Exchange Rate and Interest Rate Distribution and Volatility under the Portuguese Target Zone

The aim of this study is to analyse the exchange rate and interest rate distribution and volatility under the participation of the Portuguese economy in the Exchange Rate Mechanism (ERM) of the European Monetary System (EMS) based on some of the main predictions of the target zone literature. Portugal adopted this exchange rate target zone from April 6 1992 until December 31 1998. During this period, the exchange rate distribution reveals that the majority of the observations lie close to the central parity, thus rejecting one of the key predictions of the Paul Krugman (1991) model. The analysis of the data also shows that exchange rate volatility tended to increase as the exchange rate approached the edges of the band, contrary to the predictions of the basic model. Interest rate differential volatility, on the other hand, seemed to behave in line with theoretical predictions. This suggests an increase in the credibility of monetary policy, allowing us to conclude that the adoption of a target zone has contributed decisively to the creation of the macroeconomic stability conditions necessary for the participation in the European Monetary Union (EMU). The Portuguese integration process should therefore be considered as an example to be followed by other small open economies in transition to the euro area.Exchange rate stability, EMS, Volatility and target zones

Exchange Rate Target Zones: A Survey of the Literature

This work selectively reviews the literature on exchange rate target zones and their theoretical and empirical methodologies and examines whether they can be used to clarify to what extent this type of exchange rate regime could contribute to greater exchange rate stability. We discuss the main contributions of the first and second generations of exchange rate target zone models. In an attempt to reconcile the poor empirical performance of the Krugman (1991) model with the reality of exchange rate target zone regimes, this line of research integrates target zones with alternative underlying economic models, such as imperfect credibility, intra-marginal interventions and sticky price models. It was thus possible to understand the correlations observed between the exchange rate, its fundamentals determinants and the interest rate differential, and to explain the fact that the statistical distribution of the exchange rate is hump-shaped rather than U-shaped. This implies that the initial emphasis of target zone models on nonlinearities, “honeymoon effect”, “smooth pasting” and marginal interventions has vanished. Exchange rate target zones are better described as similar to managed floating regimes with intra-marginal interventions, with some marginal interventions when the exchange rate reaches the edges of the floating band.Exchange rate target zones, imperfect credibility, intra-marginal interventions realignments and sticky prices.

Exchange Rate Mean Reversion within a Target Zone: Evidence from a Country on the Periphery of the ERM

The aim of this study is to assess to what extent the Portuguese participation in the European Monetary System (EMS) has been characterized by mean reverting behaviour, as predicted by the exchange rate target zone model developed by Krugman (1991). For this purpose, a new class of mean reversion tests is introduced. The empirical analysis of mean reversion in the Portuguese exchange rate shows that most of the traditional unit root and stationarity tests point to the nonstationarity of the exchange rate within the band. However, using a set of variance-ratio tests, it was possible to detect the presence of a martingale difference sequence. This suggests that the Portuguese foreign exchange market has functioned efficiently, allowing us to conclude that the adoption of an exchange rate target zone regime has contributed decisively to the creation of the macroeconomic stability conditions necessary for the participation of Portugal in the euro area.difference sequence, mean reversion, stationarity, target zones and unit roots

Exchange Rate and Interest Rate Volatility in a Target Zone: The Portuguese Case

This work examines the participation of the Portuguese economy in the ERM of the EMS based on some of the main predictions of the target zone literature. The exchange rate distribution reveals that the majority of the observations lie close to the central parity, thus rejecting one of the key predictions of the Krugman (1991) model. Using a M-GARCH model however we confirm that there is a trade-off between exchange rate volatility and interest rates differential volatility. These results express the increased credibility of the Portuguese monetary policy, due manly to the modernisation of the banking and financial system and to the progress made in terms of the disinflation process under an exchange rate target zone policy. In accordance to these results we can say that the participation of the Portuguese escudo in an exchange rate target zone was crucial to create the conditions of stability, credibility and confidence necessary for the adoption of a single currency.Credibility, Exchange rate stability, M-GARCH, ERM, EMS, Volatility and target zones

The Fundamentals of the Portuguese Crisis

This paper analyses the fundamentals of the Portuguese crisis. The financial crisis of 2007 worsened and triggered the current Portuguese crisis. We argue that the main problem the economy is facing is its output stagnation due to a kind of Dutch disease that has created high and increasing levels of indebtedness, low and decreasing levels of saving and has reduced Portuguese competitiveness. Moreover, the existence of a dualist labour market and a new wave of emigration produce inefficiency, increasing unemployment of younger workers and the supply of human capital abroad funded by the Portuguese taxpayers. Governance problems such as poor public budget governance and lack of transparency and accountability are also at stake. These governance problems must be solved to allow the economy to return to its long-run growth path.ntion paid to it than hitherto.Growth, Debt, Saving, Dutch disease, Unemployment, Budget policy

The Fundamentals of the Portuguese Crisis

This paper analyses the fundamentals of the Portuguese crisis. The financial crisis of 2007 worsened and triggered the current Portuguese crisis. We argue that the main problem that the economy is facing is its output stagnation due to a kind of Dutch disease that has created high and increasing levels of indebtedness, low and decreasing levels of saving and has reduced Portuguese competitiveness. Moreover, the existence of a dualist labour market and a new vague of emigration reproduces inefficiency increasing unemployment of younger workers and the supply of human capital abroad funded by the Portuguese taxpayers. Governance problems such as bad public budget governance, lack of transparency and accountability are also at stake and have to be solved to allow the economy to return to its long-run growth path.Growth, Debt, Saving, Dutch disease, Unemployment, Budget policy.

Public Relations in Sporting and Leisure events as promoters of social change: a view from Portugal

Els esdeveniments esportius de més interès tenen un gran potencial transformador i han evolucionat des de ser manifestacions culturals i esportives fins a convertir-se en oportunitats reals per canviar el panorama social. L’estreta relació entre esports, turisme i salut fa que aquest camp estigui ben situat per contemplar el paper que juguen les relacions públiques com a promotors del canvi social. En aquest article argumento que el camp de les relacions públiques ha de promoure una aproximació als esdeveniments que vagi més enllà de la mera “posada en escena de l’esdeveniment” i que consideri estratègies i tàctiques que pretenguin fer servir l’esdeveniment com a trampolí per canviar el context social i les relacions amb els principals accionistes. Això implica considerar els indicadors principals de rendiment més enllà de la publicitat o visibilitat de l’esdeveniment i incloure altres tipus de mètriques d’avaluació. Finalment, l’article presenta una perspectiva regional d’un país especialitzat a organitzar grans esdeveniments que s’han utilitzat per promoure canvis socials fonamentals. KEY WORDS: Sports, Events, Events Management, Public Relations, Evaluation, Change Management, Tourism, Health. PARAULES CLAU: esports, esdeveniments, direcció d'esdeveniments esportius, relacions públiques, avaluació, administració de canvis, turisme, salut

How the gold standard functioned in Portugal: an analysis of some macroeconomic aspects

This paper studies the Gold Standard in Portugal. It was the first country in Europe to join Great Britain in 1854. The principle of free gold convertibility was abandoned in 1891. For the purposes of a macroeconomic study, we also extended the analysis up to 1913. Our study points out the mistake of comparing different systems with the same indicators. Examination of demand, supply and monetary shocks in the context of a VAR model confirm the idea that the principles of classical economics are appropriate for the Gold Standard in Portugal.Gold Standard, Macroeconomic Stability, Convertibility, Portugal, VAR and Unit Roots

Investment, dynamic consistency and the sectoral regulator's obective

We explore the separation of powers between the legislative and the executive branch of government as a way of overcoming the dynamic consistency problem of regulatory policy towards investment. We model the industry as a regulated duopoly. The incumbent is a vertically integrated firm that owns a wholesaler and a retailer. The entrant owns a retailer. Either retailer needs access to the input produced by the wholesaler to operate. The incumbent can make an investment that improves the quality of the input produced by the wholesaler. The regulator sets the access price and is unable to commit. The legislator sets the regulator's objective function and is able to commit. We derive general conditions under which having the legislator distort the regulator's objective function away from social welfare allows increasing the range of parameter values for which it is possible to induce socially desirable investment. --Investment,Dynamic Consistency,Regulator's Objective

Can Vertical Separation Reduce Non-Price Discrimination and Increase Welfare?

We investigate if vertical separation reduces non-price discrimination and increases welfare. Consider an industry consisting of a vertically integrated firm and an independent retailer, which requires access to the vertically integrated firm's wholesaler services. The wholesaler can degrade the quality of input it supplies to either of the retailers. Discrimination occurs if one of the retailers is supplied an input of lower quality than its rival. We show that separation of the vertically integrated firm reduces discrimination against the independent retailer, although it does not guarantee no-discrimination. Furthermore, with separation, the wholesaler may discriminate against the vertically integrated firm's retailer. Vertical separation impacts social welfare through two e¤ects. First, through the double-marginalization effect, which is negative. Second, through the quality degradation effect, which can be positive or negative. Hence, the net welfare impact of vertical separation is negative or potentially ambiguous.Vertigal integration; Vertical separation; Non-price discrimination.