conditions for an Effective Monetary

... The traditional approach of deciding whether a set of countries should form a monetary union is to evaluate whether the countries constitute an OCA (Mundell, 1961; McKinnon, 1963). The standard question addressed is if the benefits of eliminating exchange rate fluctuations between member states out ...
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Foreign Currency Transactions
Foreign Currency Transactions

Shocked by the world! Introducing the three block open economy FAVAR ∗
Shocked by the world! Introducing the three block open economy FAVAR ∗

... The global economy has become more open. In 1990 the total value of trade was less than 40 percent of global GDP; by 2004 the world economy had grown 50 percent and two-way trade exceeded 55 percent of global GDP (http://devdata.worldbank.org/wdi2006/ contents/Section6_1.htm. ...
Leading Indicators of Currency Crises
Leading Indicators of Currency Crises

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... monetary policy is assumed, short-term interest rates (long-term in the Australian and Belgian models) fall significantly in all models, with deviations increasing over time. There is no clear pattern in ex post real interest rates (defined as the difference between interest rates and coincident rat ...
If You`re So Smart: John Maynard Keynes and Currency Speculation
If You`re So Smart: John Maynard Keynes and Currency Speculation

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Monetary Policy and the Determination of the Interest Rate and

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NBER WORKING PAPER SERIES ASSESSING INTERNATIONAL EFFICIENCY Jonathan Heathcote Fabrizio Perri

... factors of production across countries. The main objective of this chapter is to provide a simple but integrated methodological framework that lays down precisely the issues involved in combining data and theory to assess international efficiency along both of these dimensions. The first part of the ...
Monetary unions, external shocks and economic performance: A Latin American perspective
Monetary unions, external shocks and economic performance: A Latin American perspective

... this is surprising, since, at least in principle, certain groups of Latin American nations would seem to satisfy some of the basic criteria for an optimal currency area (OCA).3 During the last few years a number of papers on (potential) monetary unions around the world have been published.4 Most of ...
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Contemporary exchange rate regimes: floating, fixed and hybrid

... rate regimes, though vary significantly in financial openness. In some countries, there has been considerable variation over time in both influence over the exchange rate and the extent of restrictions on capital transactions. When a country chooses greater exchange rate control, that means giving u ...
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Can Open Economy Business Cycle Models Explain Business Cycle Facts?

... level of initial wealth. This assumption, along with the fact that all individuals face the same labor demand and own an equal share of all firms, implies that within the same country all individuals face the same budget constraint. Thus they will choose identical paths for consumption. As a result, ...
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... As we show, our simple model can account for 85 percent of the variation in a panel of 30 province-level net exports over the 1984-2010 period. Of this, variation in cash flow explains on average 70 percent of external adjustment and intertemporal prices, on average, account for the remaining 15 perc ...
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Export and Import Price Index Manual, Chapter 4 Valuation

Real Exchange Rate Dynamics in Sticky-Price Models with Capital
Real Exchange Rate Dynamics in Sticky-Price Models with Capital

... to sector-speci…c capital tends to decrease the persistence of RERs in response to monetary shocks. This e¤ect might seem counterintuitive, in light of the results obtained by Woodford (2005) in a model with …rm-speci…c capital. He …nds that capital speci…city increases the persistence of the real ...
Optimal Exchange Rate Policy in a Growing Semi
Optimal Exchange Rate Policy in a Growing Semi

... connection between the exchange rate level and net saving. We examine the optimal exchange rate policy in a dynamic intertemporal model that incorporates four basic features of the Chinese economy: (i) limited capital mobility; (ii) a net capital outflow taking the form of an accumulation of central ...
Vehicle Currency Use in International Trade
Vehicle Currency Use in International Trade

PDF Download
PDF Download

... perhaps reflecting market pessimism about Europe’s ability to sustain its own growth independently of the United States. It was precisely in this period that the movements in currency demand mentioned above may have become stronger. ...
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Purchasing power parity



Purchasing power parity (PPP) is a component of some economic theories and is a technique used to determine the relative value of different currencies.Theories that invoke purchasing power parity assume that in some circumstances (for example, as a long-run tendency) it would cost exactly the same number of, say, US dollars to buy euros and then to use the proceeds to buy a market basket of goods as it would cost to use those dollars directly in purchasing the market basket of goods.The concept of purchasing power parity allows one to estimate what the exchange rate between two currencies would have to be in order for the exchange to be at par with the purchasing power of the two countries' currencies. Using that PPP rate for hypothetical currency conversions, a given amount of one currency thus has the same purchasing power whether used directly to purchase a market basket of goods or used to convert at the PPP rate to the other currency and then purchase the market basket using that currency. Observed deviations of the exchange rate from purchasing power parity are measured by deviations of the real exchange rate from its PPP value of 1.PPP exchange rates help to minimize misleading international comparisons that can arise with the use of market exchange rates. For example, suppose that two countries produce the same physical amounts of goods as each other in each of two different years. Since market exchange rates fluctuate substantially, when the GDP of one country measured in its own currency is converted to the other country's currency using market exchange rates, one country might be inferred to have higher real GDP than the other country in one year but lower in the other; both of these inferences would fail to reflect the reality of their relative levels of production. But if one country's GDP is converted into the other country's currency using PPP exchange rates instead of observed market exchange rates, the false inference will not occur.
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