Mustafa Kemal’s well-organized resistance army was victorious in the Turkish War of Independence, which expelled the occupying armies; subsequently, Mustafa Kemal abolished the Ottoman Empire in 1922 by overthrowing Sultan Mehmet VI Vahdettin and established the Turkish Republic in 1923. No doubt, there is absolutely no other event or development is more important than this in the young history of the Turkish Republic. Economically, the 2001 Turkish economic crisis was the greatest shock since 1923, which cost the government in excess of $50 billion and led to the signing of three standby agreements (over $ 40 billion) with the IMF. Turkey's near meltdown economy, a casualty of repeated speculative attacks on Turkish lira in August 2018 and the subsequent unfolding events, had contracted 5% or so in 2018 compared with that of 2017, and it is forecast to contract further in 2019 after a decade-long credit-fueled boom. It is feared that the farfetched implications of the August rout of 2018 could toss Turkey back in high inflationary mode; however, Turkish government authorities have dismissed the recent severe economic trouble and blamed the crisis on dysfunctional and hostile policies of non-economic basis. Regardless, in the immediate aftermath of the August shock, Turkish lira plummeted 42% of its value against dollar (i.e. from 5.09 on August 2 to 7.24 on August 13) and inflation (CPI) soared to 26% which prompted the Turkish central bank (TCMB) to hike the fund rate by 625 basis points to 24%. Although the Turkish lira has appreciated substantially against dollar since August 2018 (from 7.24 on August 13 to 5.61 on August 2, 2019), Turkey’s unemployment rate surged to 14.7 in February 2019, which is the highest level in a decade. Turkey’s depressed economic situation is in desperate need of foreign capital flows used by the financial authorities to service the debt obligations, but Turkey’s external barrowing have become substantially limited in recent years. With massive foreign debt stock (about $400 billion which is over 50% of its 2018 GDP), Turkey must find ways to attract capital inflows in the form of FDIs and FPIs.
{"title":"A Hiccup in Turkey’s Prolonged Credit Fueled Economic Transition: A Comparative Analysis of Before and After the August Rout","authors":"John Taskinsoy","doi":"10.2139/ssrn.3431079","DOIUrl":"https://doi.org/10.2139/ssrn.3431079","url":null,"abstract":"Mustafa Kemal’s well-organized resistance army was victorious in the Turkish War of Independence, which expelled the occupying armies; subsequently, Mustafa Kemal abolished the Ottoman Empire in 1922 by overthrowing Sultan Mehmet VI Vahdettin and established the Turkish Republic in 1923. No doubt, there is absolutely no other event or development is more important than this in the young history of the Turkish Republic. Economically, the 2001 Turkish economic crisis was the greatest shock since 1923, which cost the government in excess of $50 billion and led to the signing of three standby agreements (over $ 40 billion) with the IMF. Turkey's near meltdown economy, a casualty of repeated speculative attacks on Turkish lira in August 2018 and the subsequent unfolding events, had contracted 5% or so in 2018 compared with that of 2017, and it is forecast to contract further in 2019 after a decade-long credit-fueled boom. It is feared that the farfetched implications of the August rout of 2018 could toss Turkey back in high inflationary mode; however, Turkish government authorities have dismissed the recent severe economic trouble and blamed the crisis on dysfunctional and hostile policies of non-economic basis. Regardless, in the immediate aftermath of the August shock, Turkish lira plummeted 42% of its value against dollar (i.e. from 5.09 on August 2 to 7.24 on August 13) and inflation (CPI) soared to 26% which prompted the Turkish central bank (TCMB) to hike the fund rate by 625 basis points to 24%. Although the Turkish lira has appreciated substantially against dollar since August 2018 (from 7.24 on August 13 to 5.61 on August 2, 2019), Turkey’s unemployment rate surged to 14.7 in February 2019, which is the highest level in a decade. Turkey’s depressed economic situation is in desperate need of foreign capital flows used by the financial authorities to service the debt obligations, but Turkey’s external barrowing have become substantially limited in recent years. With massive foreign debt stock (about $400 billion which is over 50% of its 2018 GDP), Turkey must find ways to attract capital inflows in the form of FDIs and FPIs.","PeriodicalId":435383,"journal":{"name":"POL: International Monetary Policy & Exchange Rates (Topic)","volume":"75 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2019-08-02","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122300095","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Xuewei Yang, Guijun Ren, Yongjin Wang, Lijun Bo, Dongxing Li
In this paper, we model the exchange rate in a target zone by a so-called reflected Ornstein-Uhlenbeck process. A simulation-based maximum likelihood estimation strategy of the parameters involved in the model is proposed and studied. The model fits data on exchange rates in the European Monetary System well.
{"title":"Modeling the Exchange Rates in a Target Zone by Reflected Ornstein-Uhlenbeck Process","authors":"Xuewei Yang, Guijun Ren, Yongjin Wang, Lijun Bo, Dongxing Li","doi":"10.2139/ssrn.2107686","DOIUrl":"https://doi.org/10.2139/ssrn.2107686","url":null,"abstract":"In this paper, we model the exchange rate in a target zone by a so-called reflected Ornstein-Uhlenbeck process. A simulation-based maximum likelihood estimation strategy of the parameters involved in the model is proposed and studied. The model fits data on exchange rates in the European Monetary System well.","PeriodicalId":435383,"journal":{"name":"POL: International Monetary Policy & Exchange Rates (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2016-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"124982857","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
The reserve requirement on demand deposits drives the dynamic efficiency of the monetary production economy and market growth. The progressive marginal minimization of reserves is the single cyclical cause of economic crises in the market production system. Only a radical maximization of the reserve requirements and a systemic separation of money from credit in banking processes can rectify this quantum monetary mischief by reducing the total social cost.
{"title":"Quantizing Money","authors":"Stephen I. Ternyik","doi":"10.2139/ssrn.2102463","DOIUrl":"https://doi.org/10.2139/ssrn.2102463","url":null,"abstract":"The reserve requirement on demand deposits drives the dynamic efficiency of the monetary production economy and market growth. The progressive marginal minimization of reserves is the single cyclical cause of economic crises in the market production system. Only a radical maximization of the reserve requirements and a systemic separation of money from credit in banking processes can rectify this quantum monetary mischief by reducing the total social cost.","PeriodicalId":435383,"journal":{"name":"POL: International Monetary Policy & Exchange Rates (Topic)","volume":"64 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2012-07-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"116607104","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Antonia López‐Villavicencio, Jacques Mazier, Jamel Saadaoui
Abstract This paper investigates the temporal links between two models of equilibrium exchange rate, namely the behavioral and the fundamental approaches. Our results show that, even though in the long-run they are closely related, important differences are observed for some countries and/or some periods. Contrary to previous contributions, we analyze the factors that explain this disconnection. We outline structural changes in matter of competitiveness, the dynamics of foreign assets and valuation effects as explanations. This novel evidence is important if the two approaches for assessing misalignments are used for policy decisions such as setting tariffs to cope with the “currency war”.
{"title":"Temporal Dimension and Equilibrium Exchange Rate","authors":"Antonia López‐Villavicencio, Jacques Mazier, Jamel Saadaoui","doi":"10.2139/ssrn.1933263","DOIUrl":"https://doi.org/10.2139/ssrn.1933263","url":null,"abstract":"Abstract This paper investigates the temporal links between two models of equilibrium exchange rate, namely the behavioral and the fundamental approaches. Our results show that, even though in the long-run they are closely related, important differences are observed for some countries and/or some periods. Contrary to previous contributions, we analyze the factors that explain this disconnection. We outline structural changes in matter of competitiveness, the dynamics of foreign assets and valuation effects as explanations. This novel evidence is important if the two approaches for assessing misalignments are used for policy decisions such as setting tariffs to cope with the “currency war”.","PeriodicalId":435383,"journal":{"name":"POL: International Monetary Policy & Exchange Rates (Topic)","volume":"10 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-12-15","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"126874549","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Xavier Debrun, Catherine A. Pattillo, Paul R. Masson
This paper develops a full-fledged cost-benefit analysis of monetary integration, and applies it to the currency unions actively pursued in Africa. The benefits of monetary union come from a more credible monetary policy, while the costs derive from real shock asymmetries and fiscal disparities. The model is calibrated using African data. Simulations indicate that the proposed EAC, ECOWAS, and SADC monetary unions bring about net benefits to some potential members, but modest net gains and sometimes net losses for others. Strengthening domestic macroeconomic frameworks is shown to provide some of the same improvements as monetary integration, reducing the latter’s relative attractiveness.
{"title":"Should African Monetary Unions be Expanded? An Empirical Investigation of the Scope for Monetary Integration in Sub-Saharan Africa","authors":"Xavier Debrun, Catherine A. Pattillo, Paul R. Masson","doi":"10.1093/JAE/EJR005","DOIUrl":"https://doi.org/10.1093/JAE/EJR005","url":null,"abstract":"This paper develops a full-fledged cost-benefit analysis of monetary integration, and applies it to the currency unions actively pursued in Africa. The benefits of monetary union come from a more credible monetary policy, while the costs derive from real shock asymmetries and fiscal disparities. The model is calibrated using African data. Simulations indicate that the proposed EAC, ECOWAS, and SADC monetary unions bring about net benefits to some potential members, but modest net gains and sometimes net losses for others. Strengthening domestic macroeconomic frameworks is shown to provide some of the same improvements as monetary integration, reducing the latter’s relative attractiveness.","PeriodicalId":435383,"journal":{"name":"POL: International Monetary Policy & Exchange Rates (Topic)","volume":"114 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127169563","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper analyzes the short-run relationship between the real effective exchange rate of Chinese Yuan and the balance of trade. We examined the causality between effective exchange rate and balance of trade using Granger-Causality Test. The findings are striking. The test suggests that in the short run balance of trade causes a change in effective exchange rate but not vice versa. The uni-directional relationship between exchange rate and balance of trade compels the use of transfer function methodology. Transfer Function estimation shows that the balance of trade has a 3-4 month delayed effect on effective exchange rate in China. Moreover, the coefficients are positive suggesting that a positive trade performance shock leads to a favorable change in exchange rate in China.
{"title":"The Short-Run Relationship Between Real Effective Exchange Rate and Balance of Trade in China","authors":"Mehmet E. Yaya, Xiao-Qing Lu","doi":"10.2139/ssrn.1632566","DOIUrl":"https://doi.org/10.2139/ssrn.1632566","url":null,"abstract":"This paper analyzes the short-run relationship between the real effective exchange rate of Chinese Yuan and the balance of trade. We examined the causality between effective exchange rate and balance of trade using Granger-Causality Test. The findings are striking. The test suggests that in the short run balance of trade causes a change in effective exchange rate but not vice versa. The uni-directional relationship between exchange rate and balance of trade compels the use of transfer function methodology. Transfer Function estimation shows that the balance of trade has a 3-4 month delayed effect on effective exchange rate in China. Moreover, the coefficients are positive suggesting that a positive trade performance shock leads to a favorable change in exchange rate in China.","PeriodicalId":435383,"journal":{"name":"POL: International Monetary Policy & Exchange Rates (Topic)","volume":"1034 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-06-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"123130790","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Enormous trade surpluses are problematic for the People’s Republic of China (PRC) and the rest of the world. They primarily stem from processing trade. This paper investigates how exchange rate changes would affect the PRC’s imports for processing and processed exports. The results indicate that an appreciation throughout East Asian supply chain countries would reduce the PRC’s surplus in processing trade, while an appreciation of the yuan alone might not. Even for an appreciation throughout East Asia, however, the sum of the exchange rate elasticities is not large. Thus, to rebalance the PRC’s trade, exchange rate appreciations must be accompanied by other changes such as factor market liberalization and greater enforcement of environmental regulations.
{"title":"How Would an Appreciation of the Yuan Affect the People's Republic of China’s Surplus in Processing Trade?","authors":"Willem Thorbecke","doi":"10.2139/ssrn.1638782","DOIUrl":"https://doi.org/10.2139/ssrn.1638782","url":null,"abstract":"Enormous trade surpluses are problematic for the People’s Republic of China (PRC) and the rest of the world. They primarily stem from processing trade. This paper investigates how exchange rate changes would affect the PRC’s imports for processing and processed exports. The results indicate that an appreciation throughout East Asian supply chain countries would reduce the PRC’s surplus in processing trade, while an appreciation of the yuan alone might not. Even for an appreciation throughout East Asia, however, the sum of the exchange rate elasticities is not large. Thus, to rebalance the PRC’s trade, exchange rate appreciations must be accompanied by other changes such as factor market liberalization and greater enforcement of environmental regulations.","PeriodicalId":435383,"journal":{"name":"POL: International Monetary Policy & Exchange Rates (Topic)","volume":"1 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-06-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"129557442","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2010-01-18DOI: 10.1111/j.1467-9396.2008.00799.x
Willem Thorbecke, Gordon H. Smith
China's global current account surplus equaled 9% of Chinese GDP in 2006 and 11% of GDP in 2007. Many argue that a renminbi appreciation would help to rebalance China's trade. Using a panel dataset including China's exports to 33 countries we find that a 10% renminbi (RMB) appreciation would reduce ordinary exports by 12% and processed exports by less than 4%. A 10% appreciation of all other East Asian currencies would reduce processed exports by 6%. A 10% appreciation throughout the region would reduce processed exports by 10%. Since ordinary exports tend to be simple, labor-intensive goods while processed exports are sophisticated, capital-intensive goods, a generalized appreciation in East Asia would generate more expenditure-switching towards US and European goods and contribute more to resolving global imbalances than an appreciation of the RMB or of other Asian currencies alone.
{"title":"How Would an Appreciation of the Renminbi and Other East Asian Currencies Affect China's Exports?","authors":"Willem Thorbecke, Gordon H. Smith","doi":"10.1111/j.1467-9396.2008.00799.x","DOIUrl":"https://doi.org/10.1111/j.1467-9396.2008.00799.x","url":null,"abstract":"China's global current account surplus equaled 9% of Chinese GDP in 2006 and 11% of GDP in 2007. Many argue that a renminbi appreciation would help to rebalance China's trade. Using a panel dataset including China's exports to 33 countries we find that a 10% renminbi (RMB) appreciation would reduce ordinary exports by 12% and processed exports by less than 4%. A 10% appreciation of all other East Asian currencies would reduce processed exports by 6%. A 10% appreciation throughout the region would reduce processed exports by 10%. Since ordinary exports tend to be simple, labor-intensive goods while processed exports are sophisticated, capital-intensive goods, a generalized appreciation in East Asia would generate more expenditure-switching towards US and European goods and contribute more to resolving global imbalances than an appreciation of the RMB or of other Asian currencies alone.","PeriodicalId":435383,"journal":{"name":"POL: International Monetary Policy & Exchange Rates (Topic)","volume":"223 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2010-01-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"130666357","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Much empirical work has documented a negative correlation between different measures of globalization or openness and inflation levels across countries and across time. However, there is much less work exploring this relationship through structural international models based on explicit microeconomic foundations. This paper asks the question of how the degree of openness of an economy affects the equilibrium inflation level in a simple two-country OLG model with imperfect competition in which the monetary authority in each country chooses the money growth rate to maximize the welfare of its citizens. I find that a higher degree of openness in a country is associated with a higher equilibrium inflation rate. ; This result is driven by the fact that the monetary authority enjoys a degree of monopoly power in international markets as Foreign consumers have some degree of inelasticity in their demand for goods produced in the Home country. The decision of the monetary authority is then to balance the benefits of increased money growth that come from the open economy setting with the well-known consumption tax costs of inflation. In addition, I find that the level of imperfect competition among producers within a country is a perfect substitute for the international market power of the monetary authority in extracting the monopoly rents available in this international structure.
{"title":"Is Openness Inflationary? Imperfect Competition and Monetary Market Power","authors":"Richard W. Evans","doi":"10.2139/ssrn.1083303","DOIUrl":"https://doi.org/10.2139/ssrn.1083303","url":null,"abstract":"Much empirical work has documented a negative correlation between different measures of globalization or openness and inflation levels across countries and across time. However, there is much less work exploring this relationship through structural international models based on explicit microeconomic foundations. This paper asks the question of how the degree of openness of an economy affects the equilibrium inflation level in a simple two-country OLG model with imperfect competition in which the monetary authority in each country chooses the money growth rate to maximize the welfare of its citizens. I find that a higher degree of openness in a country is associated with a higher equilibrium inflation rate. ; This result is driven by the fact that the monetary authority enjoys a degree of monopoly power in international markets as Foreign consumers have some degree of inelasticity in their demand for goods produced in the Home country. The decision of the monetary authority is then to balance the benefits of increased money growth that come from the open economy setting with the well-known consumption tax costs of inflation. In addition, I find that the level of imperfect competition among producers within a country is a perfect substitute for the international market power of the monetary authority in extracting the monopoly rents available in this international structure.","PeriodicalId":435383,"journal":{"name":"POL: International Monetary Policy & Exchange Rates (Topic)","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2007-10-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"125305264","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This book is an up-to-date, authoritative and comprehensive analysis of the key issues and challenges facing regional currency area projects in the context of financial globalization. The authors focus on several central issues that emerged during the experiences of the 1990s and 2000s: exchange rate regimes and optimal currency area theory; exchange rate regimes in emerging countries, international capital markets and regional currency areas; EMU and the euro; exchange rate regimes in Central and Eastern Europe, Asia and Latin America; dollarization and the coordination of macroeconomic policies in the presence of regional currency areas.
{"title":"Regional Integration and the Issue of Choosing an Appropriate Exchange-Rate Regime in Latin America","authors":"H. Escaith, Christian Ghymers, Rogério Studart","doi":"10.2139/ssrn.1366233","DOIUrl":"https://doi.org/10.2139/ssrn.1366233","url":null,"abstract":"This book is an up-to-date, authoritative and comprehensive analysis of the key issues and challenges facing regional currency area projects in the context of financial globalization. The authors focus on several central issues that emerged during the experiences of the 1990s and 2000s: exchange rate regimes and optimal currency area theory; exchange rate regimes in emerging countries, international capital markets and regional currency areas; EMU and the euro; exchange rate regimes in Central and Eastern Europe, Asia and Latin America; dollarization and the coordination of macroeconomic policies in the presence of regional currency areas.","PeriodicalId":435383,"journal":{"name":"POL: International Monetary Policy & Exchange Rates (Topic)","volume":"124 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2002-08-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"122775976","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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