نوسانات نرخ ارز واقعی و انتخاب روش در بازارهای نو پا

Traditional models of the choice of exchange rate regimes ignore the destabilizing effects of sharp and unanticipated exchange rate movements. Recent research, however, has shown that these movements have real costs in emerging markets owing to the dollarization of liabilities. This paper evaluates the performance of an emerging market economy under a credibly fixed rate, a collapsing fixed rate, and a flexible-rate regime using a speculative attack model that takes into account the real effects of unanticipated movements in exchange rates. The model is applied to South Korea to determine the dominant exchange rate regime.

The choice of an exchange rate regime has been and will continue to be a major, but controversial, area of research in economics. Following Poole (1970) there is some consensus among economists that the optimal exchange rate regime depends on the nature of shocks facing an economy. In particular, it depends on whether shocks are real, nominal, domestic, or foreign. In the standard literature, the comparison of exchange rate regimes is based on the minimization of a loss function that depends exclusively on the variance of real output. The real effects of unanticipated changes in the real exchange rate is left out of the analysis.1 Some observers have argued that neglecting the destabilizing effects of sharp and unanticipated changes in real and nominal exchange rates is inappropriate because the financial turmoil in Mexico in 1994 and the currency crises in Asia in 1997–1998 have shown that these changes have real costs in emerging markets.2 These costs can arise through the dollarization of liabilities, as stressed by Calvo (1999).3 Explanations for the real effects of unanticipated exchange rate changes through this channel can be synthesized as follows. Domestic firms in developing countries have difficulties borrowing or lending in the local currency because of market imperfections or poorly developed financial markets. This encourages foreign currency borrowing and, because domestic firms’ assets are predominantly in the local currency, creates a currency mismatch. When liabilities are in foreign currencies while assets are in the local currency, sharp and unexpected exchange rate depreciations deteriorate bank and corporate balance sheets, threaten the stability of the domestic financial system, and depress economic activity.4 The potentially destabilizing effect of sharp and unanticipated exchange rate movements owing to the dollarization of liabilities, has led some economists to take the view that a fixed exchange rate system may be the appropriate regime for emerging markets. Proponents of flexible exchange rate regimes, however, argue that this line of reasoning does not consider the fact that the dollarization of liabilities is, in part, a consequence of the choice of exchange rate regimes. In a fixed exchange rate regime, the government guarantees to buy and sell foreign exchange at a predetermined price. This opens-up a source of moral hazard, promotes unhedged, short-term, foreign-currency borrowing and hence increases firms’ vulnerability to exchange rate fluctuations.5 Given the policy challenges posed by the dollarization of liabilities, its role in triggering and magnifying the real effects of exchange rate crises, and the costs of these crises in emerging markets, it is necessary to examine the extent to which the incorporation of the real effects of unanticipated exchange rate movements into open-economy rational expectations models affects the choice of regime in emerging markets. We attempt to address this issue using a rational expectations speculative attack model that allows us to evaluate the performance of an economy under three exchange rate regimes: a credibly fixed rate, a collapsing fixed rate, and a flexible rate regime. While a wide spectrum of exchange rate regimes can be incorporated, the three regimes considered are sufficient to capture the main features of observed exchange rate regimes in emerging markets. Uncertainty enters the model in the form of a foreign interest rate (or capital flow) shock, a domestic monetary shock, and a domestic real demand shock. By introducing a foreign interest rate shock we allow for international capital movements and mirror the observation that the volatility of capital flows is a major characteristic of emerging market economies (see Calvo, 1999). The model also incorporates the phenomenon of currency substitution. This is important because it is a feature of emerging markets, especially those in Latin America. In addition, it is a potential source of currency-denomination mismatch and hence has implications for the choice of exchange rate regime. Currency substitution is typically associated with the existence of a large stock of foreign-exchange deposits that may lead to an increase in foreign-currency-denominated loans because banks in emerging markets are often subject to regulations that require them to lend in the same currency in which they are funded (see Calvo, 1999). When these loans are made predominantly to firms in the non-traded goods sector it creates a currency mismatch. This paper is organized as follows. Section 2 describes the basic structure of the model. Section 3 solves the model for credibly fixed and flexible rate regimes. Section 4 presents the calibration and simulation of the model using parameters of the South Korean economy, and Section 5 focuses on the case of collapsing fixed-rate regimes. We consider an alternative method of incorporating the real effects of unanticipated exchange rate changes in Section 6 and conclude the paper in Section 7.

In the standard literature on the choice of exchange rate regimes, it is typically assumed that the objective of the monetary authority is to minimize the variance of real output. This implies that exchange rate volatility is costless. However, recent research has shown that sharp and unanticipated changes in real exchange rates in emerging markets have real costs owing to the dollarization of liabilities. This paper has examined the choice of exchange rate regime using a speculative attack model that took into account the real effects of unanticipated changes in real exchange rates. It also incorporated two features that played prominent roles in recent currency crises in emerging markets: currency substitution and volatile capital flows. We considered two approaches to incorporating the real effects of unanticipated changes in exchange rates into standard models of the choice of exchange rate regimes are considered. In the first approach, the effects were introduced directly by assuming that the monetary authority's loss function depended exclusively on the variance of real output but that aggregate demand or output depended, among other factors, on the deviation of actual from expected changes in the real exchange rate. In this version of the model, we demonstrated that a necessary, but not a sufficient, condition for a flexible-rate regime to dominate either a collapsing or fixed-rate regime, in an economy buffetted by monetary, real demand and capital flow shocks, is that the parameter capturing the real effects of unanticipated exchange rate changes in the aggregate demand equation is less than the sum of the parameters on the level of the real exchange rate and the interest rate. An evaluation of the model using parameters of the South Korean economy suggested that a flexible-rate regime dominates a fixed-rate regime despite the existence of the phenomenon of liability dollarization. In the second approach, the real effects of unanticipated exchange rate changes were incorporated indirectly by assuming that the monetary authority's loss function depended on the variance of real output as well as the variance of the real exchange rate. For the South Korean economy, simulations of this version of the model suggested that a flexible-rate regime dominates a fixed-rate regime in an economy buffetted by monetary, real demand, and capital flow shocks if the weight the monetary authority puts on real exchange rate volatility in the loss function is less than 0.05. Since there are no empirical studies on the weight the central bank of South Korea puts on real exchange rate volatility, we cannot make any conclusive statements on the dominant regime in this version. The analysis in this paper was conducted on the assumption that the main objective of the monetary authority is to minimize either the variance of real output or the variance of real output and the real exchange rate. We did not consider alternative objectives and other issues. For example, we did not consider the objective of the monetary authority focusing on increasing the short-run growth rate of the economy. Furthermore, we did not examine the relationship between exchange rate regimes and institutional arrangements. The importance of this type of study for emerging markets is noted in Calvo and Mishkin (2003). Hopefully, this and other issues will be the subject of future investigation.