تجزیه و تحلیل تغییر اعلام نشده رژیم ارز
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Publisher : Elsevier - Science Direct (الزویر - ساینس دایرکت)
Journal : Economic Systems, Volume 36, Issue 1, March 2012, Pages 145–157
Starting in 2004 the Guyanese foreign exchange rate has been remarkably stable relative to earlier periods. This paper explores the reasons for the stability of the rate. First, the degree of concentration in the foreign exchange market has increased, thus making the task of moral suasion relatively straightforward once this policy tool comes to bear on the dominant trader(s). Second, long-term or non-volatile capital inflows make the exchange rate less susceptible to sudden reversal. Third, commercial banks, the dominant foreign exchange traders, have large outlays of assets in domestic currency, thus their desire for exchange rate stability. The econometric exercise is consistent with the notion that trader market power has contributed to lower volatility in the G$/US exchange rate. The paper also presents a model that analyzes monetary policy effects in the presence of a mark-up or threshold interest rate.
As part of a broad macroeconomic reform agenda implemented in 1988, Guyana adopted a floating exchange rate in 1990 (Egoume-Bossogo et al., 2003 and Thomas and Rampersaud, 1991). The parallel or street rate was merged with the official rate as one aspect of comprehensive macroeconomic and financial sector reforms. A notable spread, prior to 1990, existed between the official and parallel rates; however, as the reforms intensified the spread declined and the rates converged (Fardmanesh and Douglas, 2008). The agenda of foreign exchange market reform was not limited to Guyana. Instead, it was a widespread reform movement in other parts of the world such as the Caribbean and African economies (Fardmanesh and Douglas, 2008 and Galbis, 1993). The banking and financial sector reforms pursued in Guyana included: promoting financial market development, decontrolling interest rate, implementing market-based monetary policy through a Treasury bill auctioning framework, privatizing state-owned banks, and dismantling direct credit schemes (Das and Ganga, 1997 and Egoume-Bossogo et al., 2003). Starting from around 2004, despite the extensive nature of the financial reforms, the exchange rate moved from a relatively flexible to a virtually fixed rate.1 This regime shift went unnoticed to most except the IMF which started to classify Guyana as having a de facto pegged exchange rate regime (IMF, 2006). Heretofore, the academic literature has not analyzed this silent transition; thus this paper intends to make a contribution in that regard. However, using a probit model, Hagen and Zhou (2005) examine the factors allowing for a divergence between de facto and official exchange rate regimes in twenty-five Transition economies. They argue that it is less costly to adjust the de facto exchange rate because less commitment is required. Upon examination of the institutional features of the foreign exchange market, the paper argues that this market is highly concentrated where a few commercial banks dominate the trading of foreign currencies. Therefore, we postulate that trader market power and high concentration (in the foreign exchange market) helps in the stabilization of the rate. In addition, given that commercial banks, in the aggregate, possess a large portfolio of assets in domestic currency (loans, Treasury bills and excess reserves), it is not in their interest to see the nominal exchange rate depreciate rapidly because of the potential inflation pass-through. Therefore, to the extent that moral suasion is used as a monetary management tool, it is more likely to succeed given the institutional features of the Guyanese foreign exchange market.2 Moreover, the paper also hypothesizes that the nature of capital inflows facilitates and buttresses the market power role of the commercial banks in stabilizing the rate.3 Portfolio or hot money inflows are very small relative to stable long-term capital inflows. The latter include foreign direct investments, remittances, aid funds, and multinational loans. Remittances form an important source of foreign exchange inflows; therefore, to the extent the altruistic motive to remit is dominant, this form of foreign exchange inflow eases the exchange rate volatility and reinforces the strategic exchange rate formation role of the large commercial bank traders.4 The paper adopts a three-tier methodology to present its case. Firstly, we present a narrative approach outlining stylized facts and features of the Guyana foreign exchange market. Secondly, we present a simple model that illustrates how a threshold domestic interest rate influences the central bank's management of commercial bank reserves (as is done under the financial programming model). The threshold is identified by an aggregate commercial bank liquidity preference curve that becomes flat at the interest threshold, which is assumed to be a mark-up over the foreign interest rate. Thirdly, we provide some econometric evidence which models exchange rate volatility and concentration as measured by the Herfindahl–Hirschman index. The paper is structured as follows. Section 2 presents background information that outlines the de facto pegged rate and other key macroeconomic variables. Section 3 examines the composition of capital inflows. Section 4 explores the structure and features of the foreign exchange market. Section 5 presents several arguments why the rate stabilized. Section 6 presents a theoretical model which shows that a binding threshold mark-up interest rate could generate a stable exchange rate in the presence of monetary expansion. Section 7 provides econometric evidence that shows that exchange rate volatility is negatively related to concentration (the market power thesis). Section 8 concludes. This study focuses on Guyana because the unannounced exchange rate regime change presents an opportunity for this type of analysis. Furthermore, we were only able to obtain micro level data on foreign exchange traders for Guyana in order to calculate the Herfindahl–Hirschman index (HHI) for the said economy. However, the banks’ liquidity preference curves – central to the analysis of this paper – can be found for other economies in addition to Guyana (see Khemraj, 2006).
نتیجه گیری انگلیسی
This paper proposed an explanation for the success of the unannounced foreign exchange regime change. The key argument advanced in this study is as follows: it is easier to implement moral suasion once there is concentration in the foreign exchange market. In this case, the monetary authority needs to control via moral suasion the rate formation of the price leader, which dominates trading activities in the FX market. The large commercial banks, moreover, are likely to cooperate with the monetary authority given their substantial exposure in domestic currency assets that could decline in the event of a rapid depreciation of the Guyana dollar and the subsequent inflation pass-through. Therefore, in contrast to the existing literature which looks at competition and stability from the point of the loan market (see Vives, 2001 and Berger et al., 2008), this paper examines how concentration in the FX market could engender macroeconomic stability through the stabilization of the exchange rate. A second institutional feature that allows for the stability is the nature of capital inflows which are mainly in the form of altruistic remittances, long-term multilateral loans, and foreign direct investments. These inflows are less susceptible to sudden reversal. Following the observation of a flat aggregate bank liquidity preference curve, the paper proposes the hypothesis that the flat segment of the curve reflects a mark-up threshold interest rate. At the flat segment the market interest rate (marginal revenue) is just equal to the marginal cost of the interest-earning asset – thus it makes sense for the banks to accumulate cash reserves with greater intensity relative to the interest-earning asset. The aggregate bank liquidity preference curve allows for the analysis of monetary policy shocks in the presence of a mark-up threshold interest rate. By doing so, the paper connects the oligopolistic tendency of the money market with that of the foreign exchange market. Monetary policy shocks (movements in the reserve supply curve) are determined by the Bank of Guyana, which notes that its policy stance focuses on managing bank reserves for the purpose of exchange rate and price stability. Although the Bank of Guyana claims to maintain stability through indirect monetary policy by the management of excess bank reserves, the oligopolistic tendency of the money market will diminish the effectiveness of such a policy. For example, once the threshold interest rate is binding, open market operations will not engender the kind of interest rate changes in the loan and deposit markets, thus dampening the effect on the exchange rate target. This leaves moral suasion as the more effective tool of monetary policy given the increasing tendency towards concentration in the post liberalization era.