Exchange Rates in Emerging Economies: What Do We Know? What Do We Need to Know?

Exchange rates have been at the center of economic debates in emerging economies. Issues related to the feasibility of flexible exchange rates, the relationship between exchange rate volatility and growth, and the role of exchange rate overvaluation in recent crises, among other, have been extensively discussed during the last few years. In this paper we address some of the most important exchange rate-related issues in emerging economies. In particular, we deal with: (a) the merits of alternative exchange rate regimes: (b) the extent to which purchasing power parity holds in the long run in these countries; and (c) models to assess real exchange rate overvaluation. We also discuss future areas for research on exchange rates in the emerging nations.

Monetary policy strategies for Latin America

The authors examine possible monetary policy strategies for Latin America that may help lock in the gains the region attained in the fight against inflation in the 1990s. Instead of focusing the debate about the conduct of monetary policy on whether the nominal exchange rate should be fixed or flexible, the focus should be on whether the monetary policy regime appropriately constrains discretion in monetary policymaking. Three basic frameworks deserve serious discussion as possible long-run strategies for monetary policy in Latin America. The authors examine the advantages and disadvantages of a hard exchange-rate peg, monetary targeting, and inflation targeting, in light of monetary policy's recent track record in several Latin American countries, looking for clues about which of the strategies might be best suited to economies in the region. The answer: It depends on the country's institutional environment. Some countries appear not to have the institutions to constrain monetary policy if discretion is allowed. In those countries, there is a strong argument for hard pegs, including full dollarization, that allow little or no discretion to monetary authorities. In countries such as Chile, which can constrain discretion, inflation targeting is likely to produce a monetary policy that keeps inflation low yet appropriately copes with domestic and foreign shocks. Monetary targeting as a strategy for Latin America is not viable because of the likely instability of the relationship between inflation and monetary aggregates, of which there is ample international evidence. No monetary strategy can solve the basic problems that have existed in Latin American economies for a long time. The authors welcome the recent move in Latin American countries toward inflation targeting, but say no policy will succeed unless government policies also create the right institutional environment.Financial Intermediation,Payment Systems&Infrastructure,Fiscal&Monetary Policy,Economic Theory&Research,Banks&Banking Reform,Financial Intermediation,Banks&Banking Reform,Economic Stabilization,Economic Theory&Research,Macroeconomic Management

Debt Intolerance

This paper introduces the concept of "debt intolerance," which manifests itself in the extreme duress many emerging market economies experience at levels of indebtedness that would seem manageable by advanced country standards. The paper argues that "safe" external debt-to-GNP thresholds for debt-intolerant countries depend on the country's default and inflation history and may be as low as 15 percent in some cases. Debt intolerance is linked to the phenomenon of serial default that has plagued many countries over the past two centuries. Understanding and measuring debt intolerance is fundamental to assessing the problems of debt sustainability, debt restructuring, capital market integration, and the scope for international lending to ameliorate crises. The paper makes a first pass at quantifying debt intolerance, including delineating debtors' "clubs" and regions of vulnerability, based on a history of credit events for a large number of countries going back to the 1820s.macroeconomics, Debt Intolerance

Addicted to Dollars

Dollarization, in a broad sense, is increasingly a defining characteristic of many emerging market economies. How important is this trend quantitatively and how important is it for the conduct of monetary policy and the choice of exchange rate regimes? Though these questions have become a hot topic in both the theory and policy literature, most efforts are remarkably uninformed by evidence, in no small part because meaningful data has been lacking, except for a very narrow range of assets. This paper attempts to move the discussion forward and shed light on the critical questions by proposing a measure of dollarization that is broad both conceptually and in terms of country coverage. We use this measure to identify trends in the evolution of dollarization in the developing world in the last two decades, and to ascertain the consequences that dollarization has had on the effectiveness of monetary and exchange rate policy. We find that, contrary to the general presumption in the literature, a high degree of dollarization does not seem to be an obstacle to monetary control or to disinflation. A level of dollarization does, however, appear to increase exchange rate pass-through, reinforcing the claim that fear of floating' is a greater problem for highly dollarized economies. We also review the developing countries' record in combating their addiction to dollars. Concretely, we try to explain why some countries have been able to avoid certain forms of the addiction, and examine the evidence on successful de-dollarization.

Monetary Policy Strategies for Latin America

The paper examines possible monetary policy strategies for Latin America that may help lock-in the gains in the fight against inflation attained by the region during the 1990s. We start by calling for a refocus of the debate about the conduct of monetary policy away from thinking that it is about whether the nominal exchange rate should be fixed or flexible. Instead we argue that the focus should be on whether the monetary policy regime appropriately constrains discretion in monetary policymaking. This focus suggest that there are three basic frameworks that deserve serious discussion as possible, long-run strategies for monetary policy in Latin America: a hard exchange-rate peg, monetary targeting, and inflation targeting. We look at the advantages and disadvantages of each of these strategies and then examine the recent track record of monetary policy in some Latin American countries for clues as to which of the three strategies might be best suited to economies in the region.

The Morning After: The Mexican Peso in the Aftermath of the 1994 Currency Crisis

The Mexican peso crisis of December 1994 shocked politicians, analysits, and pundits. Shock was followed by panic, as investors flew the country. It took a massive bail-out package put together by the IMF and the US Treasury to generate some tranquility in the markets in mid to late 1995. From early on the Mexican authorities stated that stabilizing the value of the peso, within the context of a freely floating exchange rate regime, was one of their most important objectives. During most of 1995 this objective seemed to be highly elusive. Starting in 1996, however, the peso began to exhibit an impressive degree of stability. So much so that a number of analysts began to wonder whether this stability was consistent with a freely floating regime. Some even argued that it was d‚j… vu' all over again, and that the Bank of Mexico was manipulating monetary policy in order to artificially maintain a strong peso. In this paper we try to explain the relative stability exhibited by the peso/dollar nominal exchange rate since late 1995. Specifically, we approach this issue from two main angles: First, we ask whether the behavior of the peso/dollar rate since 1995 is broadly comparable or consistent with the behavior of a 'typical' floating exchange rate. Our answer to this question was a qualified yes. Second, we explore whether during 1996-97 the Bank of Mexico followed some sort of feedback rule from the exchange rate to monetary policy. Our answer to this question was another qualified yes, but perhaps more strongly qualified than the first one.

Polymorphisms of CD16A and CD32 Fcγ receptors and circulating immune complexes in Ménière's disease: a case-control study

<p>Abstract</p> <p>Background</p> <p>Autoimmune diseases with elevated circulating autoantibodies drive tissue damage and the onset of disease. The Fcγ receptors bind IgG subtypes modulating the clearance of circulating immune complexes (CIC). The inner ear damage in Ménière's disease (MD) could be mediated by an immune response driven by CIC. We examined single-nucleotide polymorphism (SNPs) in the CD16A and CD32 genes in patients with MD which may determine a Fcγ receptor with lower binding to CIC.</p> <p>Methods</p> <p>The functional CD16A (FcγRIIIa*559A > C, rs396991) and CD32A (FcγRIIa*519A > G, rs1801274) SNPs were analyzed using PCR-based TaqMan Genotyping Assay in two cohorts of 156 mediterranean and 112 Galicia patients in a case-control study. Data were analyzed by χ²with Fisher's exact test and Cochran-Armitage trend test (CATT). CIC were measured by ELISA for C1q-binding CIC.</p> <p>Results</p> <p>Elevated CIC were found in 7% of patients with MD during the intercrisis period. No differences were found in the allelic frequency for rs396991 or rs1801274 in controls subjects when they were compared with patients with MD from the same geographic area. However, the frequency of AA and AC genotypes of CD16A (rs396991) differed among mediterranean and Galicia controls (Fisher's test, corrected p = 6.9 × 10^-4for AA; corrected p = 0.02 for AC). Although genotype AC of the CD16A receptor was significantly more frequent in mediterranean controls than in patients, [Fisher's test corrected p = 0.02; OR = 0.63 (0.44-0.91)], a genetic additive effect for the allele C was not observed (CATT, p = 0.23). Moreover, no differences were found in genotype frequencies for rs396991 between patients with MD and controls from Galicia (CATT, p = 0.14). The allelic frequency of CD32 (rs1801274) was not different between patients and controls either in mediterranean (p = 0.51) or Galicia population (p = 0.11).</p> <p>Conclusions</p> <p>Elevated CIC are not found in most of patients with MD. Functional polymorphisms of CD16A and CD32 genes are not associated with onset of MD.</p