Download Banking and the Endogenous Money Supply as viewed from a

Central Banking from theory to practice: An
international comparison
ÁNGEL GARCÍA
University of Siena,
Pontignano Meeting
03-07-2007, Siena, Italy
1. Introduction
(1) Are there any substantial differences among monetary practices
throughout the world?
(2) If yes, what are those differences based on?
(3) How can they be observed?
(4) How are they related to the different theoretical views of money?
(5) Which economies tend to follow similar patterns?
(6) And why do such differences exist?
2
1. Introduction (Continued): Economies Studied
America and LA
Europe
Argentina
Brazil
Mexico
Peru
USA
Venezuela
England
EU
Norway
Asia
China
Japan
Kuwait
India
Saudi Arabia
UAE
√ Central bank balance sheet data: 48 months
of observations from Jan 2003 to Dec 2006.
√ Overnight Interbank Interest Rate and FX
data: an average of 1045 daily observations
from Jan 2003 to Dec 2006.
3
1. Introduction (Continued)
The short answer is yes, there are substantial differences among
monetary practices throughout the world, although these differences
have been reduced as most central banks have abandoned policies
based on monetary targeting in favor of those based on interest rate
targeting.
The differences in monetary practices are related to international
monetary asymmetries, the differences between the large and closed
economy and the small open economy and between the “old”
exogenous theory of money and the endogenous theory of money.
4
2. The two theories of money
The Exogenous Theory of Money
The Endogenous Theory of Money
Concept
Technology
Distribution
of Income
Postulate
Implications
Postulate
Implications
Decreasing Returns
to Scale. Investment
highly depends on
interest rates.
Automatic
adjustment
through a price
mechanism
which secures
a tendency
towards full
employment
Increasing Returns to
Scale. Investment
mostly depends on the
preservation of a
“normal” level of
capacity utilization.
Incomplete adjustment
through variations in
quantities, leading to
multiplier/accelerator
effects.
Labor is a
commodity. Salaries
are determined by
marginal
productivity.
The
distribution of
income is
harmonic.
Every one gets
his marginal
contribution.
Salaries are negotiated
and determined within
a conflictive process.
The distribution of income
is not harmonic and
represents the major
influence over costs of
production and inflation.
5
2. The two theories of money
Concept
Financial
System
Monetary
System
The Exogenous Theory of Money
Postulate
Implications
The Endogenous Theory of Money
Postulate
Implications
Savings precede
Investment.
Deposits and reserves
are required to extend
new loans. Portfolio
adjustments are
irrelevant.
Investment
precedes savings.
Loans create deposits, and the
availability of reserves does
not constraint the expansion of
loans. Savings are just a
residual which reduces
aggregate demand. Portfolio
adjustments are deterministic.
Money is a
commodity
which reduces
transaction
costs.
The value of money is
tied to a commodity.
Monetary reserves are
physically restricted
and interest rates are
determined by the
market and scarcity.
Money is a fiat
money which
circulates by
means of
coercive power
and the
imposition of tax
liabilities.
The value of money has no
anchor. Monetary reserves
face no restriction and interest
rates are exogenously
determined by the State and
the central bank.
6
2. The two theories of money
The Exogenous Theory of Money
The Endogenous Theory of Money
Concept
Postulate
Implications
Postulate
Implications
Direction of
Causality
From the money
supply to nominal
income.
Inflation is a
demand
phenomenon and
“excess money” is
its cause
From expected and
actual nominal
income to the
money supply.
Money is an effect and not a
cause. Money is demand
determined, and demand is
not determined by the
money supply.
Economic
Policy
The role of monetary
policy is emphasized.
Fiscal policy is rather
ineffective because it
leads to “crowding
out” and reduces
investment.
Monetary
authorities must
reduce the output
gap and control
inflation by
controlling the
amount of money or
the interest rate.
Monetary Policy is
accommodative.
Fiscal policy and
Incomes Policies
are effective to
stabilize inflation
and output.
Monetary authorities
should accommodate the
demand for reserves and
stabilize the interest rate to
guarantee the well
functioning of the payments
and financial systems.
7
3. The complexities of the Open Economy
In the LCE reserves face no constraint. Only expectations regarding
bank profitability may restrict credit activity along the credit cycle,
without having to affect the tendency towards economic growth and
credit expansion.
But in the SOE, there are adverse effects arising from actual and
expected variations in both the level of international reserves
(as a quantity) and the foreign exchange rate (as a price) which
represent in practice an indirect factor which restricts the domestic
credit activity of central banks, but not that of commercial banks.
8
3. The complexities of the Open Economy
(Continued)
In short, while the LCE is not required to build a stock of foreign
currency assets and is not concerned about fluctuations in the FX
rate, the SOE is.
The reason is the former supplies the international reserve currency,
the latter does not – e.g. there are international monetary
asymmetries. The local currency of the SOE is not accepted abroad.
9
3. The complexities of the Open Economy
(Continued)
Exogenous
factors
affecting
liquidity
preference in
domestic and
foreign
currency:
Portfolio adjustments in this case take place within the sphere of bank deposits, and do not require base
money; hence, there is no bias towards interest rate volatility but towards two-side exchange rate volatility.
Fiscal Policy does not necessarily tend to be pro-cyclical, as its monetary absorption is secured at any time.
Two side-betting becomes the rule, reducing the preference for liquidity in foreign currency.
Foreign currency assets
tend to concentrate within
private interbank systems,
and the exchange rate
regime gains flexibility.
- The structure
of the
domestic the
economy.
- Economic
and Political
uncertainty.
- Institutional
arrangements
and degree of
financial
development,
availability of
credit,
liquidity
restrictions,
credit
rationing, etc.
Weak Liquidity
Preference in
Foreign
Currency
Local currency government
securities do not have to
compete against foreign
currency securities.
A larger stock of gross
international reserves is
not required for absorbing
exogenous fiscal monetary
components.
10
3. The complexities of the Open Economy
(Continued)
Exogenous
factors
affecting
liquidity
preference in
domestic and
foreign
currency:
- The structure
of the
domestic the
economy.
- Economic
and Political
uncertainty.
- Institutional
arrangements
and degree of
financial
development,
availability of
credit,
liquidity
restrictions,
credit
rationing, etc.
Strong Liquidity
Preference in
Foreign
Currency
Local currency government
securities have to compete
against foreign currency
securities.
A larger stock of gross
international reserves is
required for absorbing
exogenous fiscal monetary
components.
Foreign currency assets
tend to concentrate within
the central bank, and the
exchange rate regime
looses flexibility.
Portfolio adjustments in this case involve a temporary demand for base money in order to purchase foreign
currency assets provided by the central bank. It requires the liquidation of (government) securities, and hence
implies a bias towards interest rate volatility, unless the central bank is always ready to purchase the
liquidated government securities.
Fiscal Policy tends to be pro-cyclical, as its monetary absorption is facilitated precisely in the presence of
balance of payments surpluses.
One side-betting becomes the rule, reinforcing the strong preference for liquidity in foreign currency.
11
4. Central Banks’ Balance Sheets
Assets, Liabilities and Capital
Assets, Liabilities and Capital
AS S E T S
LIABILITIES
Gross Intl Reserves (GRI)
International Reserve Liabilities
Gold and Gold Certificates
IMF
Foreign Currency Assets
Base Money (BM =CASH+BRES)
Other International Reserve Assets
Notes and Coins in Circulation (CASH)
Domestic Credit (DC=CG+CFS)
Deposits of Banking Institutions (BRES)
Credit to Gov (CG)
Debt Securities (DS)
Credit to Financial Sys (CFS≈RED)
Deposits Public Adm (GD)
IMF
Other Liabilities
Subtotal Other Assets
CAPI TAL
Other Assets in Foreign Currency not GRI
Other Assets
TOTAL ASSETS (ASS)
12
4. Central Banks Stereotypes
Diagnosis
Symptoms
Is the Local
Currency an
International
Reserve
Currency?
Influence of
International
Monetary
Asymmetries
Influence of
variations in
the FX Rate
Quantity Effect
(1)
Yes
(2)
Largest
Component
of Asset Side
Largest
Component of
Liability Side
Price Effect
Monetary
Policy and
FX Rate
Regime in
Place
Null
Null
Fully Flexible
Domestic
Credit
Cash
No
Weak
Weak
Flexible
Domestic
Credit
Total Base
Money
(3)
No
Intermediate
Intermediate
Flexible/Fixed
Domestic
Credit
Debt Sec. and
Gov. Deposits
(4)
No
Intermediate
Intermediate
Flexible/Fixed
Gross Intl
Reserves
Total Base
Money
(5)
No
Strong
Strong
Fixed
Gross Intl
Reserves
Debt Sec. and
Gov. Deposits
(6)
No
Strong
Strong
“Fully” Fixed
Gross Intl
Reserves
Cash
Case
13
5. Central Bank’s Quantitative Indexes (Continued)
GIR DC  IRL BM  DS  GD  K
(1)
Flexible Exchange Rate Regime
Fixed Exchange Rate Regime
Very
Short-run
Short, Medium and
Long-run
Very
Short-run
Short, Medium
and Long-run
GIR
Exog
Exog
Endo
Endo
DC
Exog
Endo
Exog
Endo
IRL
Endo
Exog
Endo
Exog
BM
Exog
Endo
Exog
Endo
DS
Exog
Exog
Exog
Exog
GD*
Endo
Endo
Endo
Endo
K
Endo
Endo
Endo
Endo
Variable
* Endogenous for the Central Bank but endogenous and exogenous for the Government as it can always affect its volume of Government
Deposits (GD) held at the Central Bank beyond whatever is determined through taxation by means of the issuance of Treasury Securities.
14
5. Central Bank’s Quantitative Indexes (Continued)
A minimum degree of flexibility of monetary policy requires:
BM  DS
or equivalently in terms of equation (1):
DS 
1
* GIR  IRL  DC  GD  K   BM
2
Otherwise the ability of central banks to issue debt without having to
pay an interest rate would tend to disappear – e.g. seignorage would
fade away. But, overall, depending on liquidity preference, the fact
that DS>BM may set out pressures leading to financial instability and
interest rate volatility.
15
5. Central Bank’s Quantitative Indexes (Continued)
1) The ratio of the “Original Sin” – applicable when GIR>DC.
BM
GIR
Provided BM expands with GIR and DC, should R≥1?
Not necessarily, what if Gov stabilizes the FX? But, the
greater R is the more flexible the exchange rate scheme
and the monetary policy of the central bank.
The minimum level so that BM>DS is:
BM 1 GIR  IRL  DC  GD  K 
 *
GIR 2
GIR
What is the effect of Δ(GIR-IRL), ΔT, ΔGS,
Fiscal Deficit not fully absorbed by T-Securities, ΔCF…?
16
5. Central Bank’s Quantitative Indexes (Continued)
2) “Domestic Freedom” – applicable when
BM
DC
DC>GIR.
One would expect the value of the ratio to remain
somewhere around the unit.
A minimum level so that BM>DS
BM 1 GIR  IRL  DC  GD  K 
 *
DC 2
DC
In the case of the large economy in charge of
supplying the international reserve currency
(GIR-IRL)≈0 ≈GD and K is always small
BM 
1
* DC  K 
2
Easy to satisfy
by definition
17
5. Central Bank’s Quantitative Indexes (Continued)
3) The importance of the Extracting Liability Components –
meaningful in all cases.
DS  GD
R<100%, otherwise there is a loss of flexibility.
BM
4) The ratio of “Orthodox Favoritism” – meaningful in all cases.
DS  GD R<50%, otherwise BM would tend to fade away from
the monetary system.
LIA
18
5. Central Bank’s Quantitative Indexes (Continued)
5) “Net Extraction of Internal Liquidity” – applicable when
DC>GIR.
DS  GD R<100%, otherwise a net drain of BM would take
place.
DC
6) “Net Extraction of External Liquidity” – applicable when
GIR>DC.
R<100%, otherwise the costs of preserving the
DS  GD
exchange rate regime in place would
GIR
rapidly increase.
19
5. Central Bank’s Quantitative Indexes (Continued)
7) “Liquidity Requirements” – applicable when
BRES
DC
DC>GIR.
R<100%, otherwise a net drain of DC would take
place.
20
6. Empirical Results
A L L
C O U N T R I E S
TABLE ALL-1: PERIOD JAN 2003 TO DEC 2006-AVERAGE STRUCTURE OF (CENTRAL BANKS') MONTHLY BALANCE SHEETS
Assets, Liabilities and Capital
ARG
BRA
MEX
PERU
USA
VEN
Gross Intl Reserves (GIR)
39%
32%
74%
89%
2%
Gold and Gold Certificates
1%
0%
0%
4%
Foreign Currency Assets
38%
32%
73%
Other International Reserve Assets
0%
0%
Domestic Credit (DC=CG+CFS)
29%
Credit to Gov (CG)
ENG
EU
NOR
CHI
JAP
KUW
IND
78%
34%
20%
56%
4%
98%
86%
1%
17%
15%
0%
0%
0%
1%
3%
83%
0%
60%
16%
19%
56%
4%
97%
83%
1%
2%
0%
2%
3%
0%
0%
0%
0%
0%
65%
19%
1%
93%
7%
49%
2%
31%
94%
0%
3%
17%
61%
11%
0%
92%
7%
5%
1%
4%
92%
0%
2%
Credit to Financial Sys (CFS)
12%
4%
7%
1%
0%
0%
45%
1%
27%
2%
0%
1%
IMF (and other resources from other funds)
22%
0%
0%
0%
0%
0%
0%
75%
0%
0%
0%
0%
Subtotal Other Assets
9%
3%
7%
10%
6%
16%
17%
3%
13%
2%
2%
12%
Other Assets in Foreign Currency not GRI
4%
2%
1%
7%
0%
14%
2%
0%
1%
0%
0%
0%
Other Assets
6%
1%
6%
3%
6%
2%
15%
3%
11%
2%
2%
12%
(4)
(3)
(4)
(5)
(1)
(5)
(1)
(5)
(4)
(1)
(4)
(4)
SAU
UAE
ASSETS
TOTAL ASSETS (ASS)
Central Bank Stereotype (1), (2), …, (6)
21
6. Empirical Results (Continued)
A L L
C O U N T R I E S
THE EVOLUTION OF SOME KEY VARIABLES FROM YEAR-AVERAGE 2003 TO YEAR-AVERAGE 2006
Assets, Liabilities and
Capital
ARG
BRA
MEX
PERU
USA
VEN
Gross Intl Reserves
(GIR)
30-50%
32-32%
70-77%
87-89%
2-2%
Domestic Credit
(DC=CG+CFS)
26-39%
64-66%
22-19%
1-3%
92-93%
IMF or
Norway’s Oil Fund
37-0%
ENG
EU
NOR
CHI
JAP
KUW
IND
74-74%
41-29%
22-16%
48-63%
4-4%
99-98%
78-89%
6-14%
42-51%
2-2%
40-26%
94-93%
0-1%
8-1%
S
A
U
U
A
E
ASSETS
68-82%
FOREIGN EXCHANGE
RATE
Foreign Exchange Rate
Variation
against the US dollar
2.95
3.07
3.07
2.18
10.79
10.90
3.48
3.28
N/A
1607.60
2150.00
0.61
0.54
0.89
0.80
7.08
6.42
115.93
116.29
46.56
45.42
Foreign Exchange Rate
Variation (%)
4.07%
-29.0%
1.02%
-5.75%
N/A
33.74%
-11.%
-10.1%
-9.32%
0.31%
-2.45%
Central Bank
Stereotype
(1), (2), …, (6)
(4)
(3)
(4)
(5)
(1)
(5)
(1)
(5)
(4)
(1)
(4)
(4)
22
6. Empirical Results (Continued)
A L L
C O U N T R I E S
TABLE ALL-1: PERIOD JAN 2003 TO DEC 2006-AVERAGE STRUCTURE OF (CENTRAL BANKS') MONTHLY BALANCE SHEETS
Assets, Liabilities and Capital
ARG
BRA
MEX
PERU
USA
VEN
Reserve Liabilities (IRL)
4%
7%
5%
9%
0%
IMF and resources from other funds or
Bank Reserves in foreign currency
28%
10%
0%
45%
Base Money (BM =CASH+BRES)
39%
29%
52%
Notes and Coins in Circulation (CASH)
28%
11%
Deposits of Banking Institutions (BRES)
11%
Debt Securities (DS)
ENG
EU
NOR
CHI
JAP
KUW
IND
21%
2%
5%
1%
0%
2%
0%
0%
0%
0%
81%
0%
0%
0%
0%
25%
95%
34%
72%
6%
66%
76%
54%
71%
30%
18%
92%
14%
55%
3%
29%
55%
29%
55%
18%
22%
6%
3%
19%
17%
2%
37%
21%
26%
16%
17%
19%
23%
13%
3%
27%
0%
0%
14%
17%
4%
5%
Deposits Public Adm (DG)
1%
34%
15%
2%
1%
15%
7%
8%
14%
4%
25%
1%
Other Liabilities
10%
1%
5%
6%
1%
4%
19%
0%
5%
3%
15%
23%
TOTAL LIABILITIES (LIA)
88%
99%
103%
99%
97%
77%
93%
93%
100%
98%
91%
100%
Capital (K)
12%
1%
-3%
1%
3%
22%
7%
7%
0%
2%
9%
0%
Central Bank Stereotype (1), (2), …, (6)
(4)
(3)
(4)
(5)
(1)
(5)
(1)
(5)
(4)
(1)
(4)
(4)
SAU
UAE
LIABILITIES
CAPITAL
23
6. Empirical Results (Continued)
A L L
C O U N T R I E S
THE EVOLUTION OF SOME KEY VARIABLES FROM YEAR-AVERAGE 2003 TO YEAR-AVERAGE 2006
Assets, Liabilities and
Capital
ARG
BRA
MEX
PERU
USA
VEN
ENG
EU
IMF or Peru’s Foreign
Currency Bank Reserves
and Norway’s Oil Fund
46-3%
17-0%
Base Money
(BM =CASH+BRES)
36-49%
24-35%
51-54%
18-30%
95-95%
34-36%
68-72%
Notes and Coins in
Circulation (CASH)
22-38%
8-14%
29-30%
16-21%
92-93%
17-13%
Deposits of Banking
Institutions (BRES)
13-11%
16-22%
22-24%
2-10%
3-2%
Debt Securities (DS)
6-30%
22-19%
27-18%
8-11%
Deposits Public Adm
(DG)
1-2%
27-40%
14-17%
2.95
3.07
3.07
2.18
4.07%
(4)
NOR
CHI
JAP
KUW
IND
8-4%
67-56%
79-75%
66-50%
73-72%
51-56%
4-3%
35-23%
55-62%
27-25%
58-55%
17-23%
18-16%
4-1%
32-33%
23-13%
38-26%
15-17%
3-3%
18-42%
0-0%
0-0%
4-24%
14-19%
0-10%
0-4%
26-20%
1-1%
14-7%
8-6%
8-6%
25-11%
5-4%
21-22%
0-2%
10.79
10.90
3.48
3.28
N/A
1607.60
2150.00
0.61
0.54
0.89
0.80
7.08
6.42
115.93
116.29
46.56
45.42
-29.0%
1.02%
-5.75%
N/A
33.74%
-11%
-10.1%
-9.32%
0.31%
-2.45%
(3)
(4)
(5)
(1)
(5)
(1)
(5)
S
A
U
U
A
E
LIABILITIES
29-25%
76-85%
FOREIGN EXCHANGE
RATE
Foreign Exchange Rate
Variation
against the US dollar
Foreign Exchange Rate
Variation (%)
Central Bank
Stereotype
(1), (2), …, (6)
(4)
(1)
(4)
(4)
24
6. Empirical Results (Continued)
A L L C O U N T R I E S
Graph ALL-1: Average Interest Rate in the Interbank Market
A L L C O U N T R I E S
Graph ALL-1: Average Daily Interest Rate Volatility in the Interbank Market
13%
24%
12%
22%
11%
20%
10%
18%
9%
16%
8%
14%
7%
12%
6%
10%
5%
8%
4%
6%
3%
2%
4%
1%
2%
0%
0%
VEN
BRA
ARG
MEX
NOR
IND
PERU
ENG
EU
USA
JAP
CHI
KUW
SAU
BRA
UAE
MEX
IND
ENG
VEN
PERU
NOR
2003
2004
2005
ARG
EU
USA
JAP
CHI
KUW
SAU
UAE
CHI
KUW
SAU
UAE
JAP
Countries
Countries
2003
2006
2004
2005
2006
A L L C O U N T R I E S
Graph ALL-3: CPI Inflation Rate
A L L C O U N T R I E S E X C E P T
U S A
Graph ALL-2: Average Daily Volatility over Mean in the Foreign Exchange Rate Interbank Market
13%
30%
12%
28%
11%
25%
10%
23%
9%
20%
8%
18%
7%
15%
6%
13%
5%
10%
4%
8%
3%
5%
2%
3%
1%
0%
0%
VEN
BRA
ARG
EU
JAP
VEN
NOR
ENG
MEX
IND
PERU
CHI
KUW
SAU
UAE
BRA
MEX
IND
ARG
PERU
EU
2004
2005
ENG
NOR
Countries
Countries
2003
USA
-3%
2006
2003
2004
2005
2006
25
6. Empirical Results (Continued)
Graph ARG-1: Daily Interest Rate Variations
during the period from Jan-2003 to Dec-2006
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
Graph BRA-1: Daily Interest Rate Variations
during the period from Jan-2003 to Dec-2006
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
Var i %
Var FX %
−
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
Var FX %
Var FX %
Graph PERU-1: Daily Interest Rate Variations
during the period from Jan-2003 to Dec-2006
Graph VEN-1: Daily Interest Rate Variations
during the period from Jan-2003 to Dec-2006
Graph USA-1: Daily Interest Rate Variations
during the period from Jan-2003 to Dec-2006
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
Var i %
Var i %
Graph MEX-2: Daily Exchange Rate Variations
during the period from Jan-2003 to Dec-2006
Graph BRA-2: Daily Exchange Rate Variations
during the period from Jan-2003 to Dec-2006
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
Var i %
Graph ARG-2: Daily Exchange Rate Variations
during the period from Jan-2003 to Dec-2006
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
Graph MEX-1: Daily Interest Rate Variations
during the period from Jan-2003 to Dec-2006
Var i %
Var i %
Graph VEN-2: Daily Exchange Rate Variations
during the period from Jan-2003 to Dec-2006
Graph PERU-2: Daily Exchange Rate Variations
during the period from Jan-2003 to Dec-2006
20%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
15%
10%
5%
0%
-5%
-10%
-15%
-20%
Var FX %
Var FX %
26
6. Empirical Results (Continued)
Graph ENG-1: Daily Interest Rate Variations
during the period from Jan-2003 to Dec-2006
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
Graph EU-1: Daily Interest Rate Variations
during the period from Jan-2003 to Dec-2006
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
Var i %
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
Var i %
Graph ENG-2: Daily Exchange Rate Variations
during the period from Jan-2003 to Dec-2006
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
Var i %
Graph NOR-2: Daily Exchange Rate Variations
during the period from Jan-2003 to Dec-2006
Graph UE-2: Daily Exchange Rate Variations
during the period from Jan-2003 to Dec-2006
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
Var FX %
Graph NOR-1: Daily Interest Rate Variations
during the period from Jan-2003 to Dec-2006
Var FX %
Var FX %
27
6. Empirical Results (Continued)
Graph JAP-1: Daily Interest Rate Variations
during the period from Jan-2003 to Dec-2006
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
-3.0%
Graph IND-1: Daily Interest Rate Variations
during the period from Jan-2003 to Dec-2006
3.0%
2.5%
2.0%
1.5%
1.0%
0.5%
0.0%
-0.5%
-1.0%
-1.5%
-2.0%
-2.5%
Var i %
Var i %
Graph IND-2: Daily Exchange Rate Variations
during the period from Jan-2003 to Dec-2006
Graph JAP-2: Daily Exchange Rate Variations
during the period from Jan-2003 to Dec-2006
6%
5%
4%
3%
2%
1%
0%
-1%
-2%
-3%
-4%
-5%
-6%
6%
4%
2%
0%
-2%
-4%
-6%
Var FX %
Var FX %
28