Managed floating: Understanding the new international monetary order

Although there seems to be a broad consensus among economists that purely floating or completely fixed exchange rates (the so-called corner solutions) are the only viable alternatives of exchange rate management, many countries do not behave according to this paradigm and adopt a strategy within the broad spectrum of exchange rate regimes that is limited by the two corner solutions. These intermediate regimes are characterized by significant foreign exchange market interventions of central banks and a certain degree of exchange rate flexibility. We develop a new empirical methodology that identifies three different forms of floating on the basis of a central bank's intervention activity: pure floating (no interventions), independent floating (exchange rate smoothing), and managed floating (exchange rate targeting). Our cross-country study shows that exchange rate targeting is at least as important as exchange rate smoothing. Subsequently we present a monetary policy framework in which central banks use the exchange rate as an operating target of monetary policy. We explain the mechanics of interventions and sterilization and we explain why a central bank has an interest of controlling simultaneously the exchange rate and the short-term interest rate. We derive the monetary policy rules for our two operating targets from a simple open economy macro model in which the uncovered interest parity condition and the Monetary Conditions Index play a central role. --exchange rate regime,monetary policy,interventions,sterilization,floating,Monetary Conditions Index

Options for the exchange rate policies in the EU accession countries (and other emerging market economies)

We develop an institutional framework for central banks that try to pursue a stability-oriented monetary policy with the strategy of exchange rate targeting. Recent experience shows that a crucial element of this approach is to avoid destabilising capital inflows. Policy makers can exert monetary pressure by two different but interrelated channels: the interest rate and the exchange rate. We introduce an open-economy Taylor rule which determines the domestic interest rate of a central bank targeting a depreciation of its exchange rate. The interrelation of the two channels is taken into account by a risk premium adjusted uncovered interest parity condition. In our view sustained violations of this constraint provide an important explanation for the problem of speculative capital inflows. We distinguish between two basically different types of pegs: fixed nominal exchange rate targets and flexible nominal exchange rate targets. With the lessons that we draw from the past experiences of these regimes in Asia, Latin America, Eastern and Central Europe and the ERM I, we develop a framework for the exchange rate strategies of the accession countries during their path towards EMU entry. --EU accession countries,monetary integration,emerging market economies,flexible nominal exchange rate target,open-economy Taylor rule,UIP,risk premium,monetary conditions index,capital flows

Monetary policy and exchange rate targeting in open economies

We develop an institutional framework for central banks that try to pursue a stability-oriented monetary policy in open-economies by directly targeting the exchange rate. Our main intention is to design a framework which avoids excessive capital inflows that can be regarded as a main cause of the crises in Asia, Latin America, Eastern and Central Europe and of the ERM I. In an open economy policy makers can target two interrelated variables: the interest rate and the exchange rate. These two operating target have to fulfil two different conditions. On the one hand they have to create monetary conditions that are consistent with the domestic economic situation. On the other hand they have to be compatible with a risk-premium adjusted uncovered interest parity condition (UIP). It is obvious that both conditions are difficult to met. In our view sustained violations of the second condition provide an important explanation for the problem of speculative capital inflows under a fixed nominal peg. We show that an adjustable nominal peg is in most cases a better solution to the dual requirement of UIP and adequate monetary conditions. This leads to a new solution for the inconsistency triangle: a central bank can combine an autonomous domestic interest rate policy with capital mobility and a floor for the target path of the exchange rate. --emerging market economies,exchange rate targeting,open-economy Taylor rule,UIP,risk premium,monetary conditions index,sterilised intervention, inconsistency triangle

Engineering Parallel String Sorting

We discuss how string sorting algorithms can be parallelized on modern multi-core shared memory machines. As a synthesis of the best sequential string sorting algorithms and successful parallel sorting algorithms for atomic objects, we first propose string sample sort. The algorithm makes effective use of the memory hierarchy, uses additional word level parallelism, and largely avoids branch mispredictions. Then we focus on NUMA architectures, and develop parallel multiway LCP-merge and -mergesort to reduce the number of random memory accesses to remote nodes. Additionally, we parallelize variants of multikey quicksort and radix sort that are also useful in certain situations. Comprehensive experiments on five current multi-core platforms are then reported and discussed. The experiments show that our implementations scale very well on real-world inputs and modern machines.Comment: 46 pages, extension of "Parallel String Sample Sort" arXiv:1305.115

The BMW model as a static approximation of a foreward-looking New Keynesian macroeconomic model

Over the last decade a new consensus model has emerged in monetary macroeconomics, labelled New Keynesian macroeconomics (Clarida et al., 1999). It consists of three simple building blocs: a forward-looking IS-equation that is derived from the optimization problem of a representative household, a forward-looking Phillips curve that maps the optimal pricing decisions of monopolistically competitive firms facing restrictions on their ability to adjust wages or prices in a flexible manner, and a relationship that describes how monetary policy is conducted. In Bofinger, Mayer and Wollmershäuser (2002a, 2002b) we developed the BMW model which takes this standard dynamic macro model to an intermediate audience in a down-to-earth fashion. This paper presents the linkages between our static BMW approach and a dynamic New Keynesian macro model. --BMW model,New Keynesian macroeconomic model,optimal monetary policy

Teaching New Keynesian Open Economy Macroeconomics at the Intermediate Level

For the open economy the workhorse model in intermediate textbooks still is the Mundell-Fleming model, which basically extends the IS-LM model to open economy problems. The purpose of this paper is to present a simple New Keynesian model of the open economy, that introduces open economy considerations into the closed economy consensus version and that still allows for a simple and comprehensible analytical and graphical treatment. Above all, our model provides an efficient tool kit for the discussion of the costs and benefits of fixed and flexible exchange rates, which also was at the core of the Mundell-Fleming model. --open economy,inflation targeting,monetary policy rules,New Keynesian macroeconomics

The BMW model: simple macroeconomics for closed and open economies a requiem for the IS/LM-AS/AD and the Mundell-Fleming model

While the IS/LM-AS/AD model is still the central tool of macroeconomic teaching in most macroeconomic textbooks, it has been criticised by several economists. Colander [1995] has demonstrated that the framework is logically inconsistent, Romer [2000] has shown that it is unable to deal with a monetary policy that uses the interest rate as its operating target, Walsh [2001] has criticised that it is not well suited for an analysis of inflation targeting. In our paper we start with a short discussion of the main flaws of the IS/LM-AS/AD model. We present the BMW model as an alternative framework, which develops the Romer approach into a very simple, but comprehensive macroeconomic model. In spite of its simplicity it can deal with issues like inflation targeting, monetary policy rules, and central bank credibility. We extend the model to an open-economy version as a powerful alternative to the IS/LM-based Mundell-Fleming (MF) model. The main advantage of the open-economy BMW model is its ability to discuss the role of inflation and the determination of flexible exchange rates while the MF model is based on fixed prices and constant exchange rates. This working paper is an extended and more theoretical version of Würzburg Economic Paper No. 34. Besides describing the derivation of optimal interest rate rules and the concept of loss functions more in detail, it also discusses simple interest rate rules in an open economy as well as a strategy of managed floating within the same theoretical framework. Additionally, we explore the stabilizing properties of simple interest rate rules. --monetary policy,inflation targeting,optimal interest rate rules,simple rules,managed floating,IS/LM,Mundell-Fleming

Intensity distribution of non-linear scattering states

We investigate the interplay between coherent effects characteristic of the propagation of linear waves, the non-linear effects due to interactions, and the quantum manifestations of classical chaos due to geometrical confinement, as they arise in the context of the transport of Bose-Einstein condensates. We specifically show that, extending standard methods for non-interacting systems, the body of the statistical distribution of intensities for scattering states solving the Gross-Pitaevskii equation is very well described by a local Gaussian ansatz with a position-dependent variance. We propose a semiclassical approach based on interfering classical paths to fix the single parameter describing the universal deviations from a global Gaussian distribution. Being tail effects, rare events like rogue waves characteristic of non-linear field equations do not affect our results.Comment: 18 pages, 7 figures, submitted to Proceedings MARIBOR 201