Exchange Rate Misalignments and Crises
The problem is to evaluate the likelihood that a country will face a currency or balance of payments crisis over a given horizon. When is it rational for market participants to expect a depreciation of the currency? On the basis of considerable empirical studies we know that in both banking and currency crises, there is a multitude of weak and deteriorating economic fundamentals. Our theme is that there is an economic logic to medium and longer-term m ovements in exchange rates, within the context of a consistent dynamic stock-flow model. The equilibrium real exchange rate is a trajectory, not a point. We provide objective measures of the real fundamentals that determine the moving equilibrium real ex c hange rate, and explain the dynamic economic mechanism whereby the actual exchange rate converges to this moving equilibrium exchange rate, called the NATREX. The fundamentals are primarily social consumption/GDP, which is generally driven by fiscal polic y, and the productivity of the economy. Trends in social consumption/GDP, and in fiscal policy, reflected political regime changes in France, Germany and Italy.
Year of publication: |
1999
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Authors: | Stein, Jerome L. ; Paladino, Giovanna |
Publisher: |
Munich : Center for Economic Studies and ifo Institute (CESifo) |
Saved in:
freely available
Series: | CESifo Working Paper ; 205 |
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Type of publication: | Book / Working Paper |
Type of publication (narrower categories): | Working Paper |
Language: | English |
Other identifiers: | 757245714 [GVK] hdl:10419/75581 [Handle] RePec:ces:ceswps:_205 [RePEc] |
Source: |
Persistent link: https://www.econbiz.de/10010314943
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