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این مقاله علمی پژوهشی (ISI) به زبان انگلیسی از نشریه الزویر مربوط به سال ۲۰۲۲ دارای ۲۶ صفحه انگلیسی با فرمت PDF می باشد در ادامه این صفحه لینک دانلود رایگان مقاله انگلیسی و بخشی از ترجمه فارسی مقاله موجود می باشد.
کد محصول: H753
سال نشر: ۲۰۲۲
نام ناشر (پایگاه داده): الزویر
نام مجله: International Review of Economics and Finance
نوع مقاله: علمی پژوهشی (Research articles)
تعداد صفحه انگلیسی: ۲۶ صفحه PDF
عنوان کامل فارسی:
مقاله انگلیسی ۲۰۲۲ : شوک های صرف ریسک و سیاست نرخ ارز محتاطانه
عنوان کامل انگلیسی:
Risk-premium shocks and the prudent exchange rate policy
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Abstract
Using a medium-size New Keynesian open economy model, we examine the issue of a prudent exchange rate policy when the economy encounters an adverse risk-premium shock. We show that the shock leads to terms of trade (ToT) deterioration and an increase in both the aggregate output and inflation. While examining the choice of an appropriate exchange rate policy to deal with the effects of the shock, analytical results of our baseline model show that neither a fully flexible nor a fully pegged exchange rate policy can yield the desired outcome. In the absence of the supply-side effects of ToT and a cost channel of monetary policy, a managed exchange rate policy can stabilize both domestic inflation and aggregate output. However, in the presence of either a cost channel of monetary policy or supply-side effects of the ToT or both, the central bank faces a trade-off between aggregate output and domestic inflation stabilization. We find that the presence of a cost channel of monetary policy gives rise to a pro-cyclical exchange rate policy. Simulation of a more general model suggests that, instead of using the conventional Taylor rule, the central bank should follow a ToT-augmented Taylor rule, which involves further monetary tightening as the ToT deteriorates. We find that the need for monetary tightening is linked to both the nominal and real rigidities in economy, which gives rise to increased exchange rate volatility. We also briefly consider the case of a productivity shock.
Keywords: Risk-premium and productivity shocks, Exchange rate policy, Supply-side effects of the terms-of-trade, Cost channel of monetary policy, Emerging market economies
۱.Introduction
In the aftermath of the 2008-09 Global Financial Crisis (GFC), which also affected currency values, significant attention is being paid to the choice of an appropriate currency exchange rate management policy. The recent work of Ilzetzki et al. (2019) confirms that a number of countries regularly intervene in currency markets. However, few existing studies provide a clear rationale and rigorous theoretical justification for the varied spectrum of the actual exchange rate policies used by central banks across the globe. The empirical analysis of Kim and Pyun (2018) shows that, during a financial crisis, the exchange rate regime alone cannot determine the transmission of business cycles across international boundaries. Based on data collected from 57 countries, Kim and Pyun found that countries that followed a pegged exchange rate policy and had a relatively high degree of capital mobility suffered most from the global financial crisis (GFC) compared to countries that followed a pegged exchange rate policy and had a relatively lower degree of capital mobility. In this paper, we introduce some interesting features into a Galí-Monacelli type New Keynesian small open economy macro model (see Galí & Monacelli, 2005). These features include habit persistence in consumption, real wage rigidity, and supply-side effects of both the interest rate and terms of trade (ToT). In addition, we use a Taylor rule, to account for ToT changes. The extended model is used to examine the issue of an appropriate exchange rate policy in response to a risk-premium shock…
۶.Concluding remarks
In this paper, we examine the issue of a prudent exchange rate management policy to deal with the impact of a risk-premium shock, which has not received much attention in the existing literature. Unlike the existing studies, we use a richer theoretical framework that allows one to evaluate the effectiveness of alternative exchange rate management choices such as the conventional Taylor rule (i.e., fully flexible terms of trade (ToT)), strict inflation targeting, strict output targeting, a fixed ToT, and a ToT-augmented Taylor rule.
The closed-form results of our model suggest that due to strong effects of the exchange rate channel, a risk-premium shock increases the aggregate output and triggers domestic inflation. This result continues to hold when central bank follows either a free-floating exchange rate or lean with the wind policy. However, when central bank uses nominal exchange rate to maintain a constant ToT, we find that a risk-premium shock leads to recession. We show that, in the absence of both the supply-side effects of ToT and the interest rate, if central bank attempts to stabilize domestic inflation (through effective exchange rate intervention), the aggregate output is automatically stabilized and vice versa. This result is consistent with the idea of “divine-coincidence” discussed by Blanchard and Galí (۲۰۰۷). In the presence of the supply-side effects of ToT and a cost channel of monetary policy, we find that there is a trade-off between stabilization of inflation and aggregate output. Furthermore, we find that the presence of a cost channel of monetary policy also gives rise to the possibility of a procyclical (lean with the wind) policy if central bank stabilizes the domestic inflation. On the other hand, if central bank stabilizes the output then supply-side effects of ToT give rise to lean with the wind policy…
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