The mechanics of a successful exchange rate peg: lessons for emerging markets

To the surprise of many market watchers, Thailand’s exchange rate peg to the dollar collapsed in July 1997, leading to similar rounds of currency devaluations in other East Asian countries. This study seeks to determine whether there were identifiable contrasts in implementation between Thailand’s peg and a perennially successful peg—Austria’s peg to the Deutsche mark—that would have hinted at problems for Thailand prior to July 1997. The comparison suggests that Thailand was not sufficiently vigilant about keeping its inflation rate low in the early 1990s. By 1995, Thailand faced a situation where a tight monetary policy involving high domestic interest rates would not always have created disinflationary pressure, as high interest rates also tended to attract greater capital inflow to Thailand. In this environment, Thailand’s monetary policy became erratic and failed to maintain the exchange rate peg.Foreign exchange rates ; Thailand

Inflation targeting in a small open economy: empirical results for Switzerland

This paper extends McCallum?s (1987) nominal targeting rule to a small open economy by allowing for feedback from the exchange rate. Instead of setting parameters in a McCallum-type targeting rule and simulating, the parameters are estimated using a markov switching model. We argue that a model of discrete parameter changes should be adept at capturing sudden changes in policy regime, such as changes in the degree to which monetary policy admits feedback from the exchange rate. We examine the legitimacy of an inflation targeting rule with occasional exchangerate feedback to describe Swiss monetary policy over the past twenty years.Inflation (Finance) ; Switzerland

Identifying Austria's implicit monetary target: an alternative test of the "hard currency" policy

One simple test of the long-run viability of an exchange-rate peg, which complements tests based on market expectations, is to ask whether the implicit inflation target ofthe pegging country is the same as that of the anchor country. If the implicit inflation targets of the two countries are different, the peg's long-run credibility can be rejected. The implicit inflation target is defined as the policy-implied, trend rate of inflation. The proposed test is applied to the Austrian experience with a 'hard currency' policy aimed at targeting its exchange rate with the Deutsche mark.Austria ; Foreign exchange rates ; Monetary policy - Austria

The FOMC in 1996: "watchful waiting"

In light of recent research findings, Michael J. Dueker and Andreas M. Fischer review the 1996 policy posture of the Federal Open Market Committee (FOMC), the monetary policymaking body of the Federal Reserve System. They find several areas in which the FOMC's policy positions were consistent with the conclusions of recent research studies, whether or not these studies directly influenced the Committee's thinking. In general, the authors conclude that the FOMC intended to ensure that inflation was contained near 3 percent in 1996 but did not intend to bring down the trend rate of inflation that year.Federal Open Market Committee ; Inflation (Finance) ; Monetary policy - United States ; Consumer price indexes

Do inflation targeters outperform non-targeters?

Ten years of empirical studies of inflation targeting have not uncovered clear evidence that monetary policy that incorporates formal targets imparts better inflation performance. The authors survey the literature and find that the "no difference" verdict concerning inflation targeting has been robust to a wide range of countries and methods of analysis, starting with a study by Dueker and Fischer (1996a). The authors present updated Markov-switching estimates from the original Dueker and Fischer (1996a) article and show that their early conclusions about inflation targeting among early adopters have not been overturned with an additional decade of data. These findings to date do not rule out the possibility, however, that formal inflation targets could prove pivotal if the global environment of disinflation were to reverse course.Inflation (Finance)

A guide to nominal feedback rules and their use for monetary policy

If price stability is to be sustained, monetary policy actions will inevitably resemble - in the long run - the prescriptions from nominal feedback rules, which are designed to achieve price stability. This property means that monetary policy might be well described by a nominal feedback rule in a low-inflation country such as Switzerland. In this article, Michael J. Dueker an Andreas M. Fischer provide a general description of nominal feedback rules and use one rule - with time-varying parameters - to model Swiss monetary policy actions. The authors explain how this indicator model can presage a buildup of inflationary pressures before they become obvious through other traditional policy indicators.Monetary policy ; Switzerland

Fixing Swiss potholes: the importance of improvements

This note sheds new light on the dynamic properties of maintenance and repair and examines the behavior of an additional form of capital spending-that of improvements. The analysis examines a unique long-run data set on Swiss road spending.Capital

Open mouth operations: a Swiss case study

Financial markets ; Switzerland

Stochastic capital depreciation and the comovement of hours and productivity

An unresolved question concerning stochastic depreciation shocks is whether they have to be unrealistically large to have any useful role in a dynamic general equilibrium model economy, as Ambler and Paquet (1994) first suggested. We first consider implied depreciation rates from sectoral data from the Bureau of Economic Analysis. These depreciation rates vary across time solely due to compositional changes within each sector. Hence, they tend to understate the range of fluctuation that would hold if the economic shelf life of capital varied endogenously as in Cooley, Greenwood and Yorukoglu (1997). We find, however, that if depreciation rates follow a Markov switching process, a low variance of the depreciation rate can generate the low correlation between hours worked and productivity in a simple model economy. White noise and autoregressive depreciation shocks, in contrast, require a counterfactually large variance in the depreciation rate to reduce the hours-productivity correlation. We also illustrate the level effects implied by nonlinear decision rules in simulations of dynamic general equilibrium models that include Markov switching parameters. Linear decision rules, in contrast, imply certainty equivalence and ignore the aversion that agents have to the skewed shock distributions that characterize Markov switching.Econometric models ; Productivity

Comparison of Bacterial Diversity in Air and Water of a Major Urban Center

The interaction of wind with aquatic and terrestrial surfaces is known to control the creation of microbial aerosols allowing for their entrainment into air masses that can be transported regionally and globally. Near surface interactions between urban waterways and urban air are understudied but some level of interaction among these bacterial communities would be expected and may be relevant to understanding both urban air and water quality. To address this gap related to patterns of local air-water microbial exchange, we utilized next-generation sequencing of 16S rRNA genes from paired air and water samples collected from 3 urban waterfront sites and evaluated their relative bacterial diversity. Aerosol samples at all sites were significantly more diverse than water samples. Only 17–22% of each site’s bacterial aerosol OTUs were present at every site. These shared aerosol OTUs included taxa associated with terrestrial systems (e.g., Bacillus), aquatic systems (e.g., Planktomarina) and sewage (e.g., Enterococcus). In fact, sewage-associated genera were detected in both aerosol and water samples, (e.g., Bifidobacterium, Blautia, and Faecalibacterium), demonstrating the widespread influence of similar pollution sources across these urban environments. However, the majority (50–61%) of the aerosol OTUs at each site were unique to that site, suggesting that local sources are an important influence on bioaerosols. According to indicator species analysis, each site’s aerosols harbored the highest percentage of bacterial OTUs statistically determined to uniquely represent that site’s aquatic bacterial community, further demonstrating a local connection between water quality and air quality in the urban environment