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.
Monetary Policy and Exchange Market Pressure in Pakistan
This study analyses the foreign exchange market disequilibrium in Pakistan. A monetary model of exchange market pressure has been developed and estimated using a VAR model. Employing Granger causality and impulse response analysis, it is shown that monetary authorities in Pakistan have only limited control over the domestic money supply and any effort to increase domestic credit will not be successful as it leads to the drainage of foreign reserves and attempts to sterilise the monetary effects of the loss of reserves will be largely ineffective.
Gresham's Law, Asset Preferences, and the Demand for International Reserves
Introduction, 628. — I. The demand for international reserves under the gold exchange system, 630; adjustment to asset preferences, 630; crisis in the gold exchange standard, 631. — II. The demand for reserves in the IMF system, 631; attributes of reserve assets, 632; ranking of reserve assets, 633 adjustment to asset preferences, 634; changes in asset attributes, 636. — III. Conclusion, 638.