Exchange Rate Policies, Prices and Supply-Side Response: A by Christos Papazoglou, E. Pentecost

By Christos Papazoglou, E. Pentecost

This publication, established upon a large-scale study undertaking, examines substitute sorts of trade price regulations being pursued and the altering nature of alternate expense coverage through the transition method in 4 nations, Slovenia, Bulgaria, Poland and the Czech Republic. The ebook brings jointly a chain of unique contributions via nation specialists and attracts out a few universal issues and over-arching coverage implications for the operation of trade price coverage within the transition procedure.

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Extra info for Exchange Rate Policies, Prices and Supply-Side Response: A Study of Transitional Economies

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The trade dampening/smoothing can be traced down to the reservation price formation by H in the C*-market. 44) S(~m - ~c/p) for the periods when H buy C* directly with the currency obtained in the spot forex market. Therefore, this demand would be also valid any time in the absence of currency options. 1, at least during some short interval prior to T, the inequality -~* < S-S~m is valid. The dynamics of t, and ;m are independent of the method with which C* is acquired (can be shown on the basis of the adjoint equation), and the same is true about the terminal values ~c(T) and ~m (T).

THE MODEL The prime objective of the model is to analyse transitional economies. Thus, to capture the possible effects of privatization and an unstable money supply it was necessary to separate equity and outstanding debt on the liability side of the firms' balance sheets and model two different security markets: for shares and bonds. The results about the currency option market will be derived later by analysing households and exporters in more detail. Actors, Goods and Uncertainty Factors The agents in the economy are households, international investors and firms in the real business sector producing domestic consumption goods, imported goods and exported goods, for which the shorthands H, INV, FC, FI, FX are used throughout.

9) In the same way as in the case of FC, individual terms have the following meaning. Function g measures the firm's ability to pay dividends and finance operations out of the current cash holdings kO, relative to the ownership structure, that is, number of outstanding shares, k", Function ga expresses the costliness of new bond and equity issues. ; i . Currency Options and Trade Smoothing 36 Exporters The exporter's model will be formally very similar to that of the FC-firm, with the obvious adjustments due to the external source of its revenue.

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