Pricing currency risk : facts and puzzles from currency boards

The authors investigate the patterns and determinants of the currency risk premium in two currency boards-Argentina and Hong Kong. Despite the presumed rigidity of currency boards, currency premium is almost always positive and at times very large. Its term structure is usually upward sloping, but flattens out or even becomes inverted at times of turbulence. Currency premia differ across markets. The forward discount typically exceeds the currency premium derived from interbank rates, particularly during times of crisis. The large magnitude of these cross-market differences can be the consequence of unexploited arbitrage opportunities, market segmentation, or other risks embedded in typical measures of currency risk. The premium and its term structure depend on domestic and global factors related to devaluation expectations and risk perceptions.Environmental Economics&Policies,Fiscal&Monetary Policy,Economic Theory&Research,Banks&Banking Reform,Payment Systems&Infrastructure,Environmental Economics&Policies,Fiscal&Monetary Policy,Economic Theory&Research,Macroeconomic Management,Banks&Banking Reform

Pricing Currency Risk: Facts and Puzzles from Currency Boards

Hard pegs, such as currency boards, intend to reduce or even eliminate currency risk. This paper investigates the patterns and determinants of the currency risk premium in two currency boards -- Argentina and Hong Kong. Despite the presumed rigidity of currency boards, the currency premium is almost always positive and at times very large. Its term structure is usually upward sloping, but flattens out or even becomes inverted at times of turbulence. Currency premia differ across markets. The forward discount typically exceeds the currency premium derived from interbank rates, particularly during crisis times. The large magnitude of these cross-market differences can be the consequence of unexploited arbitrage opportunities, market segmentation, or other risks embedded in typical measures of currency risk. The premium and its term structure depend on domestic and global factors, related to devaluation expectations and risk perceptions.

The Long And The Short Of Emerging Market Debt

Emerging economies have tried to promote long-term debt since it reduces maturity mismatches and the probability of crises. This paper uses unique evidence from the leading case of Chile to study to what extent there is domestic demand for long-term instruments. We analyze monthly asset-level portfolios of Chilean institutional investors (mutual funds, pension funds, and insurance companies) and compare their maturity structure to that of US bond mutual funds. Despite being thought to invest long term, Chilean asset-management institutions (mutual and pension funds) hold large amounts of short-term assets relative to US mutual funds and Chilean insurance companies. Shorttermism is not driven by lack of instrument availability or tactical behavior. Instead, it seems to be explained by the desire to minimize inflation risk and, more importantly, by manager incentives that tilt demand toward short-term instruments. Extending the maturity of emerging market debt may require reducing risk and reshaping investor incentives.

Global transmission of interest rates : monetary independence and the currency regime

The authors empirically study the sensitivity of local interest rates to international interest rates and how that sensitivity is affected by a country's choice of exchange rate regime. To establish the empirical regularities, they use a reduced-form empirical approach to compute both panel and single-country estimates of interest rate sensitivity for a large sample of developing and industrial economies between 1970 and 1999. When using the full sample, they find that: 1) Interest rates are typically lower in economies with fixed exchange rates than in those with flexible exchange rates. 2) More rigid currency regimes tend to exhibit higher transmission than more flexible regimes. In many cases in the 1990s, however, the authors cannot reject full transmission (a slope coefficient equal to 1), even for several countries with floating regimes. The data suggest an upward time trend in the degree to which domestic interest rates are sensitive to international capital movements and developing economies'increased financial integration with the rest of the world. As a result, country-specific estimates for the 1990s reveal few cases of less-than-full transmission of international interest rates to domestic rates, regardless of the currency regime. Country-specific results suggestthat only large industrial countries can (or choose to) benefit from independent monetary policy. During the 1990s, interest rates in European countries were fully sensitive to German interest rates but insensitive to U.S. interest rates.Payment Systems&Infrastructure,Environmental Economics&Policies,Fiscal&Monetary Policy,Economic Theory&Research,Insurance&Risk Mitigation,Macroeconomic Management,Economic Stabilization,Economic Theory&Research,Environmental Economics&Policies,Insurance&Risk Mitigation

The long and the short of emerging market debt

Emerging economies have tried to promote long-term debt because it reduces maturity mismatches and the probability of crises. This paper uses unique evidence from the leading case of Chile to study to what extent there is domestic demand for long-term instruments. The authors analyze monthly asset-level portfolios of Chilean institutional investors (mutual funds, pension funds, and insurance companies) and compare their maturity structure to that of US bond mutual funds. Despite being thought to invest long term, Chilean asset-management institutions (mutual and pension funds) hold large amounts of short-term assets relative to US mutual funds and Chilean insurance companies. Short-termism is not driven by lack of instrument availability or tactical behavior. Instead, it seems to be explained by the desire to minimize inflation risk and, more importantly, by manager incentives that tilt demand toward short-term instruments. Extending the maturity of emerging market debt may require reducing risk and reshaping investor incentives.Debt Markets,Emerging Markets,,Investment and Investment Climate,Deposit Insurance

Verifying exchange rate regimes

Credibility and transparency are at the core of the current debate about exchange rate regimes. The steady growth in the magnitude and variability of international capital flows has complicated the question of whether to use floating, fixed, or intermediate exchange rate regimes. Emerging market economies are abandoning basket pegs, crawling pegs, bands, adjustable pegs, and various combinations of these. One of several reasons intermediate regimes have fallen out of favor is that they are not transparent; it is very difficult to verify them. Verifiability is a concrete example of the principle of"transparency"so often invoked in discussions of the new international financial architecture but so seldom made precise. A simple peg or a simple float may be easier for market participants to verify than a more complicated intermediate regime. The authors investigate how difficult it is for investors to verify from observable data whether the authorities are in fact following the exchange rate regime they claim to be following. Of the various intermediate regimes, they focus on basket pegs with bands. Statistically, it can take a surprisingly long span of data for an econometrician or investor to verify whether such a regime is actually in operation. The authors find that verification becomes more difficult as the regime's bands widen or more currencies enter the basket peg. At the other extreme, they also analyze regimes described as the regime's bands widen or more currencies enter the basket peg. At the other extreme, they also analyze regimes described as free floating and find that in some cases the observed exchange rate data do validate the announced regime.Payment Systems&Infrastructure,Economic Theory&Research,Environmental Economics&Policies,Fiscal&Monetary Policy,ICT Policy and Strategies,Fiscal&Monetary Policy,Economic Theory&Research,ICT Policy and Strategies,Economic Stabilization,Macroeconomic Management

Verifiability and the Vanishing Intermediate Exchange Rate Regime

The corners hypothesis holds that intermediate exchange rate regimes are vanishing, or should be. Surprisingly for a new conventional wisdom, this hypothesis so far lacks analytic foundations. In part, the generalization is overdone. We nevertheless offer one possible theoretical rationale, a contribution to the list of arguments against intermediate regimes: they lack verifiability, needed for credibility. Central banks announce intermediate targets such as exchange rates, so that the public can judge from observed data whether they are following the policy announced. Our general point is that simple regimes are more verifiable by market participants than complicated ones. Of the various intermediate regimes (managed float, peg with escape clause, etc.), we focus on basket pegs, with bands. Statistically, it takes a surprisingly long span of data to distinguish such a regime from a floating exchange rate. We apply the econometrics, first, to the example of Chile and, second, by performing Monte Carlo simulations. The amount of data required to verify the declared regime may exceed the length of time during which the regime is maintained. The amount of information necessary increases with the complexity of the regime, including the width of the band and the number of currencies in the basket.

Prevalence, associated factors and outcomes of pressure injuries in adult intensive care unit patients: the DecubICUs study

Funder: European Society of Intensive Care Medicine; doi: http://dx.doi.org/10.13039/501100013347Funder: Flemish Society for Critical Care NursesAbstract: Purpose: Intensive care unit (ICU) patients are particularly susceptible to developing pressure injuries. Epidemiologic data is however unavailable. We aimed to provide an international picture of the extent of pressure injuries and factors associated with ICU-acquired pressure injuries in adult ICU patients. Methods: International 1-day point-prevalence study; follow-up for outcome assessment until hospital discharge (maximum 12 weeks). Factors associated with ICU-acquired pressure injury and hospital mortality were assessed by generalised linear mixed-effects regression analysis. Results: Data from 13,254 patients in 1117 ICUs (90 countries) revealed 6747 pressure injuries; 3997 (59.2%) were ICU-acquired. Overall prevalence was 26.6% (95% confidence interval [CI] 25.9–27.3). ICU-acquired prevalence was 16.2% (95% CI 15.6–16.8). Sacrum (37%) and heels (19.5%) were most affected. Factors independently associated with ICU-acquired pressure injuries were older age, male sex, being underweight, emergency surgery, higher Simplified Acute Physiology Score II, Braden score 3 days, comorbidities (chronic obstructive pulmonary disease, immunodeficiency), organ support (renal replacement, mechanical ventilation on ICU admission), and being in a low or lower-middle income-economy. Gradually increasing associations with mortality were identified for increasing severity of pressure injury: stage I (odds ratio [OR] 1.5; 95% CI 1.2–1.8), stage II (OR 1.6; 95% CI 1.4–1.9), and stage III or worse (OR 2.8; 95% CI 2.3–3.3). Conclusion: Pressure injuries are common in adult ICU patients. ICU-acquired pressure injuries are associated with mainly intrinsic factors and mortality. Optimal care standards, increased awareness, appropriate resource allocation, and further research into optimal prevention are pivotal to tackle this important patient safety threat

Correction to: Prevalence, associated factors and outcomes of pressure injuries in adult intensive care unit patients: the DecubICUs study

The original version of this article unfortunately contained a mistake

Prevalence, associated factors and outcomes of pressure injuries in adult intensive care unit patients: the DecubICUs study

Funder: European Society of Intensive Care Medicine; doi: http://dx.doi.org/10.13039/501100013347Funder: Flemish Society for Critical Care NursesAbstract: Purpose: Intensive care unit (ICU) patients are particularly susceptible to developing pressure injuries. Epidemiologic data is however unavailable. We aimed to provide an international picture of the extent of pressure injuries and factors associated with ICU-acquired pressure injuries in adult ICU patients. Methods: International 1-day point-prevalence study; follow-up for outcome assessment until hospital discharge (maximum 12 weeks). Factors associated with ICU-acquired pressure injury and hospital mortality were assessed by generalised linear mixed-effects regression analysis. Results: Data from 13,254 patients in 1117 ICUs (90 countries) revealed 6747 pressure injuries; 3997 (59.2%) were ICU-acquired. Overall prevalence was 26.6% (95% confidence interval [CI] 25.9–27.3). ICU-acquired prevalence was 16.2% (95% CI 15.6–16.8). Sacrum (37%) and heels (19.5%) were most affected. Factors independently associated with ICU-acquired pressure injuries were older age, male sex, being underweight, emergency surgery, higher Simplified Acute Physiology Score II, Braden score 3 days, comorbidities (chronic obstructive pulmonary disease, immunodeficiency), organ support (renal replacement, mechanical ventilation on ICU admission), and being in a low or lower-middle income-economy. Gradually increasing associations with mortality were identified for increasing severity of pressure injury: stage I (odds ratio [OR] 1.5; 95% CI 1.2–1.8), stage II (OR 1.6; 95% CI 1.4–1.9), and stage III or worse (OR 2.8; 95% CI 2.3–3.3). Conclusion: Pressure injuries are common in adult ICU patients. ICU-acquired pressure injuries are associated with mainly intrinsic factors and mortality. Optimal care standards, increased awareness, appropriate resource allocation, and further research into optimal prevention are pivotal to tackle this important patient safety threat