اندازه گیری و مدل سازی اثرات نوسانات نرخ ارز G-3 بر اقتصاد کوچک باز : یک آزمایش طبیعی
|کد مقاله||سال انتشار||مقاله انگلیسی||ترجمه فارسی||تعداد کلمات|
|27654||2008||21 صفحه PDF||سفارش دهید||محاسبه نشده|
Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Economic Systems, Volume 32, Issue 3, September 2008, Pages 253–273
I present evidence that exchange rate fluctuations among the world's major currencies significantly affect the business cycles of small open economies. The impact of those fluctuations on any given country depends crucially on its exchange rate regime. The three Baltic countries in Central Europe constitute an interesting natural experiment in that regard. I estimate a structural vector autoregression (VAR) model to show the differential impact of euro–dollar exchange rate fluctuations on the business cycles of these three countries. Next, I build a dynamic sticky-price model and I calibrate it to the Baltic States in order to match and explain the empirical evidence.
The Bretton Woods system of fixed exchange rates ended in the early 1970s. In the past three decades, the world's major currencies have fluctuated widely against one another. Fig. 1 plots the relative values of the world's three major currencies—the US dollar, the euro, and the Japanese yen.1 These are collectively known as the Group of Three (or G-3) currencies. Full-size image (35 K) Fig. 1. Euro–dollar and yen–dollar exchange rate, January 1971–February 2007. Source: IMF, International Financial Statistics. Note: Before 1999, the euro–dollar exchange rate was spliced with the Deutsche mark-dollar rate. Figure options Given that the US, the Euro Area, and Japan are large and closed economies, they are fairly immune to sharp fluctuations in the external values of their monies. In contrast, in smaller countries the exchange rate is probably the single most important price in the entire economy. Many small open economies have chosen to peg their exchange rates to one of the major currencies, usually the one which dominates their trade and financial flows. By pegging to a single currency, small economies with a diversified pattern of trade expose themselves to fluctuations against the other major currencies. If you peg to the dollar, for example, you are floating freely against the yen and the euro. One could think of this as a negative externality problem—the volatility of exchange rates among the major currencies affects small open economies similarly to the way the smoke-spewing factory chimney affects nearby farmers in the classical textbook example. In theory, how do G-3 exchange rate fluctuations generate macroeconomic instability in a small open economy, whose currency is pegged to one of the three major currencies? First, there is the “trade competitiveness” channel: if you peg to a weakening currency, this will lower the relative price of your exports to third countries, and you might be able to export more. Second, there is the “cost of inputs” channel: if you peg to a weakening currency, this translates into higher prices for imported intermediate goods from third countries, and thus into lower profits for domestic producers. Note that the two channels pull in opposite directions: the first channel would make pegging to a weakening currency expansionary, while the second channel would make it contractionary. The net effect appears to be ambiguous. However, both the empirical and the theoretical evidence presented in this paper establish clearly that the first channel dominates, and pegging to a strengthening (weakening) currency tends to have a contractionary (expansionary) cyclical effect on domestic output. The impact of G-3 exchange rate volatility on small open economies depends crucially on their exchange rate regime. In the search for an explanation of the 1997 East Asian Crisis, one popular theory has maintained that the crisis was precipitated by volatility in the yen–dollar exchange rate (see Fig. 1), coupled with the soft pegs to the US dollar practiced by most countries in the region prior to the crisis. A dollar peg meant that East Asian economies floated freely against the Japanese yen. Given the yen's regional importance, this led to increased macroeconomic instability. The sharp depreciation of the yen against the dollar after mid-1995 was particularly disruptive for the region, and is often alleged to have triggered the crisis. Kwan (2001) and McKinnon and Schnabl (2003) present econometric evidence that yen–dollar exchange rate fluctuations are a significant driver of business cycles in East Asia. This paper will focus on the three Baltic countries in Eastern Europe (Estonia, Latvia, Lithuania) which lie on or near the fault line between the dollar and the euro. The Baltic States constitute a nice natural experiment on how the impact of G-3 exchange rate volatility on a small open economy depends on its exchange rate regime. I present empirical evidence that pegging to a single currency (either the dollar or the euro) may be destabilizing compared to pegging to a trade-weighted basket of those two currencies. I also build a dynamic sticky-price model of a small open economy in order to match and explain the stylized facts on how euro–dollar exchange rate fluctuations affect the domestic business cycles in the three Baltic countries. Section 2 reviews the literature on the role of external shocks in driving business cycles in Central and Eastern Europe. In Section 3, I discuss in more detail the three Baltic States and the natural experiment they constitute. This section uses summary statistics and a structural vector autoregression (VAR) model to uncover stylized facts on how the domestic exchange rate regime matters for the impact of euro–dollar exchange rate volatility on the domestic economy. Impulse response functions for the three Baltic countries establish that pegging to a weakening (strengthening) currency has an expansionary (contractionary) effect on output, and that pegging to a currency basket insulates the domestic economy from shocks to the euro–dollar exchange rate. Section 4 then builds a dynamic sticky-price model of a small open economy in order to match and explain those stylized facts. The model is calibrated numerically to the three Baltic countries. There is a direct link between the simulation results derived here and the stylized fact uncovered in Section 3. Section 5 concludes by discussing the policy implications of the results.
نتیجه گیری انگلیسی
This paper presented evidence that exchange rate fluctuations among the world's major currencies significantly affect the business cycles of small open economies. In particular, the three Baltic countries in Central Europe constitute an interesting natural experiment on how the impact of G-3 exchange rate volatility on a small open economy influences its exchange rate regime. I estimated a structural vector autoregression (VAR) model to show the differential impact of euro–dollar fluctuations on the business cycles in the three Baltic countries. The empirical evidence suggested that pegging to a single currency (either the dollar or the euro) may be destabilizing compared to pegging to a trade-weighted basket of those two currencies. I also built a dynamic sticky-price model and calibrated it to the Baltic States in order to match and explain the stylized facts on how euro–dollar exchange rate fluctuations affect the domestic business cycles of the three Baltic countries. One could (ambitiously) interpret these results as providing the rationale for restoring stability to the relative values of the world's major currencies, as was the case under the Bretton Woods system. This is obviously beyond the reach of policymakers in small open economies. And unfortunately, the issuers of the world's major currencies do not seem interested in such an arrangement, because it would interfere with their ability to pursue independent monetary policy oriented toward domestic macroeconomic goals. Academic economists appear to be split on the issue. For example, McKinnon and Schnabl (2003) argue that more stability in the yen–dollar exchange rate would benefit not only the small emerging economies of East Asia but also Japan itself. On the other hand, Reinhart and Reinhart (2001) and Rogoff (2003) argue against stabilizing G-3 exchange rates, and point out that there is a trade-off between volatility in G-3 exchange rates and volatility in G-3 interest rates and real spending. Given that G-3 exchange rate volatility is here to stay, policymakers of small emerging economies might want to peg to a basket of currencies. However, basket pegs come with inconveniences of their own. Basket pegs might be confusing to firms and households because they involve some volatility of the domestic currency against all currencies in the basket. Thus, basket pegs might have transparency and credibility problems. The private sector might question whether exchange rate policy is indeed guided by rules rather than by discretion, especially when the basket weights are kept secret (as is the case with China's newly fledged basket peg). Ultimately, the destabilizing effect of G-3 exchange rate fluctuations on small open economies is rooted in the mismatch between their exchange rate regime and the currency structure of their international trade and financial flows. In the long run, policymakers in the accession countries in Central and Eastern Europe have no discretion over their exchange rate regime—they are bound to join the EMU and adopt the euro. This means that the euro–dollar exchange rate will remain an important source of macroeconomic instability in these countries. A possible solution for policymakers in CEE countries is to promote further trade integration with the Euro Area, and to attempt to influence the currency structure of financial flows as well. As one example, since early 2002, Bulgaria's government has pursued a determined strategy of buying back its large stock of outstanding dollar-denominated bonds and replacing them with bonds denominated in euros. Sharp swings in the yen–dollar rate will continue to destabilize East Asian countries if they continue to peg to the US dollar while a significant fraction of their trade and financial flows is in Japanese yen. If policymakers in these countries are unwilling to change the exchange rate regime (switch to a currency basket, for example), they might still be able to influence the currency structure of the flows of real goods and financial assets, in order to make that structure more consistent with the exchange rate regime.