Quote:ABSTRACT Drawing on new data and advances in exchange rate regimes’ classification, we find that
countries appear to benefit by having increasingly flexible exchange rate systems as they
become richer and more financially developed. For developing countries with little exposure
to international capital markets, pegs are notable for their durability and relatively low
inflation. In contrast, for advanced economies, floats are distinctly more durable and also
appear to be associated with higher growth. For emerging markets, our results parallel the
Baxter and Stockman classic exchange regime neutrality result, though pegs are the least
durable and expose countries to higher risk of crisis.
According to this view, only advanced economies need float their exchange rate. I think we would all agree that Iraq is now a developing country.
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It's all fun and games until someone get's shot in the leg selling drugs trying to make money to buy dinar. -- Dinar is Served
Warning: not for the faint of heart. This is definitely a tough paper to read, with lots of math, but it shows the complexity of determining exchange rates.
One statement caught my eye:
Quote:In the past decade,
however, the MM has received increasing support in that research suggests the long-term
behavior of exchange rates can be explained by relative moneys, incomes and interest rates.
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It's all fun and games until someone get's shot in the leg selling drugs trying to make money to buy dinar. -- Dinar is Served
Quote:I figured you might move it. No problem, though. Just trying to add to the discussion. No one reads anything but rumors, though, right?
I think more and more are abandoning rumors, as more and more of the rumors turn out to be b.s.
Hopefully more people will get involved in this section. I'm sure the more we research, the more accurately we can forecast the timing of dinar convertibility/rv.
Quote:Overall, the existing research has failed to find reliable connections between
official transactions and fundamental determinants of exchange rates that would allow
monetary authorities to determine exchange rates independent of monetary policy.
This tells me that there isn't a scientific forumla that will determine an exchange rate, but it is dependent on the monetary policy of the central bank.
This is definitely a good read, and not so tough as the previous one.
Quote:Central banks are not likely to actively employ intervention as a signal about
future monetary policy. For one thing, when a central bank eventually validates its
signals, the interventions are no longer sterilized. Consequently, such intervention does
not ultimately provide central banks with an independent influence over exchange rates.
Moreover, most large central banks do not intervene for profit, and although central
banks do not like to sustain huge losses on their foreign exchange portfolios, the fear of
losses does not strongly motivate their near-term actions. Typically these losses are
unrealized.
Quote:Monetary authorities intervene out concern for both the level and the volatility of
their exchange rates.
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It's all fun and games until someone get's shot in the leg selling drugs trying to make money to buy dinar. -- Dinar is Served
Quote:As long as the peg is viewed as credible, capital inflows can be enormous and lead to overinvestment or overconsumption, especially if the local banking sector is badly supervised and encourages excessive indebtedness of both private and public agents. But overvaluation of the exchange rate, weak balance sheets, and a large foreign-currency-denominated debt leave a country highly vulnerable to a change in sentiment among investors. Not only can the money that came into the country so easily also depart easily, but also, in this new brave world of high international capital mobility, pegged exchange rates become quite vulnerable to massive speculative outflows of additional capital.
The local banking sector is not badly supervised. Balance sheets are not weak. Large foreign-currency-denominated debt has almost disappeared. This says that too low is bad and too high is bad.
Quote:Overall, the cost of capital and the level of investment are likely to be severely affected in emerging countries that do not try to limit exchange rate volatility.
Thus, a peg.
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It's all fun and games until someone get's shot in the leg selling drugs trying to make money to buy dinar. -- Dinar is Served
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