Financial globalization and the implications for monetary and exchange rate policy [Elektronische Ressource] / vorgelegt von Julia Bersch

Julia Bersch

Informations

• Publié par: ludwig-maximilians-universitat_munchen
• Publié le: 01 janvier 2009
• Nombre de lectures: 7
• Langue: English
• Poids de l'ouvrage: 1 Mo

Extrait

Financial globalization and the
implications for monetary and
exchange rate policy
Inaugural-Dissertation
zur Erlangung des Grades
Doctor oeconomiae publicae (Dr. oec. publ.)
an der Ludwig-Maximilians-Universität München
2008
vorgelegt von
Julia Bersch
Referent: Prof. Dr. Gerhard Illing
Korreferentin: Prof. Graciela L. Kaminsky, PhD
Promotionsabschlussberatung: 4. Februar 2009Acknowledgements
The development and completion of this thesis would not have been possible without
the help and encouragement of numerous people. I would like to thank my supervisor
Gerhard Illing for his ongoing support. Also, I thank Graciela Kaminsky for giving me
the opportunity to spend a year at the George Washington University and spuring my
excitement about international finance and applied economic work. I benefited very
much from the joint work on financial globalization at the turn of the 20th century of
which chapter 4 is a part. I would also like to thank Dalia Marin who agreed to act as
my third examiner and who has supported me in many ways as my mentor within the
LMU Mentoring Program.
I especially thank Uli Klüh for the inspiring and challenging discussions on all ar-
eas of economics. Chapter 2 is the result of our mutual enthusiasm for contradictions
between observed monetary and exchange rate policies and economic theory and was
mainly developed during my stay in Washington, DC. Furthermore, I would like to
thank my other present and former colleagues at the Ludwig-Maximilians-Universität
in Munich who have motivated me at different stages of my dissertation: Desislava An-
dreeva, JosefForster, MoritzHahn, FrankHeinemann, HannahHörisch, FlorianKajuth,
Katri Mikkonen, Nadine Riedel, Stephan Sauer, and Sebastian Watzka.
I would not be where I am without the outstanding experience and the contact with
various people at the George Washington University. I thank the Economics department
for the hospitality and I am particularly indebted to Graciela Kaminsky, Yasya Babych,
Marco Cipriani, Ana Fostel, Juan Ángel Jiménez Martín, Roberto Samaniego, Tara
Sinclair, and Pablo Vega-Garcia. Financial support by the German Academic Exchange
Service (DAAD) and Stiftung Geld und Währung for my research stay at the George
Washington University during the academic year 2006-2007 is highly appreciated.
Furthermore, I would like to thank the participants at various seminars and confer-
ences for their helpful comments. I am also indebted to Agnès Bierprigl for excellent
administrative support and to Dirk Rösing for reliable IT assistance. Furthermore, I
thank the student research assistants at the Seminar for Macroeconomics, especially
Johannes Kümmel for help with the data work for chapter 4.
My deepest thanks go to my family for all their support and love. Without them, this
thesis would not have been possible.
Munich, September 2008Contents
1 Introduction 1
2 When countries do not do what they say: Systematic discrepancies be-
tween exchange rate regime announcements and de facto policies 7
2.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.2 Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2.1 Exchange rate regimes and discrepancies . . . . . . . . . . . . . . 12
2.2.2 Explanatory variables. . . . . . . . . . . . . . . . . . . . . . . . . 15
2.3 Time trends and joint factors . . . . . . . . . . . . . . . . . . . . . . . . 17
2.4 Descriptive statistical analysis . . . . . . . . . . . . . . . . . . . . . . . . 18
2.4.1 Consistent regime combinations . . . . . . . . . . . . . . . . . . . 18
2.4.2 Intervening less than announced (ILA) . . . . . . . . . . . . . . . 19
2.4.3 Intervening more than announced (IMA) . . . . . . . . . . . . . . 22
2.5 Econometric analysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
2.5.1 Methodological considerations . . . . . . . . . . . . . . . . . . . . 24
2.5.2 Baseline results . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
2.5.3 Robustness checks - sensitivity analysis . . . . . . . . . . . . . . . 28
2.5.4 Interpretation of the empirical evidence . . . . . . . . . . . . . . . 29
2.6 Conclusions and outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . 34
2.A Appendix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.A.1 Data issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
2.A.2 Graphs and tables . . . . . . . . . . . . . . . . . . . . . . . . . . 37
3 Inflation targeting in small open economies 51
3.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
3.2 Literature review and stylized facts . . . . . . . . . . . . . . . . . . . . . 53
3.3 Theoretical model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
iiContents
3.4 Implementing flexible inflation targeting . . . . . . . . . . . . . . . . . . 61
3.4.1 Basic model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
3.4.2 Relaxing purchasing power parity . . . . . . . . . . . . . . . . . . 63
3.4.3 Relaxing purchasing power parity and uncovered interest rate parity 65
3.5 Comparison of the results . . . . . . . . . . . . . . . . . . . . . . . . . . 66
3.6 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69
3.A Derivation of the interest rate reaction function . . . . . . . . . . . . . . 71
4 Financial globalization in the 19th century: Germany as a financial center 74
4.1 Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74
4.2 Capital markets, main players, and regulations in stock exchanges . . . . 77
4.2.1 Development of the German stock exchanges . . . . . . . . . . . . 77
4.2.2 Main players. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
4.2.3 Regulation of the stock exchanges . . . . . . . . . . . . . . . . . . 81
4.2.4 The process of issuance . . . . . . . . . . . . . . . . . . . . . . . . 83
4.3 International issuances . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84
4.3.1 Data sources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 85
4.3.2 Aggregate issuances . . . . . . . . . . . . . . . . . . . . . . . . . . 86
4.3.3 Individual foreign securities . . . . . . . . . . . . . . . . . . . . . 88
4.4 The role of external shocks . . . . . . . . . . . . . . . . . . . . . . . . . . 91
4.4.1 The model . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91
4.4.2 Estimation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 93
4.4.3 Robustness checks . . . . . . . . . . . . . . . . . . . . . . . . . . 95
4.5 Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 96
4.A Appendix: Figures and tables . . . . . . . . . . . . . . . . . . . . . . . . 97
Bibliography 114
iiiList of Figures
2.1 Taxonomy of de jure and de facto exchange rate regime combinations. . . 14
2.2 Exchange rate regimes and discrepancies over time - all countries. . . . . 38
2.3 Exchange rate regime discrepancies, financial openness, and world inflation. 39
4.1 Foreign issuances floated in the main financial centers. . . . . . . . . . . 97
4.2 Aggregate issuances floated in Germany. . . . . . . . . . . . . . . . . . . 99
4.3 Domestic and foreign issuances floated in Germany. . . . . . . . . . . . . 99
4.4 Foreign issues floated in Germany by sector. . . . . . . . . . . . . . . . . 100
4.5 Domestic issues floated iny by sector. . . . . . . . . . . . . . . . 100
4.6 Foreign and domestic issuances: bonds and equity by sectors. . . . . . . . 101
4.7 Foreign securities by regions. . . . . . . . . . . . . . . . . . . . . . . . . . 103
4.8 International lending: country composition, 1883-1897. . . . . . . . . . . 104
4.9 Evolution of lending, 1883-1897. . . . . . . . . . . . . . . . . . . . . . . . 105
4.10 Size of issues (in million British pounds). . . . . . . . . . . . . . . . . . . 106
4.11 Principal components of the risk indicators. . . . . . . . . . . . . . . . . 107
4.12 Interest rate differentials and private discount rate. . . . . . . . . . . . . 108
4.13 Economic activity in Germany and the UK. . . . . . . . . . . . . . . . . 109
4.14 Actual, fitted, and residual series, OLS (1). . . . . . . . . . . . . . . . . . 111
ivList of Tables
2.1 Exchange rate regimes. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
2.2 Country coverage. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40
2.3 Data sources. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41
2.4 Distribution of regime discrepancies by regions and country groups - ILA. 42
2.5 Distribution of regime by regions and country groups - IMA. 43
2.6 ILA - tests for equality of means, medians, and distributions. . . . . . . . 44
2.7 IMA - tests for equality of means, medians, and distributions. . . . . . . 45
2.8 Pooled probit estimations for whole sample. . . . . . . . . . . . . . . . . 46
2.9 Pooled probit estimations for low income countries. . . . . . . . . . . . . 47
2.10 Pooled probit estimations for lower middle income countries. . . . . . . . 48
2.11 Pooled probit estimations for upper middle income countries. . . . . . . . 49
2.12 Pooled probit estimations for high income countries. . . . . . . . . . . . . 50
3.1 Interest rate reaction functions. . . . . . . . . .