Search Results
Showing results 1 to 9 of approximately 9.
(refine search)
Working Paper
What triggers market jitters: a chronicle of the Asian crisis
In the chaotic financial environment of Asia in 1997-1998, daily changes in stock prices of about 10 percent became commonplace. This paper analyzes what type of news moves the markets in those days of market jitters. We find that movements are triggered by local and neighbor-country news, with news about agreements with international organizations and credit rating agencies having the most weight. However, some of those large changes cannot be explained by any apparent substantial news, but seem to be driven by herd instincts of the markets itself. The evidence suggests that investors ...
Working Paper
The real exchange rate and fiscal policy during the gold standard period: evidence from the United States and Great Britain
We study the determinants of the dollar/pound real exchange rate from 1879 to 1914 focusing on the role of fiscal policy. We present a simple dynamic model of the real exchange rate to frame our analysis. The econometric results are based upon the decomposition of the sources of the innovation of the real exchange rate drawn from a structural vector autoregression model. We find little evidence that changes in tariffs and government spending affected the real exchange rate. There is some stronger empirical evidence that shocks to deficits were associated with the fluctuations in the real ...
Working Paper
Does foreign exchange intervention signal future monetary policy?
A frequently cited explanation for why foreign exchange interventions affect the exchange rate is that these interventions signal future monetary policy intentions. This explanation says that central banks signal a more contractionary monetary policy in the future by buying domestic currency today. Therefore, the expectations of future tighter monetary policy make the domestic currency appreciate, even though the current monetary effects of the intervention are typically offset by central banks. Of course, this explanation presumes that central banks, in fact, back up interventions with ...
Working Paper
The debt crisis: lessons of the 1980's for the 1990's
One of the salient characteristics of the 1980s is the growth collapse of the Latin American debtor countries. The debt-overhang literature claims that the debt crisis is the main reason for the growth collapse. However, previous empirical work has failed to support this hypothesis. We reexamine this hypothesis further using simulation and econometric methods. We find that once we account for the effects of social inequality on government policy and consumption, the burden of servicing the debt becomes an important factor in explaining the collapse in investment and output growth in Latin ...
Working Paper
High real interest rates in the aftermath of disinflation: is it a lack of credibility?
High real interest rates have been observed in many countries for several months after the adoption of disinflation programs. While they may reflect primarily a liquidity crunch, high ex post real interest rates can also be explained in terms of an ex post error in inflation expectations that reflects a lack of credibility of the low-inflation policy. The latter hypothesis is tested using data for Argentina, Israel, and Mexico during the implementation of the stabilization programs in the mid-1980s.
Working Paper
Currency and banking crises: the early warnings of distress
The abruptness and virulence of the 1997 Asian crises have led many to claim that these crises are of a new breed and thus they were unforecastable. This paper examines 102 financial crises in 20 countries and concludes that the Asian crises are not of a new variety. Overall, the 1997 Asian crises, as well as previous crises in other regions, occur when the economies are in distress, making the degree of fragility of the economy a useful indicator of future crises. Based on this idea, the paper proposes different composite leading indicators of crises, which are evaluated in terms of accuracy ...
Working Paper
The twin crises: the causes of banking and balance-of-payments problems
In the wake of the ERM and Mexican currency crises, the subject of balance-of-payments crises has come to the forefront of academic and policy discussions. This paper focuses on the potential links between banking and balance-of-payments crises. We examine these episodes for a large number of countries and find that knowing that there are banking problems helps in predicting balance-of-payments crises, but the converse is not true; financial liberalization usually predates banking crises, indeed, it helps predict them. Rather than a causal relationship from banking to balance-of-payments ...