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The paper aims to investigate the determinants of China’s daily intervention in the foreign exchange market since the 2005 reform aimed at moving the Renminbi (RMB) exchange rate regime towards greater flexibility.

The paper uses bivariate probit models to test whether China’s intervention decision is driven by three sets of factors, comprising Model I (basic model), Model II and Model III.

Evidence from the models suggests that medium-term Chinese interventions tend to be leaning-against-the-wind, whereas long-term interventions are leaning-with-the-wind. Furthermore, by analyzing exchange rate volatility, this paper finds that intervention is used by the Chinese central bank to ensure that there are no big swings in the RMB exchange rate.

The paper will be of value to other researchers attempting to understand the policy of the central bank and, in particular, the factors that can lead to interventions during periods of financial crisis.

This paper builds upon managerial discretion literature to study the relationship between foreign ownership and bribery intensity.

Building on World Bank’s data of 9,386 firms from 125 countries over the period 2006–2018, this paper uses Tobit regression, ordered probit and logit models to empirically test the hypotheses.

This paper finds that firms have higher bribery intensity when executives have a higher level of managerial discretion. Smaller firms with slack financial resources tend to bribe more when they face more government intervention, munificent and uncertain industrial environment.

Extant corruption literature has addressed the effects of external institutional settings and internal corporate governance on bribery offering among multinational enterprises (MNEs). How much, and under what condition do top executives matter in bribery activities are yet to be answered. This paper integrates the concept of managerial discretion with corruption and bribery literature and offers a potential answer to the above question. In addition, prior corruption and bribery literature have primarily studied bribery through either micro- or macro-level analysis. This paper adopts multiple-level of analyses and elucidates the foreign ownership and bribery relationship from the organizational and industrial levels.

The assignment of targets to instruments in developing countries cannot satisfactorily follow any simple universal rule. Which approach is appropriate is influenced by whether the economy is dominated by primary exports, by the importance of the domestic bond market and bank credit, by the extent of existing restriction in foreign exchange and financial markets, by the presence or absence of persistent high inflation, and by the existence or non‐existence of an active international market in the country's currency. Eighteen observations and maxims on stabilisation policy are tentatively drawn (pp. 64–8) from the material reviewed, and the maxims are partly summarised (pp. 69–71) in a schematic assignment, with variations, of targets to instruments.

The purpose of this paper is to enhance our understanding of effects of International Clearing Unions on the exchange market pressure (EMP). Using Asian Clearing Union (ACU) as an example of a typical International Clearing Union, the authors infers that ACU has not been very successful in synchronizing the EMP in the region. Other countries that are not members of such clearing union but are interested in monetary cooperation with other countries should consider the behavior of their EMP indices before attempting any form of integration. The study also provides a generic methodology for using EMP as an indicator for predicting the feasibility of monetary cooperation across countries.

An EMP model using the median absolute deviation is derived to reflect the policy preferences of each country. The weights for change in foreign reserves and interest rate differential are derived using analytical models. The index is then applied to ACU as a case study using monthly data from 2006 to 2015 for Bhutan, Bangladesh, Nepal, India, Pakistan, Sri Lanka and Iran. The descriptive statistics are studied to find the possibility of short-run relationship between the exchange rates, foreign exchange reserves and interest rate differential. The longitudinal data set generated is checked for cointegration to evaluate the EMPs of the countries.

The study finds that the EMP of ACU members’ shows similarity only in short-term movement but have no cointegration of EMP indices indicating the absence of long-term relationship. The absence of long-term cointegration of EMP for ACU members also indicates that ICU membership may not necessarily lead to similarity in exchange rate policies that facilitate the formation of a currency union. Creation of an ICU is not a sufficient condition for the formation of a currency union. The study also finds that the sample countries have faced persistent depreciation pressures in the period. The preferred tool for the management of EMP is direct intervention by sale and purchase of foreign currency. Interest rate changes are found to have the most significant effect on EMP.

The EMP model limits itself only to the study of exchange rates, foreign reserves and interest rates. Exchange rate variation and policy responses there to are known to be driven by other factors such as speculation, political factors, autonomous capital flows and micro-level dynamics of exchange markets like order flows among others. The EMP model is a simplification of the market dynamics and does not look for associations on the account of these factors. The model is evaluated for only one ICU where member countries regulate exchange rates. The study of ICUs that comprises free float currencies and pegged currencies may yield different results.

Results indicate that the member of any ICU such as ACU cannot assume that its participation will serve as a foundation for creating higher forms of economic unions such as currency unions. In the absence of any long-term relationship between the EMP of countries, any attempt by these countries may cause the exchange rates to deviate further. This leads to the conclusion that the members of ACU should avoid any attempts to form currency unions or use a common currency for its settlement.

Various countries that are considering the formation of currency union or the use of a common currency peg may like to examine its feasibility using EMP as a tool. Using EMP, they may be able to derive short-term and long-term strategies for pursuing their objectives.

There are few other studies that use EMP as an index for measuring the feasibility of formation of a currency union among countries that are the member of an ICU. While earlier studies apply EMP to a group of countries, none attempt to modify the index to reflect the EMP that is likely to affect central bank policy action. Few studies have attempted to use EMP to study the feasibility of formation of a currency union in South Asia based on exchange rate markets itself.

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.

The study surveys and critiques the literature and provides theoretical analysis of major issues involved in classifying exchange rate regimes.

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.

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.

The foreign exchange market plays a crucial role in defining the overall health of an economy. In these times of globalization and (in some ways) deglobalization, these markets are highly vulnerable to external shocks. In this line of research, this study investigates exchange-market vulnerability among the BRICS economies by considering the co-movements among variables and contagion among markets.

This study uses DCC-IGARCH and Wavelet approaches to examine interdependence and contagion among the foreign exchange markets of the BRICS countries. The prior approach gives exposure to correlations over time, while the latter approach is suitable to provide insight regarding correlations over different frequency and time domains.

These results show evidence of meaningful co-movements in the vulnerability of the BRICS economies' foreign exchange markets during periods of market instability. The authors observe that interdependence significantly increased after 2008 and is prominent in the short run, particularly up to the scale of 1.5 years. In addition, there is evidence of persistent integration across the short and medium run. Furthermore, the findings indicate recurrent patterns of co-movements and the presence of contagion.

Given the high degree of economic integration among the BRICS economies, there is relatively little literature on how each member country's foreign exchange vulnerability can affect others. This research fills this gap, by applying appropriate econometric techniques and using a newly created measure of exchange market vulnerability that is unit consistent—such that it combines observed change in exchange rates with the change that is prevented through central bank intervention in a common unit, rather than by combining percentages with dollar-denominated values. This research provides important implications for investors and policymakers.

This paper examines and dissects eight popular conjectures about exchange rates. The conjectures are: there exists a systematic linkage between economic fundamentals and exchange rates; flexible exchange rates are unstable due to destabilising speculation; flexible exchange rates are excessively volatile; the foreign exchange market is efficient; purchasing power parity holds; volatile exchange rates are harmful to trade; depreciating exchange rates trigger a “vicious” inflationary circle; and countries with current account deficits have depreciating exchange rates. The main message is that there is weak theoretical and empirical support for the majority of the conjectures. Only one proposition, relative PPP has strong empirical support but its policy relevance is weakened by the difficulty of interpreting departures from PPP. The remaining group for which there is inconclusive support presents the greatest challenge to research and policy as it includes the first conjecture.

This paper aims to examine regime switching behaviour of the nominal exchange rate in Uganda to shed light on the necessity (as well as efficacy) of the participation of the central bank market.

The homogenous two‐state Markov chain methodology was employed to investigate the possibility of regime changes in the nominal exchange rate. The maximum likelihood parameter estimates were obtained using the Broyden‐Fletcher‐Goldfarb‐Shanno iteration algorithm.

The results validate the expectation of the two distinct state spaces characterized as sharp and disruptive but short‐lived depreciations as well as small appreciations occurring through a long period. The central bank intervention actions are shown to be largely successful in mitigating the disruptive effects of the sharp depreciations.

The paper lends empirical support to the intervention actions of the Bank of Uganda. In face of the numerous disruptions to the short‐term exchange rate process, failure to intervene may cause rational panic and given the nature of investor behavior, this may quickly spread and even cause further disruptions. It is important for the central bank to send signals that these disruptions are temporary.

The homogenous Markov chain specification employed in this study makes it possible to avoid the pitfalls that may arise by attempting to specify a structural model for the exchange rate. In addition, inference about the different possible state spaces is made on the basis of all available information.

The purpose of this paper is twofold. First, it estimates the sterilization coefficients for several Caribbean countries. Second, it contributes to the literature by providing a conceptual framework for understanding why regional economies with fully pegged exchange rate regimes have not allowed the money supply to be endogenous to capital flows. This paper notes that a high sterilization coefficient plus a de facto pegged exchange rate indicates the existence of dual nominal anchors.

The paper presents a simple theoretical model to explain this phenomenon. The model combines the liquidity preference of commercial banks with an augmented uncovered interest parity equation.

The econometric evidence presented shows that several Caribbean economies with fixed exchange rate regimes also possess high sterilization coefficients. Given open capital accounts in the various economies, the paper argues that this finding contravenes the money neutrality thesis, which holds that only one nominal anchor can prevail in the long term.

The model emphasizes that the interest rate formation and liquidity preference of oligopolistic commercial banks – the dominant financial institutions in a post‐liberalized setting – prevents counteracting capital movements when monetary policy changes above or along a threshold or bank mark‐up interest rate.

The essence of the modern asset‐market approach to the analysis of exchange rate behavior includes the role of the trade balance account. We examine the relationship between exchange rate changes and US trade balance announcements. Statistically significant exchange rate adjustments to these announcements are documented using for the first time the comparison period approach to testing the significance of trade balance announcements on exchange rates. The evidence is consistent with the predictions of the modern asset‐market exchange rate model. There is also evidence that the foreign exchange market is more sensitive to increasing rather than decreasing trade balance deficit announcements. To date, a number of theoretical papers have investigated the possible sources of the exchange rate determination process (see, Dornbusch [1976,1980], Dornbusch and Fisher [1980], Frenkel [1976, 1981], Kouri [1976], and Mussa [1982], among others). There is no consensus on how exchange rates are determined and why they have exhibited increased volatility lately. The interpretations vary widely among the various theories, ranging from the flow‐market approach to the modern asset‐market view. The asset‐market approach of exchange rates is based on the principle that the current value of the exchange rate (i.e. the relative price of two national currencies) is influenced not only by current economic conditions but also by expectations of its future value and, therefore, by the information that underlies these expectations. The asset‐market literature on the determination of exchange rates establishes a direct relationship between changes in the exchange rate and the current account (or trade balance account). For example, Mussa [1982] shows that the equilibrium exchange rate depends on expectations about the exogenous factors that affect the current account in present and future periods. A central implication of the asset‐market view is that “innovations” in the current account induce unexpected changes in the exchange rate. This is because an innovation in the current account, defined as a deviation of the current account balance from its previously expected level, conveys information about changes in economic conditions relevant for determining the equilibrium exchange rate (see Mussa [1982]). For example, if a country experiences an unexpectedly strong trade balance performance, this might be perceived to imply changes in relative economic efficiency, product demand, or international competitiveness that will improve the current account in future periods leading to an appreciation of the foreign value of the domestic currency. In essence, the asset‐market view argues that information about changes in real economic conditions requiring exchange rate adjustments can be inferred from innovations in the trade balance and/or the current account. Dornbusch and Fischer [1980] also argue that while asset markets determine exchange rates, it is the current account through its effect on net asset positions, and subsequently on asset markets, which influences the path of the foreign exchange rate. Thus, it can be argued that unanticipated current account announcements should be associated with exchange rate movements immediately following such announcements. While the relationship between the current account and the exchange rate has been extensively analyzed, the empirical evidence pertaining to the association between exchange rates and the current account has produced mixed results. Hardouvelis [1988] examines the effects of macroeconomic news, including US trade balance announcements, on three interest rates and seven exchange rates over the October 1979 to August 1984 period. He reports that announcements of the trade deficit have no statistically significant effects on interest rates, with the exception of the three‐month T‐bill rates and the exchange rates. The evidence with respect to the short‐term interest rate reactions may be associated with the fact that the “Federal Reserve Bank throughout the 1977–1984 period was unable to establish full credibility among market participants about its fight against inflation” (see Hardouvelis [1988]). Deravi et al [1988] have also investigated the financial market's response to US balance of trade announcements. They find similar results to those reported in Hardouvelis [1988] for the February 1980 to February 1985 period, but they report a significant exchange rate response to trade deficit announcements over the March 1985 to July 1987 period. Irwin [1989], however, uncovered a significant breakdown in the relationship between trade balance announcements and dollar exchange rates during the month of June 1984; that is, larger trade deficits were found to be associated with the dollar's depreciations only in the post‐June 1984 period. Contrary to previous studies, Hogan et al [1991] find larger US trade balance deficits to have a significant effect on exchange rates throughout the 1980s. Because expected trade balance figures are available from the Money Market Service Inc. and since the trade balance figures according to Crystal and Wood [1980] represent 85 percent of the US current account, it apears that the trade balance serves as a good proxy for the current account. Therefore, we are able to test more directly the impact of the US trade balance announcements on the exchange rate. The purpose of this paper is to analyze the relationship between exchange rate changes and merchandise balance announcements using a sample of US trade figures spanning the period from August 1986 to April 1989. In the following, we refer to this relationship as the “current account hypothesis”. Unlike previous research, the analysis is based on unanticipated trade balance announcements in order to study the interaction between exchange rates and information contained in the trade balance announced figures as the asset‐market approach to exchange rate determination process predicts. Dornbusch [1980] used the official forecast errors of the Organization for Economic Co‐operation and Development (i.e. biannual six‐month forecasts for current account and exchange rates). In this study, we focus on the major component of the current account‐the trade balance‐to test the current account hypothesis. The trade balance account is by far the best proxy for the current account. Another differentiating aspect of this study from the previous research is that it relies on systematic trade balance announcements. The use of the Commerce Departments' announcements concerning the US merchandise trade balance has also been motivated by the growing financial and non‐financial press coverage of the monthly trade balance reports. Examples of how the financial press covers the monthly trade balance announcements include: 1. “A wider trade deficit jolts a fragile market, shares off 101 points, dollar falls, and interest rates surge as big gap surprises investors, central bankers”, The Wall Street Journal, April 5,1988. 2. “London stocks rise sharply on US trade news; shares close firmer in Tokyo for the second day”, The Wall Street Journal, May 18,1989. 3. “Tricks of the Trade. The huge current‐account imbalances of the 1980s are disappearing fast. Good news? Maybe. But be warned: trade flows are less and less useful as indicators of economic performance” The Economist, March 30, 1991. 4. “Trade deficit grew in April to $6.97 billion… as exports continued to drop and imports jumped. The April deficit was the biggest monthly imbalance since a $9.49 billion deficit in November 1990. The trade gap in March was $5.58 billion. Economists say sluggish economic activity abroad is making it more difficult for US companies to sell their goods.” The Wall Street Journal, June 19, 1992. The different views registered in the financial press about the importance of the current account and trade balance imbalances in influencing exchange rate changes have further motivated the present study. Contrary to the current account hypothesis, it has been argued that because of the increasing integration of world capital markets, it is easier to finance current account deficits and therefore the trade balance or current account figures might be less useful as far as the determination of exchange rates is concerned. In addition, as a result of the increasing foreign investment activity, trade deficits may no longer represent purely national concepts. For example, a significant portion of a country's exports and imports may be accounted for by foreign firms with corporate operations there. Furthermore, US firms may decide to supply an overseas market either by exporting or by locating production abroad. Locally produced sales by US firms overseas, however, do not count as exports, nor do their local purchases of inputs count as imports. But from the firm's point of view, the local sales of a US subsidiary are viewed as being similar to exports. Therefore, it is argued that US trade balance deficits measured on the basis of residency rather than nationality of ownership, which is currently the norm, may mean less than it once did. Consequently, what emerges from the above is that the correlation between exchange rates and the information contained in the trade balance figures may be weaker than predicted by the asset‐market approach. Whether the current account or trade balance figures do matter as far as the determination of exchange rates is concerned is an empirical question. This article presents a first attempt at analyzing the impact of “innovations” in the US trade balance account on the exchange rate. An event study analysis is performed for the first time using trade balance announcement data from August 1986 to April 1989. The event methodology provides an appropriate direct test for the asset‐market model which predicts that unexpected changes in the exchange rate should be related to innovations in the current account (trade balance). The article is arranged as follows. Section II describes the data and methodology used. Section III presents empirical evidence on the relationship between exchange rates and innovations in the trade balance account. The article concludes with Section IV.