Preview 国际金融英文课件

1、Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-1Preview Balance sheets of central banks Intervention in the foreign exchange markets and the money supply How the central bank fixes the exchange rate Monetary and fiscal policies under fixed exchange rates Financial market crises and ca

2、pital flight Types of fixed exchange rates: reserve currency and gold standard systems Zero interest rates, deflation, and liquidity trapsCopyright 2021 Pearson Addison-Wesley. All rights reserved.17-2u传统两分法:可分为固定汇率制和浮动汇率制两种u 1999年，IMF用新方法对各国的汇率制度进行了划分，将汇率制度分为八类(见后页) :其中第三到七种被称为“中间汇率制Intermediate Ex

3、change Rate Regime，而其他三种那么被称为“两极汇率制Bipolar Exchange Rate Regimes或“角点汇率制Corner Exchange Rate Regimes。因而，目前国际上比较流行将汇率制度分为三大类：u 固定汇率制度；自由浮动汇率制；中间汇率制Intermediate Exchange Rate Regime。汇率制度分类汇率制度分类Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-319991999年年IMFIMF对成员国汇率制度的分类对成员国汇率制度的分类 严格固定严格固

4、定的汇率制度的汇率制度无独立法定货币的汇率制度无独立法定货币的汇率制度Exchange arrangement with no separate legal tender货币局制度货币局制度currency board arrangement 中间中间 汇率制度汇率制度传统钉住汇率制度传统钉住汇率制度conventional fixed peg arrangement水平带内盯住水平带内盯住pegged exchange rates with horizontal bands爬行钉住制爬行钉住制crawling peg爬行带内浮动爬行带内浮动exchange rates with crawli

5、ng bands 浮动浮动 汇率制度汇率制度 不事先宣布汇率路径的管理浮动不事先宣布汇率路径的管理浮动 management floating with no pre-determined path for the exchange rate 独立浮动汇率制独立浮动汇率制independently floating美元化美元化 货币联盟货币联盟国际货币基金组织新的汇率制度分类国际货币基金组织新的汇率制度分类(2021年年4月月30日日)汇率制度国家数1、No separate legal tender（巴拿马、厄瓜多尔）132、Currency board（香港、吉布提）123、Convent

6、ional peg (巴哈马、丹麦、卡塔尔）434、stabilized arrangement（洪都拉斯、牙买加、马尔代夫、白俄罗斯）235、Crawling peg(尼加拉瓜、波斯瓦纳)36、Crawl-like Arrangement（中国、阿根廷、埃塞俄比亚）127、Pegged exchange rate within horizontal Bands（汤加）18、Other managed arrangement（俄罗斯、新加坡、马来西亚）179、 Floating（印度、泰国、墨西哥）3610、Free float（美、英、加、日、欧元区）30IncreasingFlexibil

7、ityCopyright 2021 Pearson Addison-Wesley. All rights reserved.17-5Introduction Many countries try to fix or “peg their exchange rate to a currency or group of currencies by intervening in the foreign exchange market. Many with a flexible or “floating exchange rate in fact practice a managed floating

8、 exchange rate. The central bank “manages the exchange rate from time to time by buying and selling currency and assets, especially in periods of exchange rate volatility. How do central banks intervene in the foreign exchange market?Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-6Cen

9、tral Bank Intervention and the Money Supply To study the effects of central bank intervention in the foreign exchange market, first construct a simplified balance sheet for the central bank.This records the assets and liabilities of a central bank.Balance sheets use double booking keeping: each tran

10、saction enters the balance sheet twice.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-7Central Banks Balance Sheet Assets pp 462(449) Foreign government bonds (official international reserves) Gold (official international reserves) Domestic government bonds Loans to domestic banks (ca

11、lled discount loans in US) Liabilities Deposits of domestic banks Currency in circulation (previously central banks had to give up gold when brought currency from citizens)Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-8Central Banks Balance Sheet (cont.) Assets = Liabilities + Net wo

12、rth If we assume that net worth of the central bank always equals zero then assets = liabilities. An increase in assets leads to an equal increase in liabilities. A decrease in assets leads to an equal decrease in liabilities. Changes in the central banks balance sheet lead to changes in currency in

13、 circulation or changes in bank deposits, which lead to changes in the money supply. If their deposits at the central bank increase, banks are typically able to use these additional funds to lend to customers, so that the amount of money in circulation increases.Copyright 2021 Pearson Addison-Wesley

14、. All rights reserved.17-9Assets, Liabilities and the Money SupplyWHY? A purchase of any asset will be paid for with currency or a check from the central bank, both of which are denominated in domestic currency, and both of which increase the supply of money in circulation. The transaction leads to

15、equal increases of assets and liabilities. SO, When the central bank buys domestic bonds or foreign bonds(-a purchase of asset), the domestic money supply increases.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-10Assets, Liabilities and the Money Supply (cont.) A sale of any asset wi

16、ll be paid for with currency or a check given to the central bank, both of which are denominated in domestic currency. The central bank puts the currency into its vault or reduces the amount of bank deposits, causing the supply of money in circulation to shrink. The transaction leads to equal decrea

17、ses of assets and liabilities. When the central bank sells domestic bonds or foreign bonds, the domestic money supply decreases. PP463-464(450-451)Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-11Foreign Exchange Markets Central banks trade foreign government bonds in the foreign exch

18、ange markets.Foreign currency deposits and foreign government bonds are often substitutes: both are fairly liquid assets denominated in foreign currency.Quantities of both foreign currency deposits and foreign government bonds that are bought and sold influence the exchange rate.Copyright 2021 Pears

19、on Addison-Wesley. All rights reserved.17-12Sterilization Because buying and selling of foreign bonds in the foreign exchange market affects the domestic money supply, a central bank may want to offset this effect. This offsetting effect is called sterilization. If the central bank sells foreign bon

20、ds in the foreign exchange market, it can buy domestic government bonds in bond marketshoping to leave the amount of money in circulation unchanged. PP465(452) BOP and money supply PP466(452-453)Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-13Fixed Exchange Rates To fix the exchange

21、rate, a central bank influences the quantities supplied and demanded of currency by trading domestic and foreign assets, so that the exchange rate (the price of foreign currency in terms of domestic currency) stays constant. The foreign exchange market is in equilibrium when R = R* + (Ee E)/E When t

22、he exchange rate is fixed at some level E0 and the market expects it to stay fixed at that level, then R = R*Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-14Fixed Exchange Rates (cont.) To fix the exchange rate, the central bank must trade foreign and domestic assets until R = R*. In

23、 other words, it adjusts the money supply until the domestic interest rate equals the foreign interest rate, given the price level and real output, until:Ms/P = L(R*,Y)Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-15Fixed Exchange Rates (cont.) Suppose that the central bank has fixed

24、 the exchange rate at E0 but the level of output rises, raising the demand for real money. This leads to higher interest rates and upward pressure on the value of the domestic currency. How should the central bank respond if it wants to fix exchange rates?Copyright 2021 Pearson Addison-Wesley. All r

25、ights reserved.17-16Fixed Exchange Rates (cont.) The central bank must buy foreign assets in the foreign exchange market, thereby increasing the money supply, thereby reducing interest rates.Alternatively, by demanding (buying) assets denominated in foreign currency and by supplying (selling) domest

26、ic currency, the price/value of foreign currency is increased and the price/value of domestic currency is decreased.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-17Fixed Exchange RatesCopyright 2021 Pearson Addison-Wesley. All rights reserved.17-18Monetary Policy and Fixed Exchange R

27、ates When the central bank buys and sells foreign assets to keep the exchange rate fixed and to maintain domestic interest rates equal to foreign interest rates, it is not able to adjust domestic interest rates to attain other goals.In particular, monetary policy is ineffective in influencing output

28、 and employment.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-19Monetary Policy and Fixed Exchange Rates (cont.)Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-20Fiscal Policy and Fixed Exchange Rates in the Short Run Because the central bank must buy and sell foreign a

29、ssets to keep the exchange rate fixed, temporary fiscal policy is more effective in influencing output and employment in the short run.The rise in output due to expansionary fiscal policy raises money demand, putting upward pressure on interest rates and upward pressure on the value of the domestic

30、currency.To prevent an appreciation of the domestic currency, the central bank must buy foreign assets, thereby increasing the money supply.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-21Fiscal Policy and Fixed Exchange Rates in the Short Run (cont.)A fiscal expansion increases aggr

31、egate demandTo prevent the domestic currency from appreciating, the central bank buys foreign assets, increasing the money supply and decreasing interest rates.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-22Fiscal Policy and Fixed Exchange Rates in the Long Run When the exchange rat

32、e is fixed, there is no real appreciation of the value of domestic products in the short run. But when output is above its normal (long run) level, wages and prices tend to rise. A rising price level makes domestic products more expensive: a real appreciation (EP*/P falls). Aggregate demand and outp

33、ut decrease as prices rise: DD curve shifts left. Prices tend to rise until employment, aggregate demand and output fall to their normal levels.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-23Fiscal Policy and Fixed Exchange Rates in the Long Run (cont.) In the long run prices increa

34、se proportionally to the increase in the money supply caused by central bank intervention in the foreign exchange market.AA curve shifts down (left) as prices rise.Nominal exchange rates will be constant (as long as the fixed exchange rate is maintained), but the real exchange rate will be lower (a

35、real appreciation)-because of the increase of price levelCopyright 2021 Pearson Addison-Wesley. All rights reserved.17-24Devaluation and Revaluation Depreciation and appreciation refer to changes in the value of a currency due to market changes. Devaluation refers to a change in a fixed exchange rat

36、e caused by the central bank. a unit of domestic currency is made less valuable, so that more units must be exchanged for 1 unit of foreign currency. Revaluation is also a change in a fixed exchange rate caused by the central bank. a unit of domestic currency is made more valuable, so that fewer uni

37、ts need to be exchanged for 1 unit of foreign currency.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-25Devaluation For devaluation to occur, the central bank buys foreign assets, so that the domestic money supply increases, and interest rates fall, causing a fall in the return on dom

38、estic currency assets.Domestic goods are cheaper, so aggregate demand and output increase.Official international reserve assets (foreign bonds) increase.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-26Effect of a Currency DevaluationPP472(459 -460) Devaluation causes a rise in output

39、 ,a rise in official reserves and an expansion of money supplyIf the central bankdevalues the domestic currency so that the new fixed exchange rate is E1, it buys foreign assets, increasing the money supply, decreasing the interest rate andincreasing outputCopyright 2021 Pearson Addison-Wesley. All

40、rights reserved.17-27Financial Crises and Capital Flight When a central bank does not have enough official international reserve assets to maintain a fixed exchange rate, a balance of payments crisis results.To sustain a fixed exchange rate, the central bank must have enough foreign assets to sell i

41、n order to satisfy the demand for them at the fixed exchange rate.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-28Financial Crises and Capital Flight (cont.)Investors may expect that the domestic currency will be devalued, causing them to want foreign assets instead of domestic asset

42、s, whose value is expected to fall soon.This expectation or fear only makes the balance of payments crisis worse: 1. investors rush to change their domestic assets into foreign assets, depleting the stock of official international reserve assets more quickly.Copyright 2021 Pearson Addison-Wesley. Al

43、l rights reserved.17-29Financial Crises and Capital Flight (cont.)As a result, financial capital is quickly moved from domestic assets to foreign assets: capital flight.The domestic economy has a shortage of financial capital for investment and has low aggregate demand.To avoid this outcome, domesti

44、c assets must offer a high interest rates to entice investors to hold them.The central bank can push interest rates higher by reducing the money supply (by selling foreign assets).As a result, the domestic economy may face high interest rates, reduced money supply, low aggregate demand, low output a

45、nd low employment.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-30Financial Crises and Capital Flight (cont.)To attract investorsto hold domestic assets (currency) atthe original exchangerate, the interest ratemust rise through asale of foreign assets.Expected devaluation makesthe ex

46、pected return on foreignassets higherCopyright 2021 Pearson Addison-Wesley. All rights reserved.17-31Financial Crises and Capital Flight (cont.) Expectations of a balance of payments crisis only worsen the crisis and hasten devaluation. What causes expectations to change? Expectations about the cent

47、ral banks ability and willingness to maintain the fixed exchange rate. Expectations about the economy: shrinking demand for domestic products relative to foreign products means that the domestic currency should become less valuable. In fact, expectations of devaluation can cause a devaluation: self-

48、fulfilling crisis.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-32Financial Crises and Capital Flight (cont.) What happens if the central bank runs out of official international reserves (foreign assets)? It must devalue the domestic currency so that it takes more domestic currency (

49、assets) to exchange for 1 unit of foreign currency (asset). This will allow the central bank to replenish its foreign assets by buying them back at a devalued rate, increasing the money supply, reducing interest rates, reducing the value of domestic products, increasing aggregate demand, output, emp

50、loyment over time. Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-33Financial Crises and Capital Flight (cont.) In a balance of payments crisis,the central bank may buy domestic bonds and sell domestic currency (to increase the money supply) to prevent high interest rates, but this on

51、ly depreciates the domestic currency more.the central bank generally can not satisfy the goals of low interest rates and fixed exchange rates simultaneously.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-34Interest Rate Differentials For many countries, the expected rates of return ar

52、e not the same: R R*+(Ee E)/E . Why? Default risk: The risk that the countrys borrowers will default on their loan repayments. Lenders require a higher interest rate to compensate for this risk. Exchange rate risk:If there is a risk that a countrys currency will depreciate or be devalued, then domes

53、tic borrowers must pay a higher interest rate to compensate foreign lenders.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-35Interest Rate Differentials (cont.) Because of these risks, domestic assets and foreign assets are not treated the same. Previously, we assumed that foreign and

54、 domestic currency deposits were perfect substitutes: deposits everywhere were treated as the same type of investment, because risk and liquidity of the assets were assumed to be the same. In general, foreign and domestic assets may differ in the amount of risk that they carry: they may be imperfect

55、 substitutes. Investors consider this risk, as well as rates of return on the assets, when deciding whether to invest.Copyright 2021 Pearson Addison-Wesley. All rights reserved.17-36Interest Rate Differentials (cont.) A difference in the risk of domestic and foreign assets is one reason why expected

56、 returns are not equal across countries:R = R*+(Ee E)/E + (B-A) pp479(466)where is called a risk premium, an additional amount needed to compensate investors for investing in risky domestic assets. The risk could be caused by default risk or exchange rate risk.Copyright 2021 Pearson Addison-Wesley.

57、All rights reserved.17-37Interest Rate Differentials (cont.) An increase in the perceived risk of investing in domestic assets makes foreign assets more attractive and leads to a depreciation or devaluation of the domestic currency.Or at fixed exchange rates, the central bank will need to sell forei

58、gn assets, increasing the rate of return on domestic assets (domestic interest rates) and decreasing the domestic money supply.Exchange rate, EQuantity of real monetary assetsDomestic interest rates, RR* + (Ee E)/E R* + (Ee E)/E + E2E1L(R, Y)R2R1MS0/PM0/PMS1/PM1/PInterest Rate Differentials (cont.)

59、Increase in the perceived risk of investing in domestic assets makes foreign assets more attractive and leads to a depreciation of the domestic currency.Or at fixed exchange rates, the return on domestic assets needs to be higher in equilibriumApplication:pp481(467)Copyright 2021 Pearson Addison-Wes

60、ley. All rights reserved.17-39CASE STUDY: The Mexican Peso Crisis, 19941995 In late 1994, the Mexican central bank devalued the value of the peso relative to the US dollar. This action was accompanied by high interest rates, capital flight, low investment, low production and high unemployment. What