March 18, 2008
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38
result(s)
Welfare Effects of Commodity Price and Exchange Rate Volatilities in a Multi-Sector Small Open Economy Model
Staff Working Paper 2008-8
Ali Dib
This paper develops a multi-sector New Keynesian model of a small open economy that includes commodity, manufacturing, non-tradable, and import sectors. Price and wage rigidities are sector specific, modelled à la Calvo-Yun style contracts.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Economic models,
Exchange rate regimes,
International topics
JEL Code(s):
E,
E4,
E5,
E52,
F,
F3,
F4
Expenditure-Switching Effect and the Choice of Exchange Rate Regime
Staff Working Paper 2007-54
Wei Dong
The author investigates the quantitative importance of the expenditure-switching effect by developing and estimating a structural sticky-price model nesting both producer currency pricing (PCP) and local currency pricing (LCP) settings.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Exchange rate regimes,
International topics
JEL Code(s):
F,
F3,
F4
Exchange Rate Regimes, Globalisation, and the Cost of Capital in Emerging Markets
Staff Working Paper 2007-29
Antonio Diez de los Rios
This paper presents a multifactor asset pricing model for currency, bond, and stock returns for ten emerging markets to investigate the effect of the exchange rate regime on the cost of capital and the integration of emerging financial markets. Since there is evidence that a fixed exchange rate regime reduces the currency risk premia demanded by foreign investors, the tentative conclusion is that a fixed exchange rate regime system can help reduce the cost of capital in emerging markets.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Development economics,
Exchange rate regimes
JEL Code(s):
F,
F3,
F30,
F33,
G,
G1,
G15
April 22, 2005
Borders, Common Currencies, Trade, and Welfare: What Can We Learn from the Evidence?
Recent evidence indicates that the intensity of economic exchange within and across borders is significantly different: linkages are much tighter within, than among, nation-states. These findings, however, do not necessarily imply that borders and separate national currencies represent significant barriers to trade that should be removed, since the evidence is also consistent with the alternative hypothesis, that domestic exchange is more efficient because domestic producers are better able to satisfy the requirements of local consumers, owing to common tastes and institutions and the existence of local information and social networks. Focusing primarily on trade linkages within and between Canada and the United States, the authors review the evidence on the extent to which national borders lessen the intensity of international economic linkages, primarily trade in goods and services, and the effects on domestic welfare. They also examine the evidence on the impact of common currencies on trade and welfare. They determine that, since the empirical models employed to date in this research cannot distinguish between alternative explanations of the evidence, it is not yet possible to draw firm conclusions for policy-making.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Exchange rate regimes,
International topics,
Monetary policy framework
The Transmission of World Shocks to Emerging-Market Countries: An Empirical Analysis
Staff Working Paper 2004-44
Brigitte Desroches
The first step in designing effective policies to stabilize an economy is to understand business cycles. No country is isolated from the world economy and external shocks are becoming increasingly important.
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Exchange rate regimes,
International topics,
Monetary policy transmission
JEL Code(s):
E,
E3,
E30,
E32,
E6,
E61,
F,
F0,
F02
August 21, 2003
Dollarization in Canada: An Update
The authors describe a special survey of the payment and financial-reporting practices of Canadian firms conducted by the Bank of Canada's regional offices to determine if the U.S. dollar has started to displace the Canadian dollar as a preferred unit of account. A cross-section of firms was asked what currency (or currencies) they used: (i) for quoting sales to Canadian customers, (ii) for quoting prices to foreigners, (iii) for reporting their financial results, and (iv) for quoting salaries and wages. The survey results reported here extend some earlier results reported in a previous Review article by Murray and Powell. The data indicate that, despite the dominance of the U.S. dollar in world trade and as an international standard of value, use of the U.S. dollar in Canada is very limited. The vast majority of Canadian firms price their products and keep their financial statements in Canadian dollars, and very few workers in Canada have their salaries paid in a foreign currency. The Canadian dollar is still strongly preferred for most pricing and financial-reporting activities in Canada, and there is very little evidence of "dollarization."
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Exchange rate regimes
December 21, 2002
Exchange Rate Regimes in Emerging Markets
A series of major international financial crises in the 1990s, and the recent introduction of the euro, have renewed interest in alternative exchange rate systems. The choice of exchange rate regime is particularly relevant for emerging-market countries because other countries are perceived either as having no alternative to their current exchange rate arrangement or as highly unlikely to change. This article examines the evolution of exchange rate regimes in emerging markets over the past decade and compares the strengths and weaknesses of the various available systems. These include intermediate regimes, such as the adjustable pegged exchange rate popular throughout much of the post—war period, and the two extreme exchange rate regimes: permanently fixed or freely floating exchange rate regimes. Two recently proposed alternatives are also evaluated: the Managed Floating Plus and Baskets, Bands, and Crawling Pegs. Both try to combine the best elements of the flexible and fixed exchange rate systems, but the Managed Floating Plus is deemed to be the more promising alternative.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Development economics,
Exchange rate regimes
November 21, 2002
Is Canada Dollarized?
The sharp depreciation of the Canadian dollar and the successful launch of the euro have sparked a lively debate in Canada about the possible benefits of formally adopting the U.S. dollar as our national currency. Some observers have suggested that this debate is largely irrelevant, since Canada is already highly "dollarized." Canadian businesses and households, they assert, often use the U.S. dollar to perform standard money functions in preference to their own currency. Very little evidence has been provided, however, to support these claims. The authors review the available data with a view to drawing some tentative conclusions about the extent to which Canada has already been informally dollarized. The evidence suggests that many of the concerns that have been expressed about the imminent demise of the Canadian dollar have been misplaced. The Canadian dollar continues to be used as the principal unit of account, medium of exchange, and store of value within our borders. Moreover, there is no indication that dollarization is likely to take hold in the foreseeable future. Indeed, in many respects, the Canadian economy is less dollarized now than it was 20 years ago.
Content Type(s):
Publications,
Bank of Canada Review articles
Topic(s):
Exchange rate regimes
The Impact of Common Currencies on Financial Markets: A Literature Review and Evidence from the Euro Area
Staff Working Paper 2002-35
Liliane Karlinger
This paper reviews both the theoretical and empirical literature on the impact of common currencies on financial markets and evaluates the first three years of experience with Economic and Monetary Union (EMU).
Content Type(s):
Staff research,
Staff working papers
Topic(s):
Exchange rate regimes,
Financial markets
JEL Code(s):
E,
E4,
E44,
F,
F2,
F21,
F3,
F36,
G,
G1,
G15