A Sustainable Exchange Rate ( )

Transcription

1 A Sustainable Exchange Rate ( ) e = Reserves Exchange Rate Reserves e tilde

2 Unsustainable Fixed Exchange Rate ( e =10 ) Reserves exchange rate Reserves e tilde

3 Time of Collapse e shadow exchange rate e t c time

4 e shadow exchange rate e e R time R 0 A R min B t c tˆ time

5 Yen-Dollar Rate

6 Dollar rice of a Euro

7 Trade-Weighted Value of the Dollar (Major Currencies)

8 Trade-Weighted Value of the Dollar (Real, Major Currencies)

9 Global foreign exchange market turnover

10 Currency distribution of reported foreign exchange market turnover

11 Foreign Exchange Turnover, Currency and Region

12 Since 2000, pegged to the dollar

13 Reserve Accumulation

14 China s Reserves Foreign reserves minus gold US Billions of Dollars

15 Yen Spot and Forward Rate

16 Dollar DM forward puzzle

17 Realized Changes and the Forward remium, Yen

18 Realized rofits on Yen Arbitrage

19 Realized rofits on Yen Arbitrage

20 Beta Coefficients

21 Short-Horizon Tests

22 Long-Horizon Tests, Annual Data

23 Certain and Uncertain Income and Utility Utility u( y 2 ) U(y) u ( y 3 ) u( ˆy ) u( y 1 ) y 1 y 4 y 3 y 2 y ˆy = αy 1 + (1 α ) y 2

24 Dollar rises against Euro

25 Euros per dollar

26 ounds per Dollar

27 Yen per Dollar

28 Hume: Specie-Flow Mechanism "Suppose four-fifths of all the money in Great Britain to be annihilated in one night...what would be the consequence? Must not the price of all labour and commodities sink in proportion, and everything be sold as cheap as they were in those ages? What nation could then dispute with us in any foreign market, or pretend to navigate or to sell manufactures at the same price, which to us would afford sufficient profit? In how little time, therefore, must this bring back the money which we had lost, and raise us to the level of all the neighbouring nations? Where, after we have arrived, we immediately lose the advantage of the cheapness of labour and commodities; and the farther flowing in of money is stopped by our fullness and repletion." Hume, Of Money.

29 Rules of the International Gold Standard 1. Fix a gold price (parity) and convert gold freely between domestic money and gold at that price. 2. No restrictions on the export of gold by private citizens or of capital across countries. 3. Back national banknotes and coinage with gold reserves and condition long-run money growth on gold reserves 4. In short-run liquidity crises resulting from a gold outflow, have the central bank extend liquidity at higher interest rates (Bagehot's Rule). 5. If rule 1 is temporarily suspended restore convertibility at the soonest feasible point in time at the old parity. 6. Allow the common worldwide price level to be determined endogenously by world demand and supply of gold.

30 rice Determination under the Gold Standard G G 0 G = 0 [ ] y,λ G 0 G

31 g, Gold flow Flow supply and demand for gold G h G G * δf G, y

32 G 0 G* G g 2 g* g 1 g D D N M + G 0 h G δf y G, G * G G Gold Standard Model

33 G 0 G* G g 2 g* g 1 g D D N M + G 0 δf y G, G * G G h y y G f, Gold Standard in the Open Economy

34 An increase in Money Demand G 0 G* G g 2 g* g 1 g D 0 G 1 δf y G, G * G G h y y G f, D 1

35 Surplus Countries During Gold Standard CA/GD

36 Deficit Countries During Gold Standard CA/GD

37 Value of Adhering to Gold, US

38 Value of Adhering to Gold, Argentina and Brazil

39 Australia and Canada

40 Gibson s aradox: World rice Level and Interest Rates

41 Determination of the price of gold p G G m * p G G n G n

42 Bimetallism

43 Key Characters Farmers William Jennings Bryan Honest (Midwestern) American Worker Grover Cleveland Wicked Witch of the West = drought Good Witch of the South

44 Morale of the story On the next to last page of the book Baum has Glinda, Witch of the South, tell Dorothy, "Your Silver Shoes will carry you over the desert...if you had known their power you could have gone back to your Aunt Em the very first day you came to this country." Glinda explains, "All you have to do is knock the heels together three times and command the shoes to carry you wherever you wish to go." (p.257). William Jennings Bryan never outlined the advantages of the silver standard any more effectively. Not understanding the magic of the Silver Shoes, Dorothy walks the mundane -- and dangerous -- Yellow Brick Road.

45 Yellow brick Road, Emerald City

46 Too Low a rice for Gold A C B G x y g G 0 δf y G, G * G G h y y G f, ), ( 0 y λ ), ( 1 y λ G 0 G 1

47 Ratio of Foreign Exchange Reserves to Gold

48 rice Levels and Regimes

49 CA/GD of major countries,

50 Real Exchange Rate Since Napoleon

51 rice Levels and the Gold Standard

52 Triffin Dilemma Monetary Gold Stock ($bn) Liquid Liabilities to foreigners ($bn)

53 Monetary gold and dollar holdings, US and Row,

54 China s Demographics Urban population growth =20 million p.a.

55 China s Foreign Exchange Reserves

56 Varieties of Exchange Rate Regimes Absolutely Fixed FBAR ure Floating Regime in-between in-between Currency board egged Target Zone Managed floating Flexible peg Crawling peg Active (pre-announced) passive