Italy"s market intervention policy and the portfolio theory of exchange rate determination
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Italy"s market intervention policy and the portfolio theory of exchange rate determination institutional features, theoretical issues, and empirical evidence : mémoire by Marcello Mentini

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Published by Institut universitaire de hautes études internationales in Genève .
Written in English

Subjects:

Places:

  • Italy

Subjects:

  • Foreign exchange administration -- Italy -- Econometric models.

Book details:

Edition Notes

Statementprésenté en vue de l"obtention du diplôme par Marcello Mentini.
Classifications
LC ClassificationsHG3951 .M46 1984
The Physical Object
Pagination76 leaves :
Number of Pages76
ID Numbers
Open LibraryOL2972877M
LC Control Number84220230

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5 The Evolution of Exchange Rate Regimes and Some Future Perspectives Introduction, A Brief History of Currency Regimes, Performance of the Laisser-Faire Exchange Rate System, –, Market Discipline, Economic Policy Coordination, cause of the effects of international transactions costs and other factors, real exchange rate adjustment displays significant nonlinearities. Chapter 4 is devoted to an overview of the theory and evidence relating to standard macroeconomic models of exchange rate determination. The starting point is the theory of exchange rate from purchasing power parity (PPP), which is also called the inflation theory of exchange rates. PPP can be traced back to Spain in the early sixteenth century and seventeencentury England, but the Swedish economist Cassel () was the first name of the theory of PPP. Central banks’ exchange rate interventions are typically attributed to precautionary, prudential, or mercantilist motives. This column documents the prevalence of an alternative motive – that of stabilising the exchange rate – in emerging markets, where, despite heavy intervention, the Global Crisis saw important deviations of the real exchange rate from its equilibrium value.

3 Noting, however, that in some countries monetary policy is implemented via the foreign exchange market, with sterilisation being contingent on achieving the exchange rate objective. Hong Kong SAR and Malaysia are cases in point. In Singapore, the objective of policy is price stability, but the exchange rate is a contingent operational target. Research has generally failed to find reliable connections between official exchange-market interventions and exchange rates that are consistent with either a monetary or a portfolio-balance theory of exchange-rate determination. Upholding the principle of decentralization, the Bank of Italy operates with its own counterparties (see the section on Monetary policy counterparties), i.e. with banks that operate in Italy in accordance with the set of instruments, rules and procedures defined by the Eurosystem for implementing monetary policy (operational framework). 6. The BOP theory of exchange rate determination says that most changes in the exchange rate are due to the arrival of new information about the future. 7. Under a fixed exchange rate regime, if a country’s private sector sells abroad more than it purchases, the central bank must sell foreign exchange.

The book also provides a unified model of open-economy macroeconomics, based on an asset-market approach to exchange rate determination with a central role for expectations. Features Core theory chapters, followed by chapters applying theory to major policy questions. Exchange Rate Determination. Dr. C S Shylajan 1. Introduction An exchange rate is the relative price of one. currency in terms of another It influences allocation of resources within and across countries During the Bretton Woods era exchange rate was treated as an exogenous variable With the advent of floating rates in , attention once again shifted to determinants of exchange rates themselves.   Praise for Handbook of Exchange Rates “This book is remarkable. I expect it to become the anchor reference for people working in the foreign exchange field.” —Richard K. Lyons, Dean and Professor of Finance, Haas School of Business, University of California Berkeley “It is quite easily the most wide ranging treaty of expertise on the forex market I have ever come across.   Flexible Exchange Rate System In a flexible exchange rate system, exchange rate is left free to be determined in the foreign exchange market by the forces of demand and supply. In this, central bank allows the exchange rate to adjust to equate the supply and demand for foreign exchange.