Search Results

You are looking at 1 - 5 of 5 items for :

  • "misalignment term" x
Clear All
Camila Casas, Mr. Federico J Diez, Ms. Gita Gopinath, and Pierre-Olivier Gourinchas
Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.
Camila Casas, Federico J. Díez, Ms. Gita Gopinath, Pierre-Olivier Gourinchas, and Mr. Maurice Obstfeld

Monacelli (2005) : 15 𝕎 P C P ≈ 𝔼 0 Σ t = 0 ∞ β t γ H [ 1 2 y ˜ t 2 + σ 2 λ p π H H , t 2 ] + t . i . p ( 37 ) Both loss functions involve the variance of inflation and the output-gap. In addition, under DCP there is an additional misalignment term that arises from the failure of the law of one price of

Camila Casas, Mr. Federico J Diez, Ms. Gita Gopinath, and Pierre-Olivier Gourinchas

under DCP and simplified parametrization is: y ˜ t = 𝔼 t y ˜ t + 1 − ( i t − 𝔼 t π H H , t + 1 − ρ ) + ( 1 − γ ) 𝔼 t ( Δ m ˜ t + 1 ) + 𝔼 t Δ a t + 1 Comparing with equation 38 of Gali’s chapter 7, one can see that the only difference is the misalignment term that now appears in

Mr. Malcolm D. Knight and Julio A. Santaella

( 15 ) It is clear from (15) that the use of the actual REER conceals two different and possibly conflicting forces: one is the effect of the misalignment, m , and the other is the effect of the sustainable or equilibrium real exchange rate. The misalignment term should affect positively the probability that a country will seek an arrangement with the Fund. For example, if the combination of a less than fully flexible nominal exchange rate and excessively expansionary demand management policies causes the domestic price level to rise, then

Julio A. Santaella and Mr. Malcolm D. Knight
This paper analyses empirically the economic factors that lead to approval of Fund financial arrangements. We account for both the economic variables that induce a country to seek an arrangement with the Fund ("demand-side" factors) and the macroeconomic policy commitments that the Fund considers when deciding whether to approve it ("supply-side" factors). Using a pooled sample of annual observations for 91 developing countries over 1973-1991, we obtain maximum likelihood estimates of bivariate and univariate probit equations to determine the probability of approval of a financial arrangement for a given country in a given year. A number of our chosen demand-side and supply-side variables are statistically significant determinants of the approval of a Fund arrangement, and the overall explanatory power of the equations is high.