本章概述了固定汇率与浮动汇率制度的经济效应.doc

Chapter 13 Fixed, Floating Exchange Rateand Policies Effects提要：本章概述了固定汇率与浮动汇率制度的经济效应，其中包括固定汇率条件下中央银行的干预政策、稳定政策等，浮动汇率的优缺点，并通过政府实行两种不同汇率制度时所产生的宏观经济政策问题。通过本章学习，要求学生掌握这些理论，并充分认识汇率制度的相关问题。After Bretton Woods System, the exchange rate showed diversity on the whole world: some developed countries adopted floating exchange rate, while some, especially a number of developing countries have retained some form of government exchange rate fixing. In this chapter, we study from theory exchange rate system and policies effects separately. 13.1 Fixed exchange rate and policies effects13.1.1 Why study fixed exchange rateThe fixed exchange rate to some extent exists with tight or loosens forms on the whole world.1. Managed floatingIt is a hybrid of the pure fixed and floating rate existed in the present monetary system.2. Regional currency arrangementsThis is a classical exchange rate arrangement within the European Unions.3. Pegged anchorMost of developing countries, especially in emerging markets and countries in transition, for example Latin American and Asian countries adopted such kind of exchange rate, which related with not only their rapid economic growth also financial crisis.4. Lessons of the past for the future.Fixed exchange rates were the norm in many periods before 1973. Today, some economists and policymakers dissatisfied with floating exchange rates are proposing new international agreements that would resurrect some form of fixed rate system.13.1.2 How the central bank fixes the exchange rateThe level of exchange rate in fixed system should be maintained controlled under central bank. It relates with central bank intervention and the money supply. The mail tool in studying central bank transactions in asset markets is the central bank balance sheet, which records the assets held by the central bank and its liabilities. It reflects the action of intervention of exchange rate.For example: A balance sheet for the central bank of the imaginary country of Pecunia is shown below.Central Bank Balance Sheet after $100Foreign Asset Sale (Buyer Pays with Currency)AssetsLiabilitiesForeign assetsDomestic assets$900$1500Deposits held by private banksCurrency in circulation$500$1900Central Bank Balance Sheet after $100Foreign Asset Sale (Buyer Pays with Check)AssetsLiabilitiesForeign assetsDomestic assets$900$1500Deposits held by private banksCurrency in circulation$500$1900However, in either case, there would be a rise in the domestic money supply.This money multiplier effect, which magnifies the impact of central bank transactions on the money supply, reinforces our main conclusion: Any central bank purchase of assets automatically results in an increase in the domestic money supply, while any central bank sale of assets automatically causes the money supply to decline.13.1.3 SterilizationCentral banks sometimes carry out equal foreign and domestic asset transactions in opposite directions to nullify the impact of their foreign exchange operations on the domestic money supply. This type of policy is called sterilized foreign exchange intervention.For example: Suppose the Bank of Pecunia sells $100 of its foreign assets and receives as payment a $100 check on the private bank Pecuniacorp.Central Bank Balance Sheet before Sterilized $100 Foreign Asset SaleAssetsLiabilitiesForeign assetsDomestic assets$1000$1500Deposits held by private banksCurrency in circulation$500$2000Central Bank Balance Sheet after Sterilized $100 Foreign Asset SaleAssetsLiabilitiesForeign assetsDomestic assets$900$1600Deposits held by private banksCurrency in circulation$500$2000The following table summarizes and compares the effects of sterilized and nonsterilized foreign exchange interventions.Summary: Effects of a $100 Foreign Exchange InterventionDomestic Central Banks ActionEffect on Domestic Money SupplyEffect on Central Bank Domestic AssetsEffect on Central Bank Foreign AssetsNonsterilized foreign exchange purchase+$1000+$100Sterilized foreign exchange purchase0-$100+$100Nonsterilized foreign exchange sale-$1000-$100Sterilized foreign exchange sale0+$100-$10013.1.4 Foreign exchange market equilibrium under a fixed exchange rate1. Fundamentals:According to interest parity condition: R$ = R + (Ee$/ - E$/)/E$/, E0 is todays equilibrium exchange rate only ifR=R*Ms/P=L(R*, Y)To ensure equilibrium in the foreign exchange market when the exchange rate is fixed permanently at E0,the central bank must therefore hold R equal to R*, that means the central banks foreign exchange intervention must adjust the money supply so that R8 equates aggregate real domestic money demand and the real money supply.2. A diagrammatic analysisDomestic-currency return on foreign-currency deposits E11R*Real moneysupplyM1 P1L(R, Y2)L(R, Y1)Real domestic money holdingsDomestic interestrate, RExchange Rate, E0332M2 PFigure 13-1Asset Market Equilibrium with a Fixed Exchange Rate,E0To hold the exchange rate fixed at E0 when output rises from Y1 to Y2, the central bank must purchase foreign assets and thereby raise the money supply from M1 to M213.1.5 Stabilization policies with a fixed exchange rateConsidering three possible policies: monetary policy, fiscal policy and an abrupt change in the exchange rates fixed level, E0.By fixing the exchange rate, the central bank gives up its ability to influence the economy through monetary policy. Fiscal policy, however, becomes a more potent tool for affecting output and employment.1. Monetary policyUnder a fixed exchange rate, central bank monetary policy tools are powerless to affect the economys money supply or its output. Output, Y Exchange Rate, EDDAA2Y2E22AA11E0Y1Figure 13-1 Monetary Expansion is Ineffective under a Fixed Exchange RateSeen from figure 13-1, we know, initial equilibrium is shown at point 1, where the output and asset markets simultaneously clear at a fixed exchange rate of E0 and an output level of Y1. Hoping to increase output to Y2, the central bank decides to increase the money supply by buying domestic assets and shifting AA1 to AA2. Because the central bank must maintain E0, however, it has to sell foreign assets for domestic currency, an action that decreases the money supply immediately and returns AA2 back to AA1. The economys equilibrium therefore remains at point 1, with output unchanged at Y1.2. Fiscal policyUnlike monetary policy, fiscal policy can be used to affect output under a fixed exchange rate. Indeed, it is even more effective than under a floating rate.Y1 Output, Y Exchange Rate, EDD2AA2AA1Y2E01DD12E23Y3Figure 13-2 Fiscal Expansion Under a Fixed Exchange RateFiscal expansion (shown by the shift from DD1 to DD2) and the intervention that accompanies it (the shift from AA1 to AA2) move the economy from point 1 to point 3.3. Changes in the exchange rateA country that is fixing its exchange rate sometimes decides on a sudden change in the foreign currency value of the domestic currency. A devaluation occurs when the central bank raises the domestic currency price of foreign currency, E, and a revaluation occurs when the central bank lowers E. All the central bank has to do to devalue or revalue is announce its willingness to trade domestic against foreign currency, in unlimited amounts, at the new exchange rate.The following figure tell us, that , devaluation causes a rise in output, a rise in official reserves, and an expansion of the money supply. A private capital inflow matches the central banks reserve gain (an official outflow) in the balance of payments accounts. Output, Y Exchange Rate, EDDAA2Y2E12AA11E0Y1Figure 13-3 Effect of Currency DevaluationWhen a currency is devalues from E0 to E1, the economys equilibrium moves from point 1 to point 2 as both output and the money supply expand.4. Adjustment to fiscal policy and exchange rate changesIf fiscal and exchange rate changes occur when there is full employment and the policy changes are maintained indefinitely, they will ultimately cause the domestic price level to move in such a way that full employment is restored.Why?If the economy is initially at full employment, fiscal expansion raises output , and this rise in output above its full-employment level causes the domestic price level, P, to begin rising. As P rises home output becomes more expensive, so aggregate demand gradually falls, returning output to the initial, full-employment level. Once this point is reached, the upward pressure on the price level comes to an end. There is no real appreciation in the short run, as there is with a floating exchange rate, but regardless of whether the exchange rate is floating or fixed, the real exchange rate appreciates in the long run by the same amount. In the present case real appreciation takes the form of a rise in P rather than a fall in E.13.1.6 Balance of payments crises and capital flight1. Payment crisisThe markets belief in an impending change in the exchange rate gives rise to a balance of payments crisis, a sharp change in official foreign reserves sparked by a change in expectation about the future exchange rateR*+(E1-E)/E E11R*Real moneysupplyM2 PL(R, Y)Real domestic money holdingsDomestic interestrate, RExchange Rate, E0221M1 PR*+(E0-E)/ER*+(E1-E0)/EFigure 13-5 Capital Flight, the Money Supply and the Interest RateTo hold the exchange rate fixed at E0 after the market decides it will be devalued to E1, the central bank must use its reserves to finance a private capital outflow that shrinks the money supply and raises the home interest rate.2. Crisis mechanism forming Capital flightThe Expectation of a future devaluation causes a balance of payments crisis marked by a sharp fall in reserves and a rise in the home interest rate above the world interest rate.Similarly, an expected revaluation causes an abrupt rise in foreign reserves together with a fall in the home interest rate below the world rate.The reserve loss accompanying a devaluation scare is often labeled capital flight. Fixed exchange rate abandoned A government is following policies that are not consistent with maintaining a fixed exchange rate over the longer term. Once market expectations take those policies into account, the countrys interest rates inevitably are forced up. As the possibility of a collapse rises over time, so ill domestic interest rates, until the central bank indeed runs out of foreign reserves and the fixed exchange rate is abandoned. Self-fulfilling currency crisesThe capital outflows that accompany a currency crisis only hasten an inevitable collapse that would have occurred anyway, albeit in slower motion, even if private capital flows could be banned. An economy can be vulnerable to currency speculation without being in such bad shape that a collapse of its fixed exchange rate regime is inevitable. Currency crises that occur in such circumstances often are called self-fulfilling currency crises.13.2 Floating exchange rate and policies effectThe floating exchange rate system, in place since 1973, was not well planned before its inception. By the mid-1980s, economists and policymakers had become more skeptical about the benefits of an international monetary system based on floating rates.Why has the performance of floating rates been so disappointing?What direction should reform of the current system take?13.2.1The case for floating exchange ratesThere are three arguments in favor of floating exchange rates:1. Monetary policy autonomy Floating exchange rates can restore monetary control to central banks It allow each country to choose its own desired long-run inflation rate2. SymmetryFloating exchange rates remove two main asymmetries of the Bretton Woods system and allow: Central banks abroad to be able to determine their own domestic money supplies The U.S. to have the same opportunity as other countries to influence its exchange rate against foreign currencies3. Exchange rates as automatic stabilizersFloating exchange rates quickly eliminate the “fundamental disequilibriums” that had led to parity changes and speculative attacks under fixed rates.Figure 13-6 shows that a temporary fall in a countrys export demand reduces that countrys output more under a fixed rate than a floating rate.The response to a fall in export demand (DD1 to DD2) differs under floating and fixed exchange rate: With a floating rate, output falls only to Y2 as the currencys depreciation (from E1 to E2) shift demand back toward domestic goods. With the exchanged rate fixed at E1, output falls all the way to Y3 as the central bank reduces the money supply (reflected in the shift from AA1 to AA2)AA1DD1AA2DD2AA1DD2DD1E22Y2Y2 Output, Y Exchange rate, E(a) Floating exchange rate Output, Y Exchange rate, E(b) Fixed exchange rateY1E11Y1E11Y33Figure 13-6 Effects of a Fall in Export Demand13.2.2 The case against floating exchange ratesThere are five arguments against floating rates:1. Discipline Floating exchange rates do not provide discipline for central banks.Central banks might embark on inflationary policies (e.g., the German hyperinflation of the 1920s).The pro-floaters response was that a floating exchange rate would bottle up inflationary disturbances within the country whose government was misbehaving.2. Destabilizing speculation and money market disturbancesFloating exchange rates allow destabilizing speculation.Countries can be caught in a “vicious circle” of depreciation and inflation.Advocates of floating rates point out that destabilizing speculators ultimately lose money.Floating exchange rates make a country more vulnerable to money market disturbances. Figure 13-7 illustrates this point.A rise in money demand (from AA1 to AA2) works exactly like a fall in the money supply, causing the currency to appreciate to E2 and output to fall to Y2. Under a fixed exchange rate the central bank would prevent AA1 from shifting by purchasing foreign exchange and thus automatically expanding the money supply to meet the rise in money demand.AA1DD Output, Y Exchange rate, EE1Y11AA2E2Y22Figure 13-7 A Rise in Money Demand under a Floating Exchange Rate3. Injury to international trade and investmentFloating rates hurt international trade and investment because they make relative