Exchange rate dynamics in a peripheral monetary economy

Andrade, Rogério P. de; Prates, Daniela Magalhães

doi:10.2753/pke0160-3477350304

Cited by 113 publications

(92 citation statements)

References 15 publications

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“…Second, EM confront severe international monetary subordination given their currencies' limited international role, in particular for financial transactions (Andrade and Prates, 2013;Bonizzi, 2017a;Kaltenbrunner, 2015).…”

Section: Ldi and Financial Stability In Emerging Marketsmentioning

confidence: 99%

Liability-driven investment and pension fund exposure to emerging markets: A Minskyan analysis

Bonizzi

Kaltenbrunner

2018

Environ Plan A

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This paper explores the determinants and implications of the growing allocation of insurance companies and pension funds (ICPF) to emerging markets (EM). The key contention put forward is that liabilities are at the core of the portfolio choice of ICPF, and that this has important consequences for the stability of asset demand. The paper supports this contention with a theoretical framework based on Hyman Minsky, and the results from 22 semistructured interviews with European ICPF executives, investment consultants, and asset managers. It shows that the rising ICPF demand for EM assets has to be analysed in the context of the pressures resulting from structural funding deficits and low yields. EM assets are sought as part of the sector's strategy to increase returns and, given their subordinate integration into a spatially uneven international monetary and financial system, remain not suited to directly meet ICPF's liabilities. This causes ICPF' demand for these assets to be volatile and independent of conditions in these countries, reproducing EM' monetary and financial subordination. By stressing the structural financial (in)stability implications ICPF liabilities have for EM asset demand, the paper contributes to the literature on ICPF investments in EM, and bridges the gap between those which have noted the importance of liability conditions for ICPF and the literature pointing to the destabilising impact of ICPF due to behavioural and agency issues. Moreover, by basing itself on a Minskyan theoretical framework, it responds to recent calls for a more systematic incorporation of heterodox economic thought into financial geography.

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Section: Ldi and Financial Stability In Emerging Marketsmentioning

confidence: 99%

Liability-driven investment and pension fund exposure to emerging markets: A Minskyan analysis

Bonizzi

Kaltenbrunner

2018

Environ Plan A

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“…If investors leave these countries swiftly, this will most likely result in a currency depreciation. To prevent this, local policy-makers are under pressure to raise the interest rate, with the aim of increasing q and a as well as to deepen financial openness -namely, by removing capital account regulation to reduce c. If this policy is successful, (a + q -c) will increase to compensate the lower liquidity premium l (Andrade and Prates 2013). As Grabel stresses, the movement of portfolio investment induced by these policies produces two harmful outcomes: "the exacerbation of constraints on policy autonomy; and the increased vulnerability of the economy to risk, financial volatility and crisis" (Grabel 1996(Grabel p.1763).…”

Section: Limits Of Policy Space At the Ch Bottommentioning

confidence: 99%

Global currency hierarchy and national policy space: a framework for peripheral economies

Fritz

Paula

Prates

2018

European Journal of Economics and Economic Policies: Intervention

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In this paper, we develop a Keynesian-structuralist perspective on the origins and implications of the currency hierarchy in the international monetary and financial system. We show that international asymmetry in monetary affairs results in structural implications for peripheral economies. Our main hypothesis is that the international asymmetry related to the currency hierarchy, amplified by financial globalization, imposes major constraints on the adoption of Keynesian policies in these economies. These vary over time and space and depend on certain structures, such as the specific global monetary regime, as well as on domestic institutions and policy variables. For this purpose, we first develop the concept of currency hierarchy and then discuss the structural policy space limitations for the countries at the bottom of this hierarchy. Finally, we provide some brief reflections on the challenges connected to climbing this hierarchy.

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“…Consequently, these currencies, priced with a lower liquidity premium, are especially vulnerable to the inherent volatility of capital flows in the post-Bretton Woods system. The smaller and less liquid foreign exchange and financial markets of emerging economies make them more vulnerable to one-way expectations and herd behavior (Andrade and Prates, 2013).…”

Section: International Financial Integration Capital Flows and Capitmentioning

confidence: 99%

Capital account regulation in Brazil: An assessment of the 2009-2013 period

Prates

Paula

2017

Rev. Econ. Polit.

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Brazil was one of the emerging countries that had a stronger trend of currency appreciation from the 2nd quarter of 2009 to July 2011. Under this context that can be understood the implementation of capital account regulation (CAR) after 2009, which was complemented with another kind of regulation, the so-called FX Derivatives Regulation (FXDR). This paper shows that only when Brazilian government adopted these two kinds of regulations simultaneously, the policy effectiveness increased in terms of protecting the Brazilian currency from upward pressures. Brazilian experience also highlights that it is not possible to establish a hierarchy between temporary instruments to manage capital flows and permanent prudential measures, as supported by the IMF current approach.

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Exchange rate dynamics in a peripheral monetary economy

Cited by 113 publications

References 15 publications

Liability-driven investment and pension fund exposure to emerging markets: A Minskyan analysis

Liability-driven investment and pension fund exposure to emerging markets: A Minskyan analysis

Global currency hierarchy and national policy space: a framework for peripheral economies

Capital account regulation in Brazil: An assessment of the 2009-2013 period

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