Search results
1 – 10 of over 24000Young‐Ryeol Park, Sangcheol Song and Eun‐kyoung Rhee
The purpose of this paper is to examine whether Korean multinational corporations (MNCs) in the electronics and steel industries do shift their production across their foreign…
Abstract
Purpose
The purpose of this paper is to examine whether Korean multinational corporations (MNCs) in the electronics and steel industries do shift their production across their foreign subsidiaries, located in different countries, as exchange rates fluctuate in foreign countries.
Design/methodology/approach
A case study was taken as a qualitative methodology to examine whether MNCs actually shift their production as multinational operational flexibility perspective predicts.
Findings
From a case study of two Korean MNCs (LG Electronics and POSCO), it was found that even facing heightened production costs associated with host country currency appreciation, Korean MNCs do not shift their production to less costly locations due to industrial characteristics, limited capacity, and high tariff barriers. It was also found that they reduce the production costs internally and they also negotiate the costs with employees and suppliers to adjust the production costs associated with appreciated currency.
Practical implications
Our findings imply that certain industrial and environmental constraints make it difficult for MNCs to take flexible actions as multinational operational flexibility perspective predicts. The findings also shed additional light on the less‐explored argument over operational flexibility and vertical integration associated with cross‐country shifts of value chain activities, including production or sales.
Originality/value
Almost all literature taking the multinational operation flexibility view argues that MNCs are able to shift their productions for their own benefits. However, the authors of this paper find from their case studies that firms take advantage of other methods than production shifts in their responses to exchange rate fluctuations in their host countries. Thus this study gives an insight into when and how firms behave as the theory predicts.
Details
Keywords
Exchange rate regime decisively impacts key policy objectives such as financial stability, inflation control, etc. The purpose of this paper is to overview the evolution of…
Abstract
Purpose
Exchange rate regime decisively impacts key policy objectives such as financial stability, inflation control, etc. The purpose of this paper is to overview the evolution of exchange rate regimes spanning 12 nations in the Latin American region over the last two decades and estimate the degrees of influence of other major currencies on each nation.
Design/methodology/approach
Using the methodology developed by Frankel and Wei, the de facto extent of exchange rate flexibility is discerned for these nations and put into perspective with that of the IMF exchange rate regime classifications.
Findings
An increase in flexibility is found from the 1990s to the 2000s, especially for inflation targeting nations. However, the results reveal these nations adopt a policy of “guarded caution” and follow more of a de facto managed floating regime that is far from pure floats. The smaller economies of the region still pursue more fixed regimes. While the results correlate, to an extent, with the IMF's classifications, several areas of discrepancy are noted. The findings are robust to several sensitivity analyses.
Originality/value
A discrepancy between the IMF regime categorization and the true regime a country actually follows may cause IMF financial assistance programs to be less effective. Do countries follow regimes they are classified into? The present study gleans deeper into the issue and discerns this. The comparative analysis includes the relatively larger economies of the region as well as the seldom researched smaller ones.
Details
Keywords
Aim of the present monograph is the economic analysis of the role of MNEs regarding globalisation and digital economy and in parallel there is a reference and examination of some…
Abstract
Aim of the present monograph is the economic analysis of the role of MNEs regarding globalisation and digital economy and in parallel there is a reference and examination of some legal aspects concerning MNEs, cyberspace and e‐commerce as the means of expression of the digital economy. The whole effort of the author is focused on the examination of various aspects of MNEs and their impact upon globalisation and vice versa and how and if we are moving towards a global digital economy.
Details
Keywords
This chapter deals with the estimation of the effect of exchange rate flexibility on financial account openness. The purpose of our analysis is twofold: On the one hand, we try to…
Abstract
This chapter deals with the estimation of the effect of exchange rate flexibility on financial account openness. The purpose of our analysis is twofold: On the one hand, we try to quantify the differences in the estimated parameters when exchange rate flexibility is treated as an exogenous regressor. On the other hand, we try to identify how two different degrees of exchange rate flexibility (intermediate vs floating regimes) affect the propensity of opening the financial account. We argue that a simultaneous determination of exchange rate and financial account policies must be acknowledged in order to obtain reliable estimates of their interaction and determinants. Using a panel data set of advanced countries and emerging markets, a trivariate probit model is estimated via a maximum simulated likelihood approach. In line with the monetary policy trilemma, our results show that countries switching from an intermediate regime to a floating arrangement are more likely to remove capital controls. In addition, the estimated coefficients exhibit important differences when exchange rate flexibility is treated as an exogenous regressor relative to the case when it is treated as endogenous.
Thomas Willett, Eric M.P. Chiu, Sirathorn (B.J.) Dechsakulthorn, Ramya Ghosh, Bernard Kibesse, Kenneth Kim, Jeff (Yongbok) Kim and Alice Ouyang
There has been significant interest in the classification of exchange rate regimes in order to investigate a wide range of hypotheses. Studies of the effects of exchange rate…
Abstract
Purpose
There has been significant interest in the classification of exchange rate regimes in order to investigate a wide range of hypotheses. Studies of the effects of exchange rate regimes on crises and other aspects of economic performance can have important implications for policy choices. The paper provides a guide to the major new large data sets that classify exchange rate regimes and to critically analyze important methodological issues.
Design/methodology/approach
The study surveys and critiques the literature and provides theoretical analysis of major issues involved in classifying exchange rate regimes.
Findings
The study finds that all of the new data sets have problems but some have more problems than others and several of them are substantial improvements on what was previously available. It is also shown that the best ways to classify depend on the issue being addressed and that for detailed studies variants of measures using the concept of exchange market pressure are the most promising. Directions for future research are also discussed.
Originality/value
The paper makes researchers aware of the new data sets that are available and discusses their strengths and weaknesses. It also presents original analysis of several of the major conceptual issues involved in classifying exchange rate regimes.
Details
Keywords
Rosaria Rita Canale and Rajmund Mirdala
The role of money and monetary policy of the central bank in pursuing macroeconomic stability has significantly changed over the period since the end of World War II…
Abstract
The role of money and monetary policy of the central bank in pursuing macroeconomic stability has significantly changed over the period since the end of World War II. Globalization, liberalization, integration, and transition processes generally shaped the crucial milestones of the macroeconomic development and substantial features of economic policy and its framework in Europe. Policy-driven changes together with variety of exogenous shocks significantly affected the key features of macroeconomic environment on the European continent that fashioned the framework and design of monetary policies.
This chapter examines the key basis of the central bank’s monetary policy on its way to pursue and preserve the internal and external stability of the purchasing power of money. Substantial elements of the monetary policy like objectives and strategies are not only generally introduced but also critically discussed according to their accuracy, suitability, and reliability in the changing macroeconomic conditions. Brief overview of the Eurozone common monetary policy milestones and the past Eastern bloc countries’ experience with a variety of exchange rate regimes provides interesting empirical evidence on origins and implications of vital changes in the monetary policy conduction in Europe and the Eurozone.
Details
Keywords
This report examines the recent developments and trends relating to the Chinese government’s policy actions and the key issues that determine the choice of exchange rate regime in…
Abstract
Purpose
This report examines the recent developments and trends relating to the Chinese government’s policy actions and the key issues that determine the choice of exchange rate regime in China. An up-to-date “stock-take” of the economic indicators is conducted to determine what is suitable for China in light of the rapidly evolving nature of the world economy and trading environment. This paper discusses the role of economic development, trade competitiveness, capital flow, foreign exchange reserve, and RMB internationalization in the determination of the RMB exchange rate regime.
Design/methodology/approach
This research uses an inductive approach to gain a fine-grained understanding of the complex, multifaceted aspects of China’s exchange rate policy. A combination of statistical analysis, including basic descriptive statistics, trend analysis, and a correlation study are used to explore the association between various indicators and their implications. The report also draws on analysis of a broad range of data sources and the work of numerous researchers and research institutions.
Findings
A more flexible exchange rate regime can play a complementary role towards rebalancing the Chinese economy by raising the buying capacity of families, rebalancing growth towards domestic consumption, and reducing reliance on export. China’s price elasticity of the demand for exports was relatively low that the appreciation of the Chinese currency has almost no influence on optimizing China’s trade balance. A more flexible two-way flow in RMB would be suitable under the current cash flow scenario in China. Reduced intervention will facilitate further adjustment in reserves. Lastly, in the early stage of RMB internationalization, flexibility in the exchange rate is one of the factors that influences its growth prospect as a reserve currency.
Research limitations/implications
The findings and conclusion are derived based on the latest empirical information, statistical evidence, and economic theory. This inquiry does not build on a theory, and aims to neither verify a theory, nor test hypotheses. Rather, it aims to demonstrate, assess, and explain significant roles that various economic factors play in shaping the future exchange rate regime of China.
Originality/value
This paper presents the rationale behind a more flexible two-way exchange rate, by assessing the latest empirical data and theoretical explanation that support such a move.
Details
Keywords
Tony Cavoli and Ramkishen S. Rajan
The purpose of this paper is to explore whether India is a suitable candidate for an inflation targeting regime. It begins by placing India's monetary policy actions in a broader…
Abstract
Purpose
The purpose of this paper is to explore whether India is a suitable candidate for an inflation targeting regime. It begins by placing India's monetary policy actions in a broader context by discussing whether the Reserve Bank of India (RBI) should shift from its current policy of heavily managed exchange rates to one involving greater currency flexibility. If the latter is chosen, the selection of inflation targeting would appear an appropriate one.
Design/methodology/approach
This paper has analytical, empirical and policy dimensions. Given the recent history of exchange rate centered policy in India, a discussion of the role of the exchange rate is needed. This is presented by the use of an analytical model where we examine how inflation targeting might work with the exchange rate. Then the decision rule from the model (a monetary policy rule (MPR)) is adapted for empirical testing and is estimated to investigate whether an MPR that follows inflation targeting can work for India.
Findings
There is some evidence to suggest that the RBI follows an MPR quite inadvertently. The MPR (interest rates) tends to react to current inflation, but there is no evidence that it reacts to forecasts of inflation. Additionally, interest rates do not react at all to the exchange rate.
Originality/value
The RBI's operating policy framework and whether it should adopt an inflation targeting arrangement is a highly topical issue that has attracted a great deal of attention in policy discussions in India. Very few papers broach this topic systematically and combine the analytical and empirical considerations.
Details
Keywords
Mohamed Kadria and Mohamed Safouane Ben Aissa
This chapter attempts to analyze mainly the interactions between the implementation of inflation targeting (IT) policy and performance in the conduct of economic policies (fiscal…
Abstract
This chapter attempts to analyze mainly the interactions between the implementation of inflation targeting (IT) policy and performance in the conduct of economic policies (fiscal and exchange rate) in emerging countries. More precisely, empirical studies conducted in this chapter aim to apprehend the feedback effect of this strategy of monetary policy on the budget deficit and volatility of exchange rate performance. This said, we consider the institutional framework as endogenous to IT and analyze the response of authorities to the adoption of this monetary regime. To do this, the retained methodological path in this chapter is an empirical way, based on the econometrics of panel data. First, our contribution to the existing literature is to evaluate the time-varying treatment effect of IT’s adoption on the budget deficit of emerging inflation targeters, using the propensity score matching approach. Our empirical analysis, conducted on a sample of 34 economies (13 IT and 21 non-IT economies) for the period from 1990 to 2010, show a significant impact of IT on the reduction of budget deficit in emerging countries having adopted this monetary policy framework. Therefore, we can say that the emerging government can benefit ex post and gradually from a decline in their public deficits. Retaining the same econometric approach and sample, we tried secondly to empirically examine whether the adoption of IT in emerging inflation targeters has been effectively translated by an increase in the nominal effective exchange rate volatility compared to non-IT countries. Our results show that this effect is decreasing and that this volatility is becoming less important after the shift to this monetary regime. We might suggest that this indirect and occasional intervention in the foreign exchange market can be made by fear of inflation rather than by fear of floating hence in most emerging countries that have adopted the IT strategy. Finally, we can say that our conclusions corroborate the literature of disciplining effects of IT regime on fiscal policy performance as well as the two controversial effects of IT on the nominal effective exchange rate volatility.
Details
Keywords
This paper is concerned with the optimum solution for the adjustment problem. It is obvious from the outset that it is much easier to discuss non‐optimum solutions, or the…
Abstract
This paper is concerned with the optimum solution for the adjustment problem. It is obvious from the outset that it is much easier to discuss non‐optimum solutions, or the pessimum solution, than to discuss the optimum solution. That remark needs to be qualified, however: there would be no problem, and no need for a solution, if the world were so arranged that adjustment took place painlessly and automatically. The difficulties arise for several reasons, of which the more important are that changes occur that are unforseen and to which adjustment is painful; that the process of political government offers possibilities of palliating or reducing the pain at least in the short run by interfering in one way or another with whatever system of adjustment is generally thought to exist; and that these interferences tend both to create inefficiency in the operation of the economy and to aggravate the adjustment problem by impeding adjustments that might otherwise occur without too much difficulty and by allowing disequilibria to cumulate.