Exit Expectations and Debt Crises in Currency Unions
Alexander Kriwoluzky, G. J. Müller, M. Wolf
IWH Discussion Papers,
No. 18,
2015
Abstract
Membership in a currency union is not irreversible. Exit expectations may emerge during sovereign debt crises, because exit allows countries to reduce their liabilities through a currency redenomination. As market participants anticipate this possibility, sovereign debt crises intensify. We establish this formally within a small open economy model of changing policy regimes. The model permits explosive dynamics of debt and sovereign yields inside currency unions and allows us to distinguish between exit expectations and those of an outright default. By estimating the model on Greek data, we quantify the contribution of exit expectations to the crisis dynamics during 2009 to 2012.
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Financial Stability and Central Bank Governance
Michael Koetter, Kasper Roszbach, G. Spagnolo
International Journal of Central Banking,
No. 4,
2014
Abstract
The financial crisis has ignited a debate about the appropriate objectives and the governance structure of Central Banks. We use novel survey data to investigate the relation between these traits and banking system stability focusing in particular on their role in micro-prudential supervision. We find that the separation of powers between single and multiple bank supervisors cannot explain credit risk prior or during the financial crisis. Similarly, a large number of Central Bank governance traits do not correlate with system fragility. Only the objective of currency stability exhibits a significant relation with non-performing loan levels in the run-up to the crisis. This effect is amplified for those countries with most frequent exposure to IMF missions in the past. Our results suggest that the current policy discussion whether to centralize prudential supervision under the Central Bank and the ensuing institutional changes some countries are enacting may not produce the improvements authorities are aiming at. Whether other potential improvements in prudential supervision due to, for example, external disciplinary devices, such as IMF conditional lending schemes, are better suited to increase financial stability requires further research.
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Devaluation Expectations Based on Cross-listed Stocks: Evidence for Financial Crises in Argentina Then and Now
Stefan Eichler
Applied Economics Letters,
No. 10,
2014
Abstract
I use the relative prices of American Depositary Receipts and their underlying stocks to derive devaluation expectations. I find that stockholders currently perceive an overvalued peso. Devaluation expectations are driven by the incentive of competitive devaluation and sovereign default risk.
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Exchange Rate Regime, Real Misalignment and Currency Crises
Oliver Holtemöller, Sushanta Mallick
Economic Modelling,
No. 34,
2013
Abstract
Based on 69 sample countries, this paper examines the effect of macroeconomic fundamentals on real effective exchange rates (REER) in these sample countries. Using the misalignment of actual REER from its equilibrium level, we have estimated the factors explaining the extent of currency over- or under-valuation. Overall, we find that the higher the flexibility of the currency regime, the lower is the misalignment. The estimates are robust to different sub-samples of countries. We then explore the impact of such misalignment on the probability of a currency crisis in the next period, indicating the extent to which misalignment could be used as a leading indicator of a potential crisis. This paper thus makes a new contribution to the debate on the choice of exchange rate regime by bringing together real exchange rate misalignment and currency crisis literature.
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The New EU Countries and Euro Adoption
Hubert Gabrisch, Martina Kämpfe
Intereconomics,
No. 3,
2013
Abstract
In the new member states of the EU which have not yet adopted the euro, previous adoption strategies have come under scrutiny. The spillovers and contagion from the global financial crisis revealed a new threat to the countries’ real convergence goal, namely considerable vulnerability to the transmission of financial instability to the real economy. This paper demonstrates the existence of extreme risks for real convergence and argues in favour of a new adoption strategy which does not announce a target date for the currency changeover and which allows for more flexible and countercyclical monetary, fiscal and wage policies.
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Währung ohne Souverän: Zur Ursache und Überwindung der Euro-Krise
Hubert Gabrisch
Leviathan - Berliner Zeitschrift für Sozialwissenschaft,
No. 1,
2013
Abstract
Ich argumentiere, dass eine Währung einen Souverän braucht, um Stabilität auf den Finanzmärkten und in der Realwirtschaft zu sichern. Andernfalls würde eine Währungsunion über kurz oder lang zerfallen. Insofern ist die aktuelle Krise des Euro-Raums auf das Fehlen eines Souveräns zurückzuführen. Die Theorie des optimalen Währungsraums bringt keine Erkenntnisse zur Überwindung der Krise, weil sie die Separierung von Geld und Staat als Grundlage hat. Auch deshalb liefert sie eher eine Begründung für Reformen wie den Fiskalpakt, dem zufolge fiskalische Operationen von der Einschätzung der Finanzmärkte abhängen sollen. Ich zeige, wie der Fiskalpakt im Gegenteil zu einer tiefen Rezession und zu einer dauerhaften Kluft zwischen Gläubiger- und Schuldnerländern führen wird. Notwendig ist vielmehr eine Transformation der Währungsunion in einen souveränen Währungsraum, in dem eine effektive Koordination von Geld- und Fiskalpolitik zwischen einer EU-Finanzbehörde und der Zentralbank im Sinne einer funktionalen Fiskalpolitik möglich wird.
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Mittel- und Osteuropa in der Weltfinanzkrise: Simultanes Auftreten von Banken- und Währungskrisen?
Diemo Dietrich, Axel Lindner, Tobias Knedlik
A. F. Michler, H. D. Smeets (Hrsg.), Die aktuelle Finanzkrise: Bestandsaufnahme und Lehren für die Zukunft. Schriften zu Ordnungsfragen der Wirtschaft, Bd. 93,
2011
Abstract
Der vorliegende Beitrag widmet sich der Frage, ob in der Weltfinanzkrise die (Post-)transformationsländer Mittel- und Osteuropas durch Zwillingskrisen betroffen waren, ob also sowohl deren Währungen unter starken Abwertungsdruck gerieten als auch deren Bankensysteme nicht mehr in der Lage waren, ihre Intermediationsfunktionen wahrzunehmen. Hierbei wird den Besonderheiten dieser Länder insoweit Rechnung getragen, als dass die Struktur ihres Bankensektors und das Ausmaß ihrer internationalen Verschuldung berücksichtigt werden.
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Der Euro als Triebfeder des deutschen Exports?
Götz Zeddies
List Forum für Wirtschafts- und Finanzpolitik,
No. 3,
2011
Abstract
The excessive accumulation of debt especially in the southern member states currently challenges European Monetary Union (EMU). Whereas for a long time, preventing a break-up of EMU was indisputable, in the meantime, voices were being raised claiming a withdrawal of Greece from the currency union. Especially in Germany, a withdrawal of individual members from the currency union (or even a complete break-up of EMU) is associated with economic disadvantages. Particularly, it is argued that EMU is of greatest utility for Germany due to the countries’ longstanding wage moderation and strong export orientation. Against this background, this paper analyzes the effects of a withdrawal of individual member states from the currency union on German exports. Thereby, it is assumed that a withdrawal of those countries from EMU would be accompanied by real devaluations. As the analyses show, the impact of a withdrawal of Ireland, Greece, Spain and Portugal from the currency union on German exports would be rather small. However, since European Monetary Union as a whole is still the most important foreign market for German manufacturers, a complete break-up of EMU could noticeably weaken German export performance.
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