Economics
Permanent URI for this communityhttp://hdl.handle.net/1903/2232
Browse
Search Results
Item Fear of Floating(2000-09-25) Calvo, Guillermo A.; Reinhart, Carmen M.In recent years, many countries have suffered severe financial crises, producing a staggering toll on their economies, particularly in emerging markets. One view blames fixed exchange rates-- “soft pegs”--for these meltdowns. Adherents to that view advise countries to allow their currency to float. We analyze the behavior of exchange rates, reserves, the monetary aggregates, interest rates, and commodity prices across 154 exchange rate arrangements to assess whether “official labels” provide an adequate representation of actual country practice. We find that, countries that say they allow their exchange rate to float mostly do not--there seems to be an epidemic case of “fear of floating.” Since countries that are classified as having a free or a managed float mostly resemble noncredible pegs--the so-called “demise of fixed exchange rates” is a myth--the fear of floating is pervasive, even among some of the developed countries. We present an analytical framework that helps to understand why there is fear of floating.Item Rational Contagion and the Globalization of Securities Markets(Elsevier, 2000-06) Calvo, Guillermo A.; Mendoza, Enrique G.This paper argues that globalization may promote contagion by weakening incentives for gathering costly information and by strengthening incentives for imitating arbitrary market portfolios. In the presence of short-selling constraints, the gain of gathering information at a fixed cost may diminish as markets grow. Moreover, if a portfolio manager’s marginal cost for yielding below-market returns exceeds the marginal gain for above-market returns, there is a range of optimal portfolios in which all investors imitate arbitrary market portfolios and this range widens as the market grows. Numerical simulations suggest that these frictions can have significant implications for capital flows in emerging markets.Item Testimony on Dollarization(2000-06-22) Calvo, Guillermo A.I was invited here to explain about Dollarization, the benefits and costs for the US and the countries that adopt it. Before I start my formal presentation, I would like to state, in no uncertain terms, that I am a firm supporter of such system for many Emerging Market economies, EM, especially if it is done within the context of a Treaty with the US (as in Senator Connie Mack’s proposal). Moreover, I believe global dollarization will have direct economic benefits for the US, and enhance its role as a worldwide leader. Dollarization is the decision to abandon the national currency and replace it by the US Dollar (or some other hard currency like the Euro). This is a major economic and political decision. By default, a dollarized country adopts US monetary policy, even though the two countries could be going through different phases of the business cycle. Moreover, a dollarized country gives up the option of assisting banks by printing money in the case of a systemic bank run. In the first, and more substantive, part of my presentation I will argue that EM have already given up those functions. Therefore, dollarization is a win-win proposition except possibly for some fiscal costs (called seigniorage in the technical jargon). In the second part of the presentation I will evaluate the advantages of regional dollarization, and argue that dollarization is a winning proposition for the US. I will start the discussion by focusing on two key themes: Fear of Floating, and Lender of Last Resort.Item Notes on Price Stickiness: With Special Reference to Liability Dollarization and Credibility(2000-12-23) Calvo, Guillermo A.This paper is motivated by trying to understand the implication of price stickiness in Emerging Market economies, EMs. The issue is important because EMs are subject to significantly higher volatility of fundamentals than advanced countries (see Hausmann and Rojas-Suarez (1996)). Thus, full-equilibrium relative prices are also likely to exhibit large volatility in EMs, making price stickiness an even more critical issue in EMs than in advanced countries.Item Política Económica en Aguas Borrascosas: Vulnerabilidad Financiera en Economías Emergentes(2000-10-26) Calvo, Guillermo A.Es para mí un gran honor y me hace muy feliz recibir el Premio de Economía Rey Juan Carlos, instituido por la Fundación José Celma Prieto. No hay un hecho más evocativo y emocionante para un latinoamericano que recibir un premio de la Madre Patria y que lleva el nombre de Su Majestad. Me siento muy agradecido, además, porque se cita mi labor científica, en contraposición a mis aventuras como pronosticador de crisis financieras. La ciencia económica es muy imprecisa pero es un pilar importante de la paz y la democracia. Sin ella, le sería muy difícil al gobierno tener un diálogo constructivo con los ciudadanos. La política económica no estaría sujeta a ningún tipo de disciplina intelectual. Al final del día sólo quedaría la violencia o la dictadura para dirimir estas cuestiones. Esa ha sido siempre la razón práctica de mi interés por esta disciplina. Un premio tan prominente como el que se me ha concedido, me da la plataforma para dar ese mensaje a las generaciones futuras. Muchas gracias.