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Exchange Rate Stability and Managed Floating: The Experience of the Federal Republic of Germany (Stabilité du taux de change et flottement dirigé: l'expérience de l'Allemagne fédérale) (La estabilidad de los tipos de cambio y la flotación dirigida: La experiencia alemana)

Listed author(s):
  • Jacques R. Artus

    (International Monetary Fund)

Registered author(s):

    The present study deals with the nexus between short-term interest rates, private monetary capital flows, and the exchange rate under managed floating. It questions the belief held by many economists that capital flows necessarily have benign effects that prevent large erratic movements in the exchange rate from taking place. It also analyzes the likely implications of interventions by central monetary authorities in the foreign exchange market and in the domestic money market. The Federal Republic of Germany, over the period March 1973 to July 1975, is singled out as the case study. The approach employed in the study is to specify a model of the balance of payments of the Federal Republic of Germany including the demand for and the supply of base money as well as policy reaction functions explaining the central bank net demand for domestic assets (monetary policy) and foreign assets (intervention policy). The core of the model consists of equations that explain private monetary capital flows and their interdependence with the exchange rate. Lessons as to the working of the floating regime are derived from the estimates obtained for certain parameters, in particular, those that determine how exchange rate movements are affected by changes in monetary policy and various external shocks. The major finding of the study is that the experience of the Federal Republic of Germany with floating does not bear out the faith that many economists have had in the stabilizing role of short-term capital flows. Relatively small variations in the interest rate differential between Frankfurt and the Euro-dollar market have led to large fluctuations in the exchange rate. This raises serious implications as to the international consequences of having a major industrial country following an independent monetary policy under a floating rate regime. /// L'étude traite des relations d'interdépendance entre les taux d'intérêt à court terme, les mouvements de capitaux monétaires privés et le taux de change en régime de flottement dirigé. L'auteur conteste la théorie, défendue par de nombreux économistes, selon laquelle les mouvements de capitaux ont obligatoirement des effets bénins qui empêchent toute fluctuation erratique majeure du taux de change. Il analyse aussi les implications probables des mesures d'intervention des autorités monétaires centrales sur le marché des changes et sur le marché intérieur. Le cas de la République fédérale d'Allemagne entre mars 1973 et juillet 1975 est choisi en exemple. L'approche retenue consiste à spécifier un modèle de la balance des paiements de l'Allemagne fédérale qui comprend la demande et l'offre de monnaie de base ainsi que des fonctions d'adaptation des politiques qui expliquent la demande nette d'actifs intérieurs (politique monétaire) et extérieurs (politique d'intervention) exercée par la banque centrale. Les équations principales du modèle sont celles qui expliquent les mouvements de capitaux monétaires privés et leurs relations d'interdépendance vis à vis du taux de change. Certaines conclusions quant au fonctionnement du régime de flottement sont tirées des estimations obtenues pour certains paramètres, particulièrement ceux qui déterminent la façon dont les mouvements du taux de change sont influencés par l'adaptation de la politique monétaire et par les divers chocs extérieurs. La principale conclusion de l'étude est que l'expérience de l'Allemagne fédérale en matière de flottement ne confirme pas la théorie de nombreux économistes quant au rôle stabilisateur des mouvements de capitaux à court terme. On a constaté que des variations minimes du différentiel d'intérêt entre le marché monétaire de Francfort et le marché de l'euro-dollar provoquaient de fortes fluctuations du taux de change. Ce phénomène risque d'avoir de sérieuses conséquences au plan international lorsqu'un grand pays industrialisé applique une politique monétaire indépendante en régime de taux flottants. /// El presente estudio trata del vínculo entre los tipos de interés a corto plazo, los flujos de capital monetario privado y los tipos de cambio conforme a la flotación dirigida. Pone sobre el tapete la creencia de muchos economistas de que los flujos de capital tienen necesariamente efectos benignos que impiden que ocurran grandes movimientos irregulares de los tipos de cambio. También en él se analizan las probables repercusiones de las medidas de intervención de las autoridades monetarias centrales en el mercado cambiario y en el mercado interno de capital. Se ha elegido como caso para el estudio la experiencia de la República Federal de Alemania durante el período comprendido entre marzo de 1973 y julio de 1975. El método que se sigue en el estudio es el de emplear un modelo de la balanza de pagos de la República Federal de Alemania en el que se incluye la demanda y oferta de dinero base, así como las funciones de reacción a la política que explican la demanda neta por el banco central de activos internos (política monetaria) y de activos sobre el exterior (política de intervención). El núcleo del modelo consiste en ecuaciones que explican las corrientes de capital monetario privado y su interdependencia con el tipo de cambio. Las conclusiones en cuanto al funcionamiento del régimen de flotación se derivan de los cálculos obtenidos para ciertos parámetros, en particular los que determinan la forma en que los movimientos de los tipos de cambio son afectados por modificaciones de la política monetaria y por varias influencias externas. La principal conclusión a que se ha llegado en el estudio es que la experiencia de la República Federal de Alemania con la flotación no respalda la fe que muchos economistas han tenido en la función estabilizadora de las corrientes de capital a corto plazo. Las variaciones relativamente pequeñas de las diferencias del tipo de interés entre Francfort y el mercado de eurodólares han tenido como consecuencia grandes fluctuaciones del tipo de cambio. Esto despierta graves dudas acerca de las repercusiones internacionales que puede tener el que un país industrial importante siga una política monetaria independiente conforme a un régimen de tipos flotantes.

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    Article provided by Palgrave Macmillan in its journal Staff Papers - International Monetary Fund.

    Volume (Year): 23 (1976)
    Issue (Month): 2 (July)
    Pages: 312-333

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    Handle: RePEc:pal:imfstp:v:23:y:1976:i:2:p:312-333
    Contact details of provider: Web page: http://www.palgrave-journals.com/

    Order Information: Web: http://www.springer.com/economics/journal/41308/PS2

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