Measuring the Degree of Currency Misalignment Using Offshore Forward Exchange Rates: The Case of the Korean Financial Crisis

This paper proposes a new method of measuring the degree of currency misalignment through the use of offshore forward exchange rates. Using default risk adjusted no­arbitrage conditions for forward exchange contracts, we calculate the spot exchange rates and the domestic interest rates that are implied from the observed forward exchange rates. The difference between the implied and the observed spot exchange rates is our measure of currency misalignment. Our methodology is based on the presumption that, during a currency crisis, offshore forward exchange rates reflect market sentiments more closely than onshore spot and forward exchange rates. The latter are usually tightly regulated and heavily affected by government intervention during a non­normal event such as a financial crisis. We apply the method to the Korean financial crisis in 1997 and discuss its implication for evaluating the IMF adjustment program and explaining foreign capital flows.currency misalignment, covered interest parity, non­deriverable forwards, Korean financial crisis

Population Aging and Financial Markets : A Cross-Country Study

Population aging may have different effects on different assets. We investigate the effect of population aging on financial markets by evaluating how population aging affects the size of asset markets. The regression analysis using a cross-country data reveals that although aggregate saving rates will decline significantly as the size of the elderly population continues to rise, aggregate savings themselves will keep increasing for a while as the working age population increases their savings in preparation for the elongated retirement life. The regression analysis also demonstrates that the proportion of the elderly population is positively correlated with the size of the bond market, while the positive relationship with the size of the stock market is not so evident. Such a finding implies that although a general asset price meltdown is not likely, some asset markets will be more adversely affected by population aging

Blockade of Airway Inflammation by Kaempferol via Disturbing Tyk-STAT Signaling in Airway Epithelial Cells and in Asthmatic Mice

Asthma is characterized by bronchial inflammation causing increased airway hyperresponsiveness and eosinophilia. The interaction between airway epithelium and inflammatory mediators plays a key role in the asthmatic pathogenesis. The in vitro study elucidated inhibitory effects of kaempferol, a flavonoid found in apples and many berries, on inflammation in human airway epithelial BEAS-2B cells. Nontoxic kaempferol at ≤20 μM suppressed the LPS-induced IL-8 production through the TLR4 activation, inhibiting eotaxin-1 induction. The in vivo study explored the demoting effects of kaempferol on asthmatic inflammation in BALB/c mice sensitized with ovalbumin (OVA). Mouse macrophage inflammatory protein-2 production and CXCR2 expression were upregulated in OVA-challenged mice, which was attenuated by oral administration of ≥10 mg/kg kaempferol. Kaempferol allayed the airway tissue levels of eotaxin-1 and eotaxin receptor CCR3 enhanced by OVA challenge. This study further explored the blockade of Tyk-STAT signaling by kaempferol in both LPS-stimulated BEAS-2B cells and OVA-challenged mice. LPS activated Tyk2 responsible for eotaxin-1 induction, while kaempferol dose-dependently inhibited LPS- or IL-8-inflamed Tyk2 activation. Similar inhibition of Tyk2 activation by kaempferol was observed in OVA-induced mice. Additionally, LPS stimulated the activation of STAT1/3 signaling concomitant with downregulated expression of Tyk-inhibiting SOCS3. In contrast, kaempferol encumbered STAT1/3 signaling with restoration of SOCS3 expression. Consistently, oral administration of kaempferol blocked STAT3 transactivation elevated by OVA challenge. These results demonstrate that kaempferol alleviated airway inflammation through modulating Tyk2-STAT1/3 signaling responsive to IL-8 in endotoxin-exposed airway epithelium and in asthmatic mice. Therefore, kaempferol may be a therapeutic agent targeting asthmatic diseases

A Practical Approach to International Monetary System Reform: Building Settlement Infrastructure for Regional Currencies

The squeeze in US dollar liquidity that emerged with the global financial crisis highlighted the risks associated with the current global financial system. Asia was adversely affected by the crisis not only because of its dependence on trade, but also because of its heavy reliance on the US dollar for regional and international transactions. As Asia's role in the global economy expands further, its dependence on the US dollar is bound to increase, raising even more its vulnerability to future liquidity shocks. The use of regional currencies for bilateral trade settlement could reduce such vulnerability. As demonstrated by the renminbi trade settlement scheme piloted between the People's Republic of China and Hong Kong, China, the existence of appropriate financial infrastructure could reduce the relatively larger costs of bilateral currency transactions compared with triangular transactions through the US dollar. As most central banks are securities depositories of government bonds, combining trade settlement with government bond securities settlement can also have large synergy effects without much extra costs. This proposal does not require full liberalization of the capital account or full deregulation of capital markets, and is more politically feasible in transition. As such, extending the trade settlement scheme to the rest of Asia and appending a government bond payment and securities settlement system could be a practical solution to international monetary system reform and the diversification of settlement currencies

Causal relation between interest and exchange rates in the Asian currency crisis

This paper studies the causal relationship between interest rates and exchange rates in Indonesia, Korea, Malaysia and Thailand during the period bordering the 1997 Asian currency crisis to investigate the appropriateness of tight monetary policy in stabilizing exchange rates. We employ VAR models consisting of spot rates, forward rates and interest rate differentials to study the causal relations. In particular, we test for long-run causality as well as short-run causality by taking into account non-stationarity of the involved variables and the cointegrating relations among them. The test results show that except for some subsamples for Malaysia there is no evidence that interest rate differentials caused spot exchange rates at all horizons. Considering the ineffectiveness of high interest rates in stabilizing exchange rates and the high economic cost associated with keeping high interest rates for an extended time period, one may rightfully question the appropriateness of tight monetary policy during the Asian currency crisis. (C) 2007 Elsevier B.V. All rights reserved