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This paper characterizes exchange market pressure as a nonlinear Markov-switching phenomenon, and examines its dynamics in response to money growth and inflation over three regimes. The empirical results identify episodes of exchange market pressure in the Kyrgyz Republic and confirm the statistical superiority of the nonlinear regime-switching model over a linear VAR version in understanding exchange market pressure. The nonlinear empirical approach adequately characterizes the data generation process and yields results that are consistent with theoretical predictions, particularly the dampening effect of monetary contraction on depreciation pressure. During periods of appreciation pressure, however, the reverse policy option-monetary expansion-may not be efficient, particularly where PPP rather than UIP drives exchange rates. In addition, monetary expansion in such cases defeats the primary objective of monetary policy-price stability-and may exacerbate the instability.

Finance: General --- Foreign Exchange --- Investments: General --- Money and Monetary Policy --- International Financial Markets --- Investment --- Capital --- Intangible Capital --- Capacity --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Currency --- Foreign exchange --- Finance --- Macroeconomics --- Monetary economics --- Exchange rates --- Currency markets --- Exchange rate adjustments --- Depreciation --- Currencies --- Foreign exchange market --- Saving and investment --- Money --- Kyrgyz Republic

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Unanticipated changes in commodity prices can generate significant movements in fiscal aggregates. This paper seeks to understand the dynamics of these fiscal movements in the context of transitory commodity price shocks using sample data from four CIS countries- two oil-producing and two non-oil commodity-intensive countries. It adopts a structural VAR approach and identifies the dynamic effects of commodity price shocks on fiscal performance under two broad tax regimes. Stochastic simulations indicate high probabilities of fiscal overperformance in the short term when commodity prices are high. These probabilities deteriorate significantly, however, in the long term after the transitory positive commodity price shock has dissipated, particularly when lax fiscal policy is adopted during the period of the price boom.

Autoregression (Statistics). --- Commodity exchanges -- Former Soviet republics -- Econometric models. --- Electronic books. -- local. --- Fiscal policy -- Former Soviet republics -- Econometric models. --- Prices -- Former Soviet republics -- Econometric models. --- Taxation -- Former Soviet republics -- Econometric models. --- Macroeconomics --- Public Finance --- Econometric Modeling: General --- Fiscal Policy --- General Outlook and Conditions --- Commodity Markets --- Price Level --- Inflation --- Deflation --- National Government Expenditures and Related Policies: General --- Public finance & taxation --- Commodity price shocks --- Commodity price fluctuations --- Commodity prices --- Commodity price indexes --- Expenditure --- Prices --- Price indexes --- Expenditures, Public --- Kyrgyz Republic

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The economic literature has examined deposit dollarization in nominal terms, typically focusing on the ratio of foreign currency deposits to broad money. However, while private agent demand for foreign currency may remain unchanged in foreign currency terms, there could be large fluctuations in the dollarization ratio simply due to exchange rate movements. This paper proposes a new approach to measuring dollarization that removes these exchange rate effects, and demonstrates that beyond the variance of inflation and depreciation, the level of inflation and size of depreciation also matter for dollarization. While dollarization in nominal terms surged during the recent global financial crisis, there was a downward trend in real terms. Employing a set of econometric estimators, this paper investigates whether “real” dollarization during 2006–09 was associated with the crisis, and the role of initial macroeconomic conditions, quality of institutions, risk aversion, and prudential measures. We find that exchange rate appreciation and reductions in sovereign risk do moderate dollarization; but the results for global volatility have low statistical significance, perhaps because global shocks tend to preserve, to a large extent, relative attractiveness of foreign assets. Nonetheless, estimated impulse-response functions point to a large but short-lived positive impact of global volatility on dollarization, which could reflect economic agents heightened concerns about spillover effects of global uncertainty on the domestic economy.

Dollarization --- Global Financial Crisis, 2008-2009 --- Foreign exchange rates --- Financial risk --- Exchange rates --- Fixed exchange rates --- Flexible exchange rates --- Floating exchange rates --- Fluctuating exchange rates --- Foreign exchange --- Rates of exchange --- Global Economic Crisis, 2008-2009 --- Subprime Mortgage Crisis, 2008-2009 --- Financial crises --- Monetary policy --- Business risk (Finance) --- Money risk (Finance) --- Risk --- Econometric models. --- Rates --- Foreign Exchange --- Investments: General --- Money and Monetary Policy --- Multiple or Simultaneous Equation Models: Models with Panel Data --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- Financial Crises --- Portfolio Choice --- Investment Decisions --- Financial Institutions and Services: General --- Monetary Systems --- Standards --- Regimes --- Government and the Monetary System --- Payment Systems --- Investment --- Capital --- Intangible Capital --- Capacity --- Monetary economics --- Currency --- Macroeconomics --- Currencies --- Depreciation --- Exchange rate arrangements --- Money --- National accounts --- Saving and investment --- Zambia

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This paper focuses on impact of the global financial crisis on the Gulf Cooperation Council (GCC) Countries and challenges ahead. The oil price boom led to large fiscal and external balance surpluses in the GCC countries. However, it also generated domestic imbalances that began to unravel with the onset of the global credit squeeze. As the global deleveraging process took hold, and oil prices and production fell, the GCC’s external and fiscal surpluses declined markedly, stock and real estate markets plunged, credit default swap spreads on sovereign debt widened, and external funding for the financial and corporate sectors tightened. In order to offset the shocks brought on by the crisis, governments—buttressed by strong international reserve positions—maintained high levels of spending and introduced exceptional financial measures, including capital and liquidity injections. The immediate priority is to complete the clean-up of bank balance sheets and the restructuring of the nonbanking sector in some countries. Clear communication by the authorities would help implementation, ease investor uncertainty, and reduce speculation and market volatility.

Banks and Banking --- Finance: General --- Money and Monetary Policy --- Islamic Banking and Finance --- Banks --- Depository Institutions --- Micro Finance Institutions --- Mortgages --- Other Economic Systems: Public Economics --- Financial Economics --- Monetary Policy, Central Banking, and the Supply of Money and Credit: General --- General Financial Markets: General (includes Measurement and Data) --- Portfolio Choice --- Investment Decisions --- Banking --- Monetary economics --- Finance --- Commercial banks --- Islamic banking --- Credit --- Stock markets --- Financial institutions --- Money --- Financial services --- Financial markets --- Liquidity --- Asset and liability management --- Banks and banking --- Islamic countries --- Stock exchanges --- Economics --- United Arab Emirates