Expectations, stability, and exchange rate dynamics under the Post Keynesian hypothesis

This paper considers the recent empirical support for the Post Keynesian hypothesis on the role of expectations in the foreign exchange market. Our specific interests are whether the model exhibits stability, and whether an overshooting phenomenon is observed. The model is likely to be stable for plausible parameter values, contrary to the conclusion of saddle-point instability in the "sticky price monetary model." Overshooting is possible for expectations for the medium-term horizon, but undershooting is also possible for the short-term horizon. Because the extrapolative expectations are stronger than the regressive expectations, undershooting is likely for the actual exchange rate in the short run.exchange rate expectations, stability,

Exchange rate, political environment and FDI decision: a new insight # Exchange rate, political environment and FDI decision: a new insight

Abstract: We examine the role of exchange rate (ER) and political environment (PE) alterations in determining Japanese Multinational Companies' (MNCs) investment decisions. First, we present a model where MNCs make an investment decision under uncertainty. Second, we employ a panel data analysis of 56 developed and developing countries for the period of 1995-2012 (country and industry level). The main findings show that MNCs are less likely to tolerate financial and political risks in developing countries. However, they may tolerate these risks in developed countries if the level of initial stability is far enough than their essential need. The impact of ER expectation remained ambiguous. Various interpretations and mechanisms are discussed

Monetary Unions and Endogeneity of the OCA Criteria

This article examines an endogeneity issue within the Optimum Currency Area (OCA) theory. According to the cost-benefit analysis, we found that there are the upper and the lower bounds in the degree of monetary integration for a monetary union to be created. We also found that a country may secede from the monetary union, depending on its degree of integration. A country may also secede when production specialization is facilitated with monetary integration within a framework of the “OCA line”. We also consider the endogeneity of the “OCA Index”, and applied our analysis to the optimum number of world currencies.Monetary Union, OCA, endogeneity,

Reassessment Of Currency Index By Fundamentals

We examine empirical consistency of the fundamentals in (1) the Middle and South American and (2) the Asian currency crises with the first-generation model, using panel data. We also evaluate our model by forecasting, and examine the differences between the two currency crises in terms of fundamentals. Some differences in explanatory power between fundamentals suggest that we should consider other factors in addition to our fundamentals. Dividing data into the two countries groups manifests that the causes were slightly different. The in-sample and out-of-sample tests indicate that our model could better predict the Middle and South American currency crisis.Currency crisis, Fundamentals, Panel data

The optimal exchange rate regime for a small country

De jure and de facto, Intervention, Managed floating, F31, F33, F41,