Wang, Wen-Yao and Hernandez-Verme, Paula (2009): Multiple Reserve Requirements, Exchange Rates, Sudden Stops and Equilibrium Dynamics in a Small Open Economy.
Download (1MB) | Preview
We model a typical Asian-crisis-economy using dynamic general equilibrium techniques. Meaningful exchange rates obtain from nontrivial demands for fiat currencies. Sudden stops/bank-panics are possible, and key for evaluating the relative merits of alternative exchange rate regimes in promoting stability. Strategic complementarities contribute to the severe indeterminacy of the continuum of equilibria; there is a strong association between the scope for existence and indeterminacy of equilibria, the properties along dynamic paths and the underlying policy regime. Binding multiple reserve requirements reduce the scope for financial fragility and panic equilibria; backing the money supply acts as a stabilizer only in fixed regimes.
|Item Type:||MPRA Paper|
|Original Title:||Multiple Reserve Requirements, Exchange Rates, Sudden Stops and Equilibrium Dynamics in a Small Open Economy|
|Keywords:||Sudden stops; Exchange rate regimes; Multiple reserve requirements|
|Subjects:||E - Macroeconomics and Monetary Economics > E3 - Prices, Business Fluctuations, and Cycles > E31 - Price Level; Inflation; Deflation
E - Macroeconomics and Monetary Economics > E4 - Money and Interest Rates > E44 - Financial Markets and the Macroeconomy
F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics
|Depositing User:||Wen-Yao Wang|
|Date Deposited:||06. Mar 2009 07:36|
|Last Modified:||12. Feb 2013 01:37|
1. Ariyoshi, A., Habermeir, K., Laurens B., Otker-Robe I., Canales-Kriljenko, J.I. and A. Kirilenko (2000), “Capital Controls: Country Experiences with Their Use and Liberalization.” International Monetary Fund, Occasional Paper 190.
2. Baliño, T.J.T, Bennett, A. and E. Borenztein (1999), “Monetary Policy in Dollarized Economies.” International Monetary Fund, Occasional Paper 171.
3. Bencivenga, V.R. and D..B. Smith (2002), “What to Stabilize in the Open Economy,” International Economic Review, Vol. 43, No. 4: 1289-1307.
4. _____________(2000a), “Banks, Debt Maturity and Financial Crises,” Journal of International Economics, Vol. 50, No. 1: 169-94.
5. _____________(2000b), “Financial Fragility and the Exchange Rate Regime,” Journal of Economics Theory, Vol. 92, No. 1: 1-34.
6. Chang, R. and A. Velasco (2001), “A Model of Financial Crises in Emerging Markets,” The Quarterly Journal of Economics, Vol. 116, No. 2: 489-517.
7. Cole, H.L. and T.J. Kehoe (1996), “A Self-Fulfilling Model of Mexico’s 1994-1995 Debt Crisis,” Journal of International Economics, Vol. 41, 309-330.
8. Diamond, D.W. and P.H. Dybvig (1983), “Bank Runs, Deposit Insurance, and Liquidity,” The Journal of Political Economy, Vol. 91, No. 3: 401-419.
9. Fischer, S. (2001), “Exchange Rate Regimes: Is the Bipolar View Correct?,” Distinguished Lecture on Economics in Government. American Economics Association and the Society of Government Economists. Available at http://www.imf.org/external/np/speeches/2001/010601a.htm
10. Frankel, J.A., S. L. Schmukler, and L. Serven (2002), “Global Transmission of Interest Rates: Monetary Independence and Currency Regime,” NBER Working Paper 8828.
11. Goodhard, C. and P.J.R. Delargy (1998), “Financial Crises: Plus ça Change, plus c'est la Même Chose,” International Finance, Vol. 1, No. 2: 261-287.
12. Hernandez-Verme, P.L. (2004), “Inflation, Growth and Exchange Rate Regimes in Small Open Economies,” Economic Theory, Vol. 24, No. 4: 839-856.
13. Hong Kong Monetary Authority (n.d.). Currency board system. Retrieved July 18, 2006, from http://www.info.gov.hk/hkma/eng/currency/
14. Kaminsky, G.L. and C.M. Reinhart (1999), “The Twin Crises: The Causes of Banking and Balance-of-Payments Problems,” American Economic Review, Vol. 89, No. 3: 473-500.
15. Kaminsky, G.L. (2003), “Varieties of Currency Crises,” NBER Working Paper 10193.
16. Kishi, M. and H. Okuda (2001), “Prudential Regulation and Supervision of the Financial System in East Asia,” Institute for international monetary affairs. Available at http://www.mof.go.jp/jouhou/kokkin/tyousa/tyou041g.pdf
17. Levine, R., Loayza, N., Beck, T. (2000), “Financial Intermediation and Growth: Causality and Causes,” Journal of Monetary Economics 46, 31-77 (2000)
18. Lindgren, C-J., Baliño, T.J.T., Enoch, C., Gulde, A-M., Quintyn, M. and L. Teo (1999), “Financial Sector Crisis and Restructuring. Lessons from Asia. International Monetary Fund, Occasional Paper 188.
19. Mas-Colell, A., M. Whinston, and J. Green (1995), “Microeconomic Theory.” Oxford University Press
20. Reinhart, C.M. and V.R. Reinhart (1999), “On the Use of Reserve Requirements in Dealing with Capital Flow Problems,” International Journal of Finance and Economics 4, 27-54