IEO Evaluation of Exchange Rate Policy
Contents:
It is this very human capital that can form the base on which progress can be achieved. Kitts and Nevis St. Public Health Health Policy. Nordic Council of Ministers. Print Cite Citation Alert off. Independent Evaluation Office Reports Author s: Independent Evaluation Office Publisher: The overriding question addressed by this evaluation is whether, over the period, the IMF fulfilled this core responsibility.
The main finding is that the IMF was simply not as effective as it needs to be in both its analysis and advice and in its dialogue with member countries.
IEO Evaluation of IMF Exchange Rate Policy Advice, IMF Exchange Rate Policy Advice. Full Report. Full text of entire report including all related. IEO Evaluation of Exchange Rate Policy. The IMF is charged by its Articles of Agreement and a Executive Board Decision to exercise surveillance over the.
The report also presents a detailed set of recommendations that could go a long way in improving the quality and effectiveness of IMF surveillance. Introduction and Context Chapter 2: I58 I Price: A Full Review of Country Documents 5. List of Interviewees Boxes 1. The Global Context 2.
IMF Exchange Rate Policy Advice – Evaluation Update
Views on the Integration of Spillovers 4. A Closer Look 4. Relevance of Issues for Internal Discussions A6. Coverage of Discussions with Authorities A6. Major Areas of Disagreement A6. Interactions Between Authorities and Staff A6. Off-the-Table Issues and Leaks A6.
IEO Annual Report, 2007
Areas of Significant Room for Improvement A6. Staff Survey Responses A6. You are not logged in and do not have access to this content. Please login or, to subscribe to IMF eLibrary, please click here. Front Matter Chapter 1: Other Resources Citing This Publication look up citations for this publication in google scholar. Contact us Privacy policy Legal notices. Other methodologies for determining the equilibrium competitive real exchange rate include influences such as the terms-of-trade, relative labour productivity, interest rate differentials and net foreign assets in the set of economic fundamentals.
The move to an overvalued real exchange rate by an appreciation in the nominal exchange rate leads to lower imported inflation, and this benefit may, at the time it takes place, appear attractive to governments, particularly if domestic inflation is high and there is uncertainty about the ability of interest rate policy to lower inflation. As well, countries with a fixed exchange rate regime may use the nominal exchange rate as an anchor against inflation. Authorities in these countries may be reluctant to change the fixed nominal parity by devaluation to avoid overvaluation of the real exchange rate in circumstances where inflation is rising faster than in trading partner economies and the current account is deteriorating.
This policy preference may reflect a belief that the benefits from lower inflation exceed the uncertain short-term trade benefits from devaluation. However, broadly-based overvaluation usually detracts from export competitiveness, and makes imports cheaper, thus contributing to larger trade and current account deficits and, in the Pacific island context, to even greater import dependency.
Reflecting the nature of currency pegs and invoicing practices, some sectors of the tourism industry may be adversely affected by overvaluation. Overvaluation of the real exchange rate slows productivity growth and is not usually associated with growth acceleration. With current and capital accounts adversely impacted, monetary policy and capital controls would need to be tightened to lower import demand and to check the capital outflow.
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If left unaddressed substantial overvaluation of the real exchange rate is likely to result in devaluation of the nominal exchange rate being forced on the government during an inevitable balance of payments crisis. Large one-off devaluations of this type, following a period of substantial overvaluation, may contribute to sharply higher imported inflation as can be observed in the case of Fiji in Chart 1 , abrupt disruption to established industry structures and higher unemployment in the short-term. Chart 3 illustrates the movements in the real effective exchange rates for selected Pacific island countries before and during the global economic crisis.
As can be observed, exchange rates became overvalued across a number of Pacific island countries during the global economic crisis. Care is required when interpreting movements in real effective exchange rates. It cannot be concluded without further analysis that depreciation a fall of the real effective exchange rate over time is a good thing as it reflects increased exchange rate competitiveness or that an appreciation a rise over time of the real effective exchange rate is necessarily a bad thing on the basis that it reflects a loss of exchange rate competitiveness.
A rise in the real effective exchange rate could reflect a loss of competitiveness that should be of concern, or it could reflect an improvement in economic performance that should be welcomed. The real effective exchange rate may rise because inflation is higher in the domestic economy than in trading partner countries. Armed with this estimate one can compare the actual real effective exchange rate with the estimated equilibrium competitive real effective exchange rate to determine if the actual real effect ive exchange rate is undervalued or overvalued, or around its equilibrium competitive level.
Critical voices on the world bank and IMF
Chart 3 indicates that some Pacific island countries had rising real effective exchange rates before the global economic crises developed and, based on IMF estimates reported in relevant published IMF Article IV Consultation Staff Reports, a number of countries experienced overvalued exchange rates during the crisis.
The experience of some Pacific island countries — a tendency toward currency overvaluation and the potential for net capital outflow — stands in contrast to that of developing Asian countries which experienced currency undervaluation and, in some cases, excessive capital inflow. For Samoa there are no recently published estimates of any currency misalignment. Tonga, Samoa, Vanuatu, Fiji and Solomon Islands all microstates 28 operate fixed pegged exchange rate regimes.
Solomon Islands has a de facto peg against the United States dollar. Other countries Fiji, Vanuatu, Samoa and Tonga peg their currencies to a basket of currencies of other countries. For Samoa and Tonga there is a margin — a horizontal band — in the pegged arrangements that provides the opportunity for the authorities to move the exchange rate within the band. For Samoa the margin is plus or minus 2 per cent, while for Tonga the margin is plus or minus 5 per cent per month around the central rate.
Amazon Giveaway allows you to run promotional giveaways in order to create buzz, reward your audience, and attract new followers and customers. In keeping with established practice, the report and its background documents are being published as they were submitted to the Executive Board, except for minor formatting changes. Large one-off devaluations of this type, following a period of substantial overvaluation, may contribute to sharply higher imported inflation as can be observed in the case of Fiji in Chart 1 , abrupt disruption to established industry structures and higher unemployment in the short-term. Nevertheless, the IEO maintains that, no matter how complicated the issues, the performance bar for the IMF must be set very high. Contact us Privacy policy Legal notices. Reflecting the nature of currency pegs and invoicing practices, some sectors of the tourism industry may be adversely affected by overvaluation.
For many Pacific island countries fixed pegged exchange rates, rather than monetary aggregates or specific inflation rate targets, have served as the inflation anchor 29 during the global crisis period. Fixed pegged exchange rate regimes are generally thought to be associated with lower transaction costs, greater certainty, lower real exchange rate volatility, higher trade openness, disciplined macroeconomic policies and relatively low growth of monetary aggregates, a better inflation performance 30 and stronger inflation anchors. It has been argued that countries with pegged exchange rates may benefit from lower inflation and greater policy credibility if the country to which the peg is struck has low inflation.
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