Net worth, exchange rates, and monetary policy

the effects of a devaluation in a financially fragile environment by Domenico Delli Gatti

Publisher: National Bureau of Economic Research in Cambridge, Mass

Written in English
Published: Pages: 35 Downloads: 546
Share This


  • Devaluation of currency,
  • Foreign exchange rates -- Econometric models,
  • Banks and banking, Central,
  • Monetary policy

About the Edition

In this paper we propose an Open Economy Financial Accelerator model along the lines of Greenwald-Stiglitz (1993) close in spirit but different in many respects from the one proposed by Greenwald (1998.) The first goal of the paper is to provide a taxonomy of the effects of a devaluation in this context. The direct (first round) effect on output, taking as given net worth and interest rate, is negative for domestic firms (due to the input cost effect) and positive for exporting firms (due to a positive foreign debt effect). The indirect (second round) wealth effect (on output through net worth, taking as given the interest rate) is uncertain, depending on the relative size of the domestic and exporting firms. There is also an indirect effect on output through the response of the domestic interest rate to a devaluation due to the risk premium effect. Due to the uncertainty on the sign of most of these effects, it is difficult to assess the overall impact of a devaluation. One cannot rule out, however, an economy-wide contractionary effect of a devaluation. If the devaluation affects negatively the net worth of domestic firms, the domestic interest rate may rise (due to the risk premium effect), exerting an additional contractionary impact on output. If, on top of that, the monetary authorities force a further increase of the interest rate in an effort to curb the exchange rate, the contractionary effect will be emphasized.

Edition Notes

StatementDomenico Delli Gatti [et. al.]
SeriesNBER working paper series -- no. 13244., Working paper series (National Bureau of Economic Research) -- working paper no. 13244.
ContributionsNational Bureau of Economic Research.
The Physical Object
Pagination35 p. :
Number of Pages35
ID Numbers
Open LibraryOL17634354M

This paper explores optimal monetary and macroprudential policy rules for a small open economy under a sudden reversal of capital flows. 1 We consider Taylor-type interest rate rules as a function of inflation, output, and credit growth; and a macroprudential instrument as a A contradictory monetary policy decreases net exports by _____ interest rates and _____ the value of the dollar. Raising real, increasing Tobin's Q is defined as the market value of   Clearly, the short-term stabilising function of fiscal policy can become especially important for countries that are part of a monetary union, as nominal interest rates and exchange rates do not adapt to the situation of an individual country but rather to that of the union as a whole. Fiscal policy can then become a crucial instrument for Net worth is the amount by which assets exceed liabilities. Net worth is a concept applicable to individuals and businesses as a key measure of how much an entity is worth. A consistent increase

Foreign exchange reserves are reserve assets held by a central bank in foreign currencies, used to back liabilities on their own issued currency as well as to influence monetary :// Downloadable! In contrast to industrialized countries, emerging market economies are characterized by proor acyclical monetary policies and high output volatility. This paper argues that those facts can be related to a long-run feature of the economy - namely, its institutional quality (IQL). The paper presents evidence that supports the link between an index of IQL (law and order, government Downloadable! In a market-based financial system, banking and capital market developments are inseparable, and funding conditions are closely tied to fluctuations in the leverage of market-based financial intermediaries. Offering a window on liquidity, the balance sheet growth of broker-dealers provides a sense of the availability of :// Interview with Gita Gopinath Share. Facebook LinkedIn Twitter. Her work on exchange rates, sovereign debt, monetary unions, global trade, productivity and capital flows, among other areas, is expanding the frontier of research on international economics. What we did document was the fact that large (high-net-worth) firms were able to

Downloadable! This paper presents a simple model of currency crises which is driven by the interplay between the credit constraints of private domestic firms and the existence of nominal price rigidities. The possibility of multiple equilibria, including a ‘currency crisis’ equilibrium with low output and a depreciated domestic currency, results from the following mechanism: If

Net worth, exchange rates, and monetary policy by Domenico Delli Gatti Download PDF EPUB FB2

Net Worth, Exchange Rates, and Monetary Policy: The Effects of a Devaluation in a Financially Fragile Environment Domenico Delli Gatti, Mauro Gallegati, Bruce C.

Greenwald, Joseph E. Stiglitz. NBER Working Paper No. Issued in July NBER Program(s):International Finance and Macroeconomics Program   Net Worth, Exchange Rates, and Monetary Policy: The Effects of a Devaluation in a Financially Fragile Environment Domenico Delli Gatti, Mauro Gallegati, Bruce C.

Greenwald, and Joseph E. Stiglitz NBER Working Paper No. July JEL No. E4,E5,F4 ABSTRACT Net Worth, Exchange Rates, and Monetary Policy: The Effects of a Devaluation in a Financially Fragile Environment Evaluation points on the effects of exchange rate changes.

Changes in the exchange rate have quite a powerful effect on the economy but we tend to assume ceteris paribus – all other factors held constant – which of course is highly unlikely to be the case. Counter-balancing use of fiscal and monetary policy: For example the government can alter fiscal policy to manage AD   Monetary Policy Report submitted to the Congress on February 7,pursuant to section 2B of the Federal Reserve Act Domestic Developments The labor market strengthened further last year but at a slower pace than in Payroll employment gains were solid in the second half of and averagedper month during the year as a ://   The diversity of views reflected their individual assessments of the rate at which the headwinds that have been holding back the pace of the economic recovery would abate and of the anticipated path for foreign economic activity, the trajectory for growth in household net worth, and the appropriate path of monetary ://   R Change in Net Worth of Households and Nonprofit Organizations R Change in Net Worth of Nonfinancial Corporate Business R Change in Net Worth of Nonfinancial Noncorporate Business.

Return to top. Supplementary Tables Bh Balance Sheet of Households Bn Balance Sheet of Nonprofit Organizations   Monetary policy consists of the actions of a central bank, currency board or other regulatory committee that determine the size and rate of growth of the money supply, which in turn affects   Since monetary policy works through financial markets, central banks understandably care about exchange rates in the context of their domestic demand conditions.

More broadly, looser financial conditions lead to the build-up of financial vulnerabilities that may pose risks to   At the same time, an ongoing debate both in policy circles Net worth in the academic literature focuses on the appropriate monetary policy response of EMs to shifts in U.S.

policy.2 Text-book open-economy New Keynesian (NK) models likeGali and Monacelli() prescribe that policy should focus on domestic objectives and allow the exchange rate to BibTeX @MISC{Gatti07networth, author = {Domenico Delli Gatti and Mauro Gallegati and Bruce C.

Greenwald and Joseph E. Stiglitz and Domenico Delli Gatti and Mauro Gallegati and Bruce C. Greenwald and Joseph E.

Stiglitz}, title = {Net Worth, Exchange Rates, and Monetary Policy: The Effects of a Devaluation in a Financially Fragile Environment}, year = {}}?doi=   The Federal Reserve Board of Governors in Washington DC.

Board of Governors of the Federal Reserve System. The Federal Reserve, the central bank of the United States, provides the nation with a safe, flexible, and stable monetary and financial :// Net Worth, Exchange Rates, and Monetary Policy: The Effects of a Devaluation in a Financially Fragile Environment By Domenico Delli Gatti, Mauro Gallegati, Bruce C.

Get this from a library. Net Worth, Exchange Rates, and Monetary Policy: The Effects of a Devaluation in a Financially Fragile Environment.

[Domenico Delli Gatti; M Gallegati; Bruce C Greenwald; Joseph E Stiglitz] -- In this paper we propose an Open Economy Financial Accelerator model along the lines of Greenwald-Stiglitz () close in spirit but different in many respects from the one Enter keywords separated by AND, OR, or by putting a minus sign (-) immediately in front of the term you want to exclude from the search results (be sure to include a space before the minus character).

Search for a phrase by enclosing it in quotation marks. For best results, be as precise as possible. For example, a search for "monetary policy Inflation targeting and exchange rate volatility in emerging markets (English) Abstract.

The paper investigates the relevance of the exchange rate on the reaction function of the central banks of 24 emerging market economies for the period Q1 to Review of Monetary Policy Strategy, Tools, and Communications.

Overview; Supervision & Regulation. Exchange Rates and International Data. Foreign Exchange Rates - H/G.5; net worth at historical cost. Add to Clipboard. Computed = + FL - FL?s=FL&t. Get this from a library.

Net worth, exchange rates, and monetary policy: the effects of a devaluation in a financially fragile environment. [Domenico Delli Gatti; Mauro Gallegati; Bruce C Greenwald; Joseph E Stiglitz; National Bureau of Economic Research.] -- "In this paper we propose an Open Economy Financial Accelerator model along the lines of Greenwald-Stiglitz () close in spirit but   June DIGITAL CURRENCIES: THREATS AND OPPORTUNITIES FOR MONETARy POLICy 81 In line with the literature, this section concludes that pol-icy challenges are likely to be limited if private digital cur-rencies only serve as a medium of ://   Introductory statement to the press conference (with Q&A) Mario Draghi, President of the ECB, Frankfurt am Main, 5 June Jump to the transcript of the questions and answers.

Ladies and gentlemen, the Vice-President and I are very pleased to welcome you to our press ://   Remember, monetary policy involves a chain of events: the central bank must perceive a situation in the economy, hold a meeting, and make a decision to react by tightening or loosening monetary policy.

The change in monetary policy must percolate through the banking system, changing the quantity of loans and affecting interest :// /pages/pitfalls-for-monetary-policy. Proponents of fixed exchange rates argue that the predictability of the fixed exchange rate: increases trade and economic integration Large economies, like the United States should ______ employ a flexible exchange rate, because giving up the power to stabilize the domestic economy via monetary policy   13 Economic Fluctuations, Monetary Policy, and the Financial System 14 Inflation and Deflation PART V MONETARY POLICY 15 Policies for Economic Stability 16 Monetary Institutions and Strategies 17 Monetary Policy and Exchange Rates 18 Financial Crises Glossary G-1 Index I-1 The outsized cross-border impact of U.S.

monetary policy creates obvious challenges for policymakers abroad aiming to maintain financial stability. Governments in the countries most affected have few options to limit the risks created by cyclical changes in dollar interest :// The money loaned out has been deposited into the Federal Reserve based on the country's monetary policy.

The federal funds rate is what establishes other short-term and long-term interest rates Dr. Econ explains where statistics on housing net worth and mortgage debt can be found. Econ examines the monetary policy instruments available to the FOMC, and the role of the Federal Reserve Banks in shaping monetary policy.

as well as some of the principal factors that influence money market rates and foreign exchange :// Friedman, Benjamin M, "Monetary Policy without Quantity Variables," American Economic Review, American Economic Association, vol.

78(2), pagesMay. Tobias Adrian & Erkko Etula & Hyun Song Shin. "Risk appetite and exchange Rates," Staff Reports, Federal Reserve Bank of New :// Below is a topic-by-topic listing of the available study notes for the macroeconomics topics for Year 1 (AS) A Level Economics here on tutor2u.

We also recommend you work through some of the AS Macro revision videos on the entry below. Essential Revision Videos for AS Macro. Must-Watch Revision Videos before Sitting A Level Economics Paper ://   This lecture argues that the Global Financial Cycle is a challenge for the validity of the Mundellian trilemma.

The paper presents evidence that U.S. monetary policy shocks are transmitted internationally and affect financial conditions even in inflation-targeting economies with large financial markets.

Hence flexible exchange rates are not enough to guarantee monetary autonomy in a world of   study movements in the policy rates and the effect of forward guidance, broadly defined.

We also policy leads to an increase in the net worth of borrowers, whether they be nancial intermediaries or rms. Gerko and Rey Monetary Policy in the Capitals of Capital 5 once the zero lower bound is hit in March In the US, monetary.

Monetary policy causes changes in interest rates, exchange rates, and the value of financial assets, which then affect consumption expenditures, investment expenditures, and net exports, all of which then cause changes in the aggregate production and other macroeconomic ?s=wpd&c=dsp&k=monetary+policy+channels.a.

The traditional channels of monetary policy transmission are interest rates and exchange rates. i. Interest rates influence consumption and investment. ii. Exchange rates affect net exports. b. Monetary policy affects the supply of bank loans, changing the availability of bank financing to firms and ://  ships between exchange rates and other important economic variables.

In surveying theoretical models of exchange rate determination, therefore, it is appropriate to examine the empirical regularities that have been characteris- tic of the behavior of exchange rates and other related variables under float- ing exchange rate ://