Net Foreign Asset Positions and Appreciation Expectations on the Swiss Franc and the Japanese Yen

Sophia Latsos; Gunther Schnabl

August 2015

Abstract

The paper shows that currencies of countries with persistent current account surpluses and high foreign-currency denominated assets, such as the Swiss franc and the Japanese yen, are under persistent appreciation pressure, particularly when the centres of the world monetary system follow expansionary monetary policies. This limits the choice of exchange rate regime. Given flexible exchange rates, a negative risk premium on the domestic interest rate can emerge. Empirical estimations provide mixed evidence for a negative impact of net foreign asset positions and exchange rate uncertainty on interest rates of international creditor countries at the periphery of the world monetary system.

Keywords: , , , , , .

JEL Codes: , , .

Erschienen in

CESifo Working Paper No. 5490 (August 2015).

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Macroeconomic Policy Making, Exchange Rate Adjustment and Current Account Imbalances in Emerging Markets

Pablo Duarte; Gunther Schnabl

Juli 2015

Abstract

Since a series of crisis events after 2007, the discussion about the adjustment channels of current account imbalances has been revived. We discuss the effectiveness of exchange rates versus macroeconomic policies to rebalance current accounts for a set of 86 mainly emerging market economies. We find that nominal exchange rates are not a sufficient adjustment channel for (unsustainable) current account positions. Instead, depending on the region, monetary and/or fiscal policies are the main determinants of current accounts. For East Asia and the oil exporting countries sterilization policies, i.e. relatively tight monetary policies, are the main determinants. In contrast the main driving forces for emerging and southern Europe are fiscal policy stances. Only for the Latin American countries the exchange rate seems to play a significant role.

Keywords: , , , , .

JEL Codes: , , .

Erschienen in

Review of Development Economics, Volume 19, Issue 3, pp 531-544.

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Policy Shifts and Financial Instability in Emerging Markets

Andreas Hoffmann; Björn Urbansky

Juli 2015

Abstract

We explain periods of financial instability following drastic policy shifts within a Hayekian framework. Hayek emphasized that prices, established via the market process, help market participants to form coherent expectations about the future and coordinate plans with one another. In this paper, we elaborate on how policy shifts may undermine planning based on price signals and exacerbate uncertainty about the future, which can contribute to financial instability. Based on our postulated framework, we clarify how financial liberalization in the 1980s/1990s and the recent discretionary monetary policies in the advanced economies may have contributed to recurring episodes of financial instability in emerging markets. In particular, this paper provides an explanation for (1) why we observe financial instability mainly shortly following financial liberalization, and (2) why financial developments in the emerging markets are sensitive to unexpected monetary policy changes in the advanced countries in the current zero-interest rate environment.

Erschienen in

Review of Development Economics, Volume 19, Issue 3, pp 455-469.

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Beyond Balassa and Samuelson: Real Convergence, Capital Flows, and Competitiveness in Greece

Ansgar Belke; Ulrich Haskamp; Gunther Schnabl; Holger Zemanek

Juni 2015

Abstract

We scrutinize the role of capital flows for competitiveness in seven euro-area countries in the context of real convergence and crisis with a specific focus on Greece. The paper extends the seminal Balassa-Samuelson model to include international capital markets. Capital flows are assumed to be able to invert the traditional direction of transmission of real wage increases from the tradable to the non-tradable sector and to cause real wages to increase beyond productivity increases. Panel estimations for the period from 1995 to 2013 show evidence in favour of capital inflow-driven real wage increases in excess of productivity increases in Greece.

Keywords: , , , , , , , , , , , , , .

JEL Codes: , , , .

Erschienen in

CESifo Working Paper No. 5557 (October 2015).

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Monetary Policy and Structural Decline: Lessons from Japan for the European Crisis

Gunther Schnabl

Juni 2015

Abstract

Japan experienced a boom-and-bust cycle in the real estate and stock markets almost 20 years earlier than Europe. Since the bursting of the Japanese bubble economy, the country has fallen into a deep recession and has experimented with crisis therapies in the form of unconventional monetary expansion, Keynesian fiscal stimulus, and recapitalization of financial institutions. Japan reached a low interest rate environment in the mid 1990s and has accumulated an exceptionally high level of public debt during more than two decades of economic stagnation. This paper compares the boom-and-bust cycles in Japan and Europe with respect to the reasons for excessive booms, the characteristics of the crises, and the (potential) effects of the crisis therapies. It is argued that in both Japan and Europe the consequences of expansionary monetary and fiscal policies include the hysteresis of a low-interest rate and high government debt environment, the erosion of the allocation and signaling functions of the interest rate, the gradual quasi-nationalization of financial institutions, as well as gradual real income losses. The economic policy implication for Europe and Japan is the timely exit from crisis therapies in the form of excessively expansionary monetary and fiscal policies.

Keywords: , , , , , , , , , , , , .

JEL Codes: , , , , , , .

Erschienen in

Asian Economic Papers, Volume 14, Issue 1, pp 124-150.

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Wege Zu Einer Stabilitäts- Und Wachstumsorientierten Geldpolitik Aus Österreichischer Perspektive

Gunther Schnabl

Juni 2015

Abstract

Das Papier identifiziert auf der Grundlage der monetären Überinvestitionstheorien von Wicksell (1898), Mises (1912) and Hayek (1929, 1937) expansive Geldpolitik als Ursache für Boom-und-Krisen-Zyklen auf den Finanzmärkten sowie für langfristige Stagnation. Das Absenken der Leitzinsen gegen Null wird als Ursache für eine sinkende Grenzleistungsfähigkeit der Investitionen gesehen, da der Bankensektor schleichend nationalisiert wird und strukturelle Verzerrungen zementiert werden. Eine asymmetrische Geldpolitik begünstigt eine Substitution von Realinvestitionen durch Finanzinvestitionen, von privaten Investitionen durch öffentliche Investitionen sowie Umverteilung von mittleren und unteren Einkommensschichten hin zu oberen Einkommensschichten. Der von strukturell sinkenden Zinsen begünstigte Anstieg der Staatsverschuldung sowie eine durch Umverteilungseffekte der Geldpolitik verursachte Reallohnrepression werden als Gründe für die Hysterese sehr expansiver Geldpolitik identifiziert. Es wird ein Anheben der Leitzinsen empfohlen, um die Allokations- und Signalfunktion der Zinsen, das Haftungsprinzip, eine hohe Grenzleistungsfähigkeit der Investitionen und damit eine nachhaltige Wachstumsdynamik wiederherzustellen.

Keywords: , , , , , , .

JEL Codes: , , , .

Erschienen in

Universität Leipzig Wirtschaftswissenschaftliche Fakultät Working Paper Series.

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Externally Imposed Financial Repression, Conflicted Internationalisation of the Renminbi and External Balancing via Wage Adjustment

Gunther Schnabl

Januar 2015

Abstract

China has made several important steps to liberalise its domestic financial markets and to open up its capital markets internationally in order to promote the renminbi as an international currency. To make the renminbi a convertible, freely floating international currency is a pre-requisite for the renminbi to challenge the dollar as an international currency. The chapter shows, however, that the very benign liquidity conditions in the US, combined with very large foreign currency denominated assets, constitute an insurmountable impediment for the floating and the internationalisation of the renminbi. With exchange-rate stability being seen as an important determinant of macroeconomic stability and growth in China (and East Asia), domestic-wage increases are proposed in order to reduce the appreciation pressure on the Chinese currency.

Keywords: , , , , .

Erschienen in

Rövekamp F., Bälz M., Hilpert H. (eds) Central Banking and Financial Stability in East Asia. Financial and Monetary Policy Studies, vol 40. Springer, Cham.

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