scholarly journals Nominal exchange rates EUR/GRD and EUR/ITL in the context of leaving the euro zone by Greece and Italy

2021 ◽  
Vol 43 ◽  
pp. 293-316
Author(s):  
Katarzyna Dąbrowska-Gruszczyńska ◽  
◽  
Marcin Gruszczyński ◽  
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Euro Area ◽  
Structural Changes ◽  
Currency Union ◽  
Jel Classification ◽  
Euro Zone ◽  
Value Contribution ◽  
Nominal Exchange Rates ◽  
Shadow Exchange Rate

Aim/purpose – The aim of this paper is to present two cases of crises in Greece and Italy and to evaluate the shadow exchange rates of hypothetical new currencies (re)introduced after Grexit and Italexit. Design/methodology/approach – Both shadow exchange rates are estimated using speculative pressure index concept that emphasizes the importance of changes in foreign exchange reserves and interest rate differentials in the absence of an independent nomi- nal exchange rate. The research sample covers Greece in 1989-2020 and Italy in 1989- 2020. Findings – The research presented the estimation of shadow exchange rates EUR/GRD and EUR/ITL during the euro zone membership period. Leaving the euro area one can expect the following market rates: EUR/GRD 600 and EUR/ITL 1850. That would mean 75% depreciation and 5% appreciation to the current euro parities EUR/GRD 340.75, and EUR/ITL 1936.27, respectively. Research implications/limitations – After potential Grexit Greek authorities could expect significant nominal depreciation of a new currency (or should introduce it with a substantial discount). In the case of Italexit, the new currency would preserve its nomi- nal value. The limitations of the research methodology are: a long period of the analysis covers structural changes of financial markets, crisis events, political factors (e.g., QE programs). Originality/value/contribution – The originality of this approach lies in the combina- tion of two important economic concepts – the idea of shadow exchange rate and the index of speculative pressure. Combined together they help to prepare the methodology of shadow exchange rates evaluation for currencies that are currently in the common currency system (e.g., currency union). These results can help in economic and political discussions on effects of leaving the currency union. Keywords: nominal exchange rates, euro area, financial crises. JEL Classification: F21, F31, F37, F38, G15

Löhne, Wechselkurse und Beschäftigung

1997 ◽  
Vol 46 (1) ◽  
Author(s):  
Ulrich van Suntum
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
International Competitiveness ◽  
Currency Union ◽  
Wage Level ◽  
Wage Policy ◽  
Labour Costs ◽  
Fixed Exchange Rates ◽  
Unit Labour Costs ◽  
The Impact

AbstractIn recent time it has been argued that Germanys international competitiveness had suffered more from the strong D-Mark than from the national wage level. As a proof it has been pointed to the relative impact of these two factors on the level of German unit labour costs, measured in terms of international currency.It is shown that neither the real exchange rate nor international unit labour costs are an unambiguous indicator of international competitiveness. On the other hand, the seemingly naive indicator of the rise in unit labour costs in national currency is by far more relevant in evaluating the impact of the wage level on national employment, at least in the long run. This is true in case of flexible as well as in the case of fixed exchange rates and also in case of a currency union. Moreover, it is argued that a flexible exchange rate will never do the job of outweighing the negative effects on employment caused by a rise in wages which is in excess of the rise in productivity. Hence with flexible exchange rates national real wage policy must bee eaqually aware of employment needs like with fixed exchange rates or in case of a currency union.

scholarly journals Monetary Policy and the Predictability of Nominal Exchange Rates

2020 ◽  
Author(s):  
M S Eichenbaum ◽  
B K Johannsen ◽  
S T Rebelo
Keyword(s):  
Monetary Policy ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rate ◽  
Open Economy ◽  
Real Exchange Rates ◽  
Nominal Exchange Rate ◽  
Medium Size ◽  
Inflation Rates ◽  
Nominal Exchange Rates

Abstract This article studies how the monetary policy regime affects the relative importance of nominal exchange rates and inflation rates in shaping the response of real exchange rates to shocks. We document two facts about inflation-targeting countries. First, the current real exchange rate predicts future changes in the nominal exchange rate. Second, the real exchange rate is a poor predictor of future inflation rates. We estimate a medium-size, open-economy DSGE model that accounts quantitatively for these facts as well as other empirical properties of real and nominal exchange rates. The key estimated shocks that drive the dynamics of exchange rates and their covariance with inflation are disturbances to the foreign demand for dollar-denominated bonds.

Macroeconomics of the Euro

2020 ◽  
Author(s):  
Paul Bergin
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Monetary Union ◽  
Open Economy ◽  
Nominal Exchange Rate ◽  
Relative Price ◽  
Theoretical Research ◽  
Eurozone Crisis ◽  
Macroeconomic Adjustment ◽  
Nominal Exchange Rates

While it is a long-standing idea in international macroeconomic theory that flexible nominal exchange rates have the potential to facilitate adjustment in international relative prices, a monetary union necessarily forgoes this mechanism for facilitating macroeconomic adjustment among its regions. Twenty years of experience in the eurozone monetary union, including the eurozone crisis, have spurred new macroeconomic research on the costs of giving up nominal exchange rates as a tool of adjustment, and the possibility of alternative policies to promote macroeconomic adjustment. Empirical evidence paints a mixed picture regarding the usefulness of nominal exchange rate flexibility: In many historical settings, flexible nominal exchanges rates tend to create more relative price distortions than they have helped resolve; yet, in some contexts exchange rate devaluations can serve as a useful correction to severe relative price misalignments. Theoretical advances in studying open economy models either support the usefulness of exchange rate movements or find them irrelevant, depending on the specific characteristics of the model economy, including the particular specification of nominal rigidities, international openness in goods markets, and international financial integration. Yet in models that embody certain key aspects of the countries suffering the brunt of the eurozone crisis, such as over-borrowing and persistently high wages, it is found that nominal devaluation can be useful to prevent the type of excessive rise in unemployment observed. This theoretical research also raises alternative polices and mechanisms to substitute for nominal exchange rate adjustment. These policies include the standard fiscal tools of optimal currency area theory but also extend to a broader set of tools including import tariffs, export subsidies, and prudential taxes on capital flows. Certain combinations of these policies, labeled a “fiscal devaluation,” have been found in theory to replicate the effects of a currency devaluation in the context of a monetary union such as the eurozone. These theoretical developments are helpful for understanding the history of experiences in the eurozone, such as the eurozone crisis. They are also helpful for thinking about options for preventing such crises in the future.

scholarly journals EXOGENOUS INTEREST RATE AND EXCHANGE RATE DYNAMICS UNDER ELASTIC EXPECTATIONS

2021 ◽  
Vol 80 (318) ◽  
pp. 3
Author(s):  
Franklin Serrano ◽  
Ricardo Summa ◽  
Gabriel Aidar
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Interest Rates ◽  
Exchange Rate Regimes ◽  
Nominal Exchange Rate ◽  
Exchange Rate Dynamics ◽  
Policy Variable ◽  
Nominal Exchange Rates ◽  
Floating Exchange Rate ◽  
Short Run

<div class="WordSection1"><h1 align="center"><strong style="font-size: 10px;">ABSTRACT</strong></h1></div><p>A theory analyzing the short run dynamics of nominal exchange rates under exogenous interest rates and free imperfect international capital markets is presented. Introducing elastic exchange rate expectations leads to cumulative changes in the spot and forward exchange rates in the same direction. We find that free floating exchange rate regimes are intrinsically unstable, as the nominal exchange rate is an institutional or policy variable that has no ‘fundamental equilibrium’ level. Implications for monetary policy and exchange market interventions of this potential instability are derived. Our results help to explain both the empirical prevalence of dirty floating exchange rate regimes and some aspects of the uncovered interest parity ‘failure’.</p><p> </p><p align="center">TASA DE INTERÉS EXÓGENA Y DINÁMICA DEL TIPO DE CAMBIO CON EXPECTATIVAS ELÁSTICAS</p><p align="center"><strong>RESUMEN </strong></p><p>Presentamos un análisis teórico de la dinámica de corto plazo de los tipos de cambio nominales con tasas de interés exógenas y libres e imperfecta movilidad internacional de capitales. La introducción de expectativas de tipo de cambio elásticas conduce a variaciones acumulativas en los tipos de cambio <em>spot</em> y <em>forward</em> en la misma dirección. Los regímenes de tipo de cambio de flotación libre son intrínsicamente inestables, dado que el tipo de cambio nominal es una variable institucional o de política que no tiene un nivel de “equilibrio fundamental”. Derivamos implicaciones de esta inestabilidad potencial para la política monetaria y las intervenciones en los mercados cambiarios. Los resultados ayudan a explicar la prevalencia de tipos de cambio de flotación sucia y aspectos de la “falla” de la paridad de tasas de interés descubierta.</p>

The Effect of Exchange Rates on Trade Balance: An Empirical Study of Morocco

2018 ◽  
Vol 3 (1) ◽  
pp. 01-10
Author(s):  
Hicham Sadok
Keyword(s):  
Exchange Rate ◽  
Empirical Study ◽  
Exchange Rates ◽  
Foreign Trade ◽  
Real Exchange Rate ◽  
Trade Balance ◽  
Jel Classification ◽  
Strong Impact ◽  
J Curve ◽  
The Relationship

Objective - This paper aims to examine the relationship between exchange rates and trade balance in Morocco, to investigate whether the Marshall-Lerner condition and J-curve exist. Methodology/Technique - This paper attempts to identify the relationship between the real exchange rate and trade balance in Morocco between 2000 an 2015. Findings - Historically, exchange rates have had a strong impact on foreign trade in Morocco. Novelty - This study concludes that the fluctuation of exchange rates has no notable impact on the rate of foreign trade. Type of Paper: Empirical. Keywords: Exchange Rates; Trade Balance; Exports; Imports; Morocco. JEL Classification: D51, D59.

scholarly journals On equilibrium real exchange rates in euro area: Special focus on behavioral equilibrium exchange rates in Ireland and Greece

2012 ◽  
Vol 60 (2) ◽  
pp. 261-270
Author(s):  
Klára Plecitá ◽  
Luboš Střelec
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Euro Area ◽  
Real Exchange Rates ◽  
Special Focus ◽  
Equilibrium Exchange Rate ◽  
Macroeconomic Imbalances ◽  
Long Run ◽  
Equilibrium Exchange ◽  
Behavioral Equilibrium Exchange Rate

This paper focuses on the intra-euro-area imbalances. Therefore the first aim of this paper is to identify euro-area countries exhibiting macroeconomic imbalances. The subsequent aim is to estimate equilibrium real exchange rates for these countries and to compute their degrees of real exchange rate misalignment. The intra-area balance is assessed using the Cluster Analysis and the Principle Component Analysis; on this basis Greece and Ireland are selected as the two euro-area countries with largest imbalances in 2010. Further the medium-run equilibrium exchange rates for Greece and Ireland are estimated applying the Behavioral Equilibrium Exchange Rate (BEER) approach popularised by Clark and MacDonald (1998). In addition, the long-run equilibrium exchange rates are estimated using the Permanent Equilibrium Exchange Rate (PEER) model. Employing the BEER and PEER approaches on quarterly time series of real effective exchange rates (REER) from 1997: Q1 to 2010: Q4 we identify an undervaluation of the Greek and Irish REER around their entrance to the euro area. For the rest of the period analysed their REER is broadly in line with estimated BEER and PEER levels.

scholarly journals Real Exchange Rates and Sectoral Productivity in the Eurozone

2018 ◽  
Vol 108 (6) ◽  
pp. 1543-1581 ◽  
Author(s):  
Martin Berka ◽  
Michael B. Devereux ◽  
Charles Engel
Keyword(s):  
Time Series ◽  
Exchange Rate ◽  
Exchange Rates ◽  
Cross Section ◽  
Real Exchange Rates ◽  
Rate Variation ◽  
Productivity Shocks ◽  
Sectoral Productivity ◽  
Nominal Exchange Rates ◽  
Cross Country

We investigate the link between real exchange rates and sectoral TFP for eurozone countries. We show that real exchange rate variation, both cross-country and time-series, closely accords with an amended Balassa-Samuelson interpretation, incorporating sectoral productivity shocks and a labor market wedge. We construct a DSGE model to generate a cross section and time series of real exchange rates to compare to data. Estimates from simulated regressions are very similar to estimates for eurozone data. Our findings contrast with previous studies that have found little relationship between productivity and real exchange rates among high-income countries that have floating nominal exchange rates. (JEL E12, E23, E24, F31, F33, F43)

scholarly journals Exchange Rate Disconnect Puzzle: A Review of Literature

2018 ◽  
Vol 13 (3) ◽  
pp. 90
Author(s):  
Chetan Chitre
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Review Of Literature ◽  
Macroeconomic Fundamentals ◽  
Nominal Exchange Rates ◽  
The Exchange Rate ◽  
Exchange Rate Disconnect Puzzle ◽  
Exchange Rate Disconnect

<p><span lang="EN-GB">The exchange rate disconnect puzzle has been haunting economists for over four decades now. That the volatility in the movement of both real and nominal exchange rates has no linkage with macroeconomic fundamentals is a mystery. This paper selectively reviews the literature on attempts to resolve this puzzle.</span></p>

The Role of Preference Reversals in the Collapse of Fixed Exchange Rate Systems

2009 ◽  
Vol 21 (3) ◽  
pp. 255-272
Author(s):  
Maurizio Mistri
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Incomplete Information ◽  
European Monetary System ◽  
Social Institutions ◽  
Structural Instability ◽  
Jel Classification ◽  
Cognitive Factors ◽  
Fixed Exchange Rate

This paper draws on the structural instability of fixed exchange rate systems, also referring to Bretton Woods and the European Monetary System. In particular, the collapse of such systems is seen as a consequence of, amongst other things, formational and cognitive factors with an emphasis on the processes of preference reversal. Taking a dynamic view of such processes, the intertemporal nature of decisions made on the issue of exchange rate systems can induce electors and governments to reconsider, in time, the importance of certain major objectives they set themselves. A core issue of the analysis is the still unsolved problem of the relationship between inflation and unemployment. Recent financial crises have demonstrated that even governments “ideologically” oriented to a monetarist approach can adopt, in particular situations, Keynesian policies. This occurs for reasons of a social and political order, outside of economic logic. Therefore, in the analysis developed in this paper, attention is focused on informational and cognitive factors. The paper is essentially arranged in three parts. In the first part, we examine the role of the forms of exchange rates, seen as social institutions in act by countries that have a two-objective utility function. Subsequently we examine the question of instability of the system of fixed exchange rates with an approach that is focused on incomplete information. Finally, beyond the role of incomplete information, in the third part we examine the role of distortive factors of a cognitive order that are capable of overthrowing exchange rate preferences.. JEL Classification.: D7, E11, E5, E6.

The Sterling Effective Exchange Rate and Other Measures of UK Competitiveness

2005 ◽  
Vol 191 ◽  
pp. 54-63 ◽  
Author(s):  
Ray Barrell ◽  
Amanda Choy ◽  
Dawn Holland ◽  
Rebecca Riley
Keyword(s):  
Exchange Rate ◽  
Exchange Rates ◽  
Real Exchange Rates ◽  
Relative Prices ◽  
Bilateral Exchange ◽  
Nominal Exchange Rates ◽  
Exchange Rate Movements ◽  
Effective Exchange ◽  
Summary Measures ◽  
Effective Exchange Rate

Movements in exchange rates attract much attention, both for the signals they may contain about future inflation prospects and for their implications for the competitiveness of firms. However, movements in bilateral exchange rates, for instance in sterling against the dollar or the euro, do not convey enough information for either policymakers or for firms except in relation to specific bilateral transactions. It is useful to construct summary measures of exchange rate movements, and there are a number of ways of doing this. The choice of measure depends upon the use to which it is to be put. Some measures, such as the effective exchange rate, are summary indicators, whilst others such as export competitive indices are more relevant when evaluating the prospects for export developments. Some indicators weight together nominal exchange rates. Others are measures of real exchange rates, weighting together exchange rate adjusted relative prices. The indicators chosen should be seen in the context in which they are used.

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