Exchange Market Pressure and the Credibility of Macau's Currency Board
In this study, we assess the credibility of the currency board arrangement (CBA) of the Macau Special Administrative Region by studying the relationship between exchange market pressure (EMP) and the anchors of a rule-based CBA, namely, interest rate arbitrage, exchange rate arbitrage and economic discipline. A pure CBA signals its credibility by allowing the first two anchors to function automatically and by pursuing sound fiscal policies. The analysis’ results suggest that Macau’s CBA has been characterised by a state of low volatility since late 1992, with the brief exception of the East Asian financial crisis period. The paper’s main finding is that fiscal fundamentals seem to have a more pronounced role in reducing EMP’s variability during periods of low volatility whilst interest rate arbitrage is more important in periods of high volatility. We conclude that Macau’s CBA is credible at present as reflected in the low frequency of observed EMP, in the narrowing of Macau’s interest rate differential vis-a-vis U.S. interest rates and in Macau’s substantial fiscal reserves.
Exchange Market Pressure in Korea: An Application of the Girton-Roper Monetary Model
Korea's exchange rates have been changing daily since its adoption of the flexible exchange rate system in February 1980. The purpose of this paper is to examine the simultaneous adjustment of both exchange rates and the balance of payments in Korea. The Girton-Roper (1977) model of exchange market pressure is applied. The model draws on a combination of the monetary approach to the balance of payments (Johnson 1972) and to exchange rate determination (Frenkel and Johnson 1978). The main theoretical proposition of the Girton-Roper (hereafter, G-R) model states that an excess domestic supply of money will cause some combination of currency depreciation and an outflow of foreign reserves. The G-R model of exchange market pressure was designed for the Canadian managed float during the period from 1952 to 1962. Connolly and Silveira (1979) took the G-R model and applied it to the Brazilian experience for the period from 1955 to 1975. Modeste (1981) used the same model to explain the monetary experience of Argentina in the 1970s. Korean experience provides another good opportunity to test theoretical propositions of the G-R version of the monetary approach to managed floating. First of all, Korea fits the model of exchange market pressure because the country can be treated as a small open economy which takes foreign prices as given. In addition, changes in Korea's exchange rates can be considered to be the product of market pressure since the Korean won is linked to a multicurrency basket. The exchange rate of the Korean won is determined largely by the exchange rate formula which relies on both the special drawing right (SDR) basket and Korea's own currency basket. It is according to this formula that the Bank of Korea establishes daily the exchange rate in terms of the intervention currency, the U.S. dollar.l
Public Hospitals : Options for Reform through Public-Private Partnerships
Globally, health expenditures rose from an average of 3 percent of GDP in 1950 to 8 percent (US$3 trillion) in 1999 (WHO 2000). The increase in spending has been driven by rising income, changing demographic and epidemiological trends, and costly new pharmaceuticals and technology. Although technology is allowing a shift to outpatient care, hospitals still account for 30–50 percent of health expenditures. Public funding has not kept pace with the growth in spending. Much of the increase has been financed from private sources (out-ofpocket payments and private insurance), while the share funded publicly (by tax revenue and national insurance) declined by 6 percent between 1977 and 1997. Constraints on public funding, combined with rising costs, have forced public hospitals to cut costs wherever possible while still endeavoring to guarantee universal (and often free) access to public patients.1 Governments have used different strategies to address these problems, such as shifting financing from general tax revenue to payroll-financed national health insurance, narrowing the basic package of services available to all citizens, linking hospital funding to outputs and efficiency, amalgamating hospitals into networks, increasing autonomy and incentives for management, and reducing the number of hospital beds. Some governments have also turned to public-private partnerships to bring private sector efficiency into public hospitals.