The macroeconomics of a financial Dutch disease

We describe the medium-run macroeconomic effects and long-run development consequences of a financial Dutch disease that may take place in a small developing country with abundant natural resources. The first move is in financial markets. An initial surge in foreign direct investment targeting natural resources sets in motion a perverse cycle between exchange rate appreciation and mounting short- and medium-term capital flows. Such a spiral easily leads to exchange rate volatility, capital reversals, and sharp macroeconomic instability. In the long run, macroeconomic instability and overdependence on natural resource exports dampen the development of nontraditional tradable goods sectors and curtail labor productivity dynamics. We advise the introduction of constraints to short- and medium-term capital flows to tame exchange rate/capital flows boom-and-bust cycles. We support the implementation of a developmentalist monetary policy targeting competitive nominal and real exchange rates in order to encourage product and export diversification

Fundamental pitfalls of exchange market pressure-based approaches to identification of currency crises

Victor Pontines and Reza Siregarhttp://www.elsevier.com/wps/find/journaldescription.cws_home/620165/description#descriptio

The Yen, the US dollar, and the trade weighted basket of currencies: Does the choice of anchor currencies matter in identifying incidences of speculative attacks?

Copyright © 2005 Elsevier B.V. All rights reserved.Victor Pontines and Reza Siregarhttp://www.elsevier.com/wps/find/journaldescription.cws_home/505557/description#descriptio

Exchange rate policy and regional trade agreements: a case of conflicted interests?

The relationship between exchange rates and trade has long been controversial. The fixed exchange rates of the pre-1914 gold standard were viewed as essential for efficient trade. In the period of 1919–39, exchange rate flexibility was positively correlated with growth, and too rigid adherence to the gold standard was negatively correlated with growth (Eichengreen 1992). However, beggar-thy-neighbor policies of devaluing in order to reduce unemployment in the 1930s came to be seen as a zero-sum strategy that exacerbated the breakdown of the global economy. In the Bretton Woods era the International Monetary Fund (IMF) was responsible for ensuring that countries maintained fixed exchange rates and that any devaluation or revaluation was orderly. Since the advent of generalized floating in the 1970s, no multilateral organization has been responsible for the global exchange rate system. There have been recurring charges of countries using exchange rate protectionism or promoting exports by exchange rate undervaluation. At the same time, the global trading system is increasingly characterized by proliferation of regional trade agreements which, together with World Trade Organization commitments, limit governments’ ability to use traditional trade policy measures (WTO 2011), and may increase the attractiveness of using the exchange rate as a trade policy instrument. The aim of this chapter is to examine the relationship between the exchange rate regime and exchange rate volatility and trade among countries in an RTA.Victor Pontines and Richard Pomfre