Fiscal imbalances, capital inflows, and the real exchange rate

the case of Turkey.

Publisher: International Monetary Fund in Washington, D.C

Written in English
Published: Pages: 20 Downloads: 286
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monthly exchange rates, we decompose the dynamic e ffects that a structural shock to net capital flows has on exchange rates, and we assess theoretical implications for the dynamic cross-correlations of exchange rates with both equity return di fferentials and interest rate differentials. Using a 5×5 VAR with the US interest rate, capital inflow, the real exchange rate, the real wage and inflation or even a 4×4 VAR (not including US interest rate) did not add any significant information, except for a negative relationship between capital inflow and inflation already found in Muinhos (). Mar 31,  · We examine the developments in the Turkish banking industry in the context of capital and financial inflows specifically focusing on cross-border banking liability. C. John McDermott, and Murat Üçer. Fiscal Imbalances, Capital Inflows, and the Real Exchange Rate: The Case of Turkey. European Economic Buy this book on publisher's Author: Resul Aydemir, Gokhan Ovenc. May 02,  · For instance, exchange rate appreciation can be disinflationary in the short term, but may foster the build-up of financial imbalances, raising the risk of large capital outflows and exchange rate depreciation in the future, thus creating risks for medium-term price stability.

The link between government spending and the real exchange rate has been the subject of a growing but inconclusive literature in international macroeconomics. This paper attempts to contribute to three issues in this literature: (1) The theoretical literature on the link between –scal policy and the real exchangeCited by: 5. Sep 01,  · (1) In the early s, the new authorities implemented a quite comprehensive counter-cyclical macroeconomic approach that included systematic prudential regulation of capital inflows, actively managed exchange rate flexibility and a monetary policy concerned with not only inflation but also sustained growth, implying balances in the external. Oct 19,  · This Report covers developments in the first half of , and where pertinent and available, data through early October This Report reviews the macroeconomic and exchange rate policies of economies accounting for 75 percent of U.S. foreign trade and assesses global economic developments more broadly. domestic interest rate. If the domestic interest rate is higher than foreign interest rate, there will be capital inflows from abroad, causing a real exchange rate appreciation. The real appreciation of the domestic currency, in turn, deteriorates the current account deficits, .

When a country is experiencing large capital inflows, policymakers need to decide on the direction of the exchange rate. If capital inflows are predominantly portfolio investment or other short-term inflows, the equilibrium real exchange rate will probably depreciate if the capital is used to finance consumption or unproductive activities and. NOMINAL AND REAL EXCHANGE RATES AND PURCHASING POWER PARITY The real exchange rate is thus a function of the terms of trade, t, and the relative price of nontraded goods, w. Neary () shows in a real model that a terms of trade improvement (an increase in t) for a small country can, in general, be presumed to. and the real exchange rate(1) The simple model in the annex shows that a productivity shock can generate large capital inflows even when the real exchange rate is constant. However, the real world is clearly more complicated than assumed in the model. In particular, we need to extend our analysis to a world in which the real exchange rate. 2. Composition of capital inflows, exchange rate regime, and the real effective exchange rate Edwards (, ), Williamson (), Hinkle and Montiel (), Edwards and Savastano (), and Maeso-Fernandez, Osbat, and Schnatz () provide comprehensive surveys of the extensive literature on determinants of the komabraindeathcuba.com by: 8.

Fiscal imbalances, capital inflows, and the real exchange rate Download PDF EPUB FB2

This paper explores the links between fiscal imbalances, capital inflows and the real exchange rate in Turkey since the late s using an (unrestricted) vector autoregression (VAR) model. We begin by capital inflows the specification of the model, and examine the Cited by: Jan 01,  · Summary: This paper examines the links between fiscal policy, capital inflows, and the real exchange rate in Turkey since the late s.

After an overview of recent macroeconomic developments in Turkey, a vector autoregression model is estimated linking government spending, interest rate differentials, capital inflows, and the temporary component of the real exchange komabraindeathcuba.com by: 2. Downloadable.

This paper examines the links between fiscal policy, capital inflows, and the real exchange rate in Turkey since the late s. After an overview of recent macroeconomic developments in Turkey, a vector autoregression model is estimated linking and the real exchange rate book spending, interest rate differentials, capital inflows, and the temporary component of the real exchange rate.

This paper examines the links between fiscal policy, capital inflows, and the real exchange rate in Turkey since the late s. After an overview of recent macroeconomic developments in Turkey, a vector autoregression model is estimated linking government spending, interest rate differentials, capital inflows, and the temporary component of the real exchange rate.

Annotation. This paper examines the links between fiscal policy, capital inflows, and the real exchange rate in Turkey since the late s. After an overview of recent macroeconomic developments in Turkey, a vector autoregression model is estimated linking government spending, interest rate differentials, capital inflows, and the temporary component of the real exchange rate.

If capital flows are prone to reversals, and generally they are, then with some nominal wage-price inertia it may be desirable to have a fixed exchange rate regime. In periods of inflows, a floating exchange rate regime would cause an immediate real appreciation.

The output and employment costs of these could be substantial. With a. This paper explores the linkage between the fixed exchange rate regimes and capital inflows in environment of endogenous fiscal policy.

1 The essential message of the paper is that the incentive for government interference in capital markets (through implicit or explicit borrowing guarantees or subsidies) will generally depend on the exchange rate komabraindeathcuba.com by: 6. Capital Flows and Exchange Rates in the Pacific Basin.

Reuven Glick Determinants of capital flows and exchange rates. they find that world interest rate declines explain much of the pattern of capital inflows and real exchange rate appreciation observed in Asian countries.

They study the relationship between capital flows, macroeconomic management, and vulnerability in the financial system. Their analysis highlights the importance of fiscal policy in an era of large capital flows. Fiscal imbalances contributed both to real exchange rate appreciation and high real interest rates in.

The impact of foreign capital inflows in India on the real exchange rate is examined using quarterly data for the period Q1 to Q4 that is just after the spread of the neo liberal. Aug 01,  · The characteristics of recent capital inflows into Latin America are discussed.

It is argued that these inflows are partly explained by conditions outside the region, like recession in the United States and lower international interest rates.

This suggests the possibility that a reversal of those conditions may lead to a future capital outflow, increasing the macroeconomic vulnerability of Cited by: 1. Exchange Rate Crisis: caused by a sudden and unexpected collapse in the value of an nation's currency (can happen under fixed flexible, mix)--> if system is in some form of fixed exchange rate, crisis entails a loss of intl.

reserves followed by sudden devaluation once it appears that reserves will run out- Devaluation is intended to accumulate. Fiscal Policy and the Trade Balance.

By the end of this section, you will be able to: results. Thus, a budget deficit can easily result in an inflow of foreign financial capital, a stronger exchange rate, and a trade deficit. then it will effectively be able to repay its debt at a negative real interest rate.

With perfect capital mobility, any fiscal stimulus increases Y and M, but i does not rise due to capital inflows. To maintain the fixed exchange rate, the central bank must increase the domestic money supply.

In the end, Y rises, but i stays the same. This paper analyzes the impact of capital inflows and exchange rate flexibility on the real exchange rate in developing countries based on panel cointegration techniques.

A major, but neglected, determinant of revenues can be the exchange rate. The fiscal problem is real for most developing countries. In particular, the revenue gains or losses that may result indirectly from other policy decisions are of great interest to the authorities.

the PPP real effective exchange rate cannot therefore be taken to be proxies for movements in the real exchange rate. As no estimates are available of the real exchange rate for India, our first task is to derive a real exchange rate series from the wholesale price index (WPI).

A stronger exchange rate, of course, makes it more difficult for exporters to sell their goods abroad while making imports cheaper, so a trade deficit (or a reduced trade surplus) results. Thus, a budget deficit can easily result in an inflow of foreign financial capital, a stronger exchange rate, and a trade deficit.

In both cases, the surge of capital inflows has not involved a major negative effect on competitiveness for Peru. Figure presents the evolution of the index of the effective real exchange rate.

The rate was around ±5 percent of the average level over – This relatively stable real exchange rate holds up in international comparisons. This paper focuses on the effects of real exchange rate misalignment on capital inflows in Nigeria between the year and In order to achieve this objective, the paper estimated the equilibrium real exchange rate over time using the purchasing power approach (PPP) adjusting for Ballassa- Samuelson effect.

CAPITAL INFLOWS AND REAL EXCHANGE RATES nomic policies and economic performance across the region. In most countries, the capital inflows have been accompanied by an appreciation in the real exchange rate, booming stock and real estate markets, faster economic growth, an accumulation of international reserves, and a strong.

This paper examines the relationship between the real exchange rate, level of capital flows, volatility of the flows, fiscal and monetary policy indicators and the current account surplus for the Indian economy for the period Q2 to Q1.

exchange rate helps to open up a current account deficit, which provides the real transfer counterpart of the financial flows. So this model plots out the path over time of interest rates and the exchange rate, without saying too much about the size of the capital inflows which are.

turn, these highlight the role of fiscal and monetary policy, including the choice of exchange rate regime.

Capital Inflows: Benefits, Problems, and Policy Responses The appropriate response depends on the diagnosis of the reason why the capital inflow occurs. Suppose first that capital inflows reflect opportunities for profitable long-term.

An Empirical Analysis of the Relationship Between Capital Flows and the Real Exchange Rate in India V. Raveendra Saradhi Indian Institute of Foreign Trade Shashank Goel Indian Institute of Foreign Trade This paper analyzes the relationship between the net capital flows (NCFs) and other.

The sensitivity of prices to changes in the exchange rate is assumed equal to unity by both approaches because money illusion is excluded. However, the fiscal approach allows for lags in real wage resistance (that is, the exchange rate elasticity of prices is less than unity in the short run).

global imbalances exchange rates and stabilization policy Dec 16, Posted By Gilbert Patten Library TEXT ID dbb9b Online PDF Ebook Epub Library current accounts we set up a two country two sector model for the us china with two asymmetries in the crisis.

The Consequences of Capital Inflows. The experience of many emerging market economies is that attracting global investors' attention is a mixed blessing of macroeconomic imbalances and attendant financial crises.

As to the imbalances, a substantial portion of the surge in capital inflows tends to be channeled into foreign exchange reserves.

controls – and in particular controls on capital inflows -- provides an effective way for reducing the probability of a currency crisis. The purpose of this paper is to analyze, within the context of the implementation of a new “financial architecture,” the relationship between exchange rate regimes, capital.

Capital inflows, external shocks, and the real exchange rate Pierre-Richard Agenor´ U Research Department, International Monetary Fund, 19th St. NW, Washington, DCUSA Abstract This paper examines the effects of a fall in world interest rates on capital flows and the real exchange rate in an optimizing framework with imperfect.

Fiscal Policy and the Trade Balance. Learning Objectives. By the end of this section, you will be able to: results. Thus, a budget deficit can easily result in an inflow of foreign financial capital, a stronger exchange rate, and a trade deficit. Using Fiscal Policy to Address Trade Imbalances.A sudden stop in capital flows is defined as a sudden slowdown in private capital inflows into emerging market economies, and a corresponding sharp reversal from large current account deficits into smaller deficits or small surpluses.

Sudden stops are usually followed by a sharp decrease in output, private spending and credit to the private sector, and real exchange rate depreciation.1. Capital Inflow increases the demand for domestic currency, increasing its value.

Capital inflow, that is an investment in local firms/banks/securities etc can only.