Analysis of an unannounced foreign exchange regime change
AbstractStarting in 2004 the Guyanese foreign exchange rate has been remarkably stable relative to earlier periods. This paper explores the reasons for the stability of the rate. First, the degree of concentration in the foreign exchange market has increased, thus making the task of moral suasion relatively straightforward once this policy tool comes to bear on the dominant trader (s). Second, long-term or non-volatile capital inflows make the exchange rate less susceptible to sudden reversal. Third, commercial banks, the dominant foreign exchange traders, have large outlays of assets in domestic currency, thus their desire for exchange rate stability. The econometric exercise is consistent with the notion that trader market power has contributed to lower volatility in the G$/US exchange rate. The paper also presents a model that analyzes monetary policy effects in the presence of a mark-up or threshold interest rate.
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Bibliographic InfoPaper provided by University Library of Munich, Germany in its series MPRA Paper with number 38187.
Date of creation: 02 May 2011
Date of revision: 2011
Publication status: Published in Economic Systems 1.36(2012): pp. 145-157
exchange rate; foreign exchange market; market power;
Other versions of this item:
- Khemraj, Tarron & Pasha, Sukrishnalall, 2012. "Analysis of an unannounced foreign exchange regime change," Economic Systems, Elsevier, Elsevier, vol. 36(1), pages 145-157.
- F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
- F31 - International Economics - - International Finance - - - Foreign Exchange
- G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-23 (All new papers)
- NEP-IFN-2012-04-23 (International Finance)
- NEP-MON-2012-04-23 (Monetary Economics)
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