How Original Sin Was Overcome
The Evolution of External Debt Denominated
in DomesticCurrencies in the United States and the
British Dominions, 1800 –2000
Michael D. Bordo, Christopher M. Meissner,
and Angela Redish
The recent spate of emerging market crises in Asia has focused attention on
balance-sheet problems as a key source of instability (Larain and Velasco 2001).
Many emerging countries today have difficulty in borrowing domestically long-
term and are unable to borrow abroad (both sovereign and corporate debt) in
terms of their own currencies
Currency substitution is widespread in less developed countries. Since it increases financial vulnerability and limits the effectiveness of monetary policy, it is often in the focus of scientists and experts. In this paper, we analyze the importance of euroization determinants in Serbia and neighboring countries - Albania, Bosnia and Herzegovina, FYR Macedonia, Romania and Croatia for the period 2003-2014. We examine the impact of domestic inflation, nominal exchange rate of the domestic currency against the euro, interest rate spread on domestic and foreign currency, foreign currency inflow in the form of foreign direct investments and exports, as well as the euroization of banks’financial resources on the degree of loan euroization. The results obtained by multiple regression panel methods confirm the statistical significance and assumed direction of the influence of all analyzed variables except inflation and current account balance.
Eurozone would be through establishing capital controls and creating a new payment system while operating some temporary system based on the new domesticcurrency, the new markka (from now on NM). If Finland could re-establish a functional domestic back-up payment system before any exit, using as an argument the eminently sensible (and truthful) need for national economic security, temporary economic inefficiencies could be substantially reduced. Capital controls are needed especially if NM is expected to depreciate against other major currencies. With appreciation
domesticcurrency and decreases prices and interest rates. Therefore, we suggest that credit controls might be only one of a set of tools in macroprudential policy to suppress the adverse effects of capital flows. Turkey achieved external financial liberalization in 1989, and since then, the relationship between sudden capital inflows and credit growth has been growing stronger, threatening financial stability. Başçı and Kara (2011) (governor and chief economist of the Central Bank of the Republic of Turkey (CBRT), respectively), Özatay (2011) (former CBRT deputy
endogenizing macroeconomic supply and by expand-
ing the framework in a two-country setting. It is shown, first, that an expansive impact on de-
mand in the foreign country (e. g. relating to foreign consumption or investment) leads to a real
und nominal depreciation of the domesticcurrency. Second, an expansive impact on foreign sup-
ply (e. g. to increased foreign labor productivity) brings about a real appreciation of the domestic
* Für die kritische Durchsicht des Manuskripts und die Überprüfung der Rechnungen danke ich
G. Engel und J . Graf Lambsdorff sowie N
Using a monetary exchange rate model with flexible prices this paper analyzes the exchange rate
dynamics of a credible, time-contingent transition from flexible to fixed rates. Such a switch of
exchange rate regime can be applied to alternative realistic events. First, the regime switch can
be regarded as a first approximative model for the European Monetary Union subject to the
Maastricht timetable. A second application arises from the decision of the monetary authorities
to peg the (presently floating) domesticcurrency to a curreny basket or a
This paper aims to analyse macroeconomic and institutional empirical determinants of growth of NPL ratios. Research is focused on selected CEEC and SEE countries in the period 2006- 2013. For our analysis we use static panel model approach with the logarithm of share of NPLs to total loans as a dependent variable. As independent variables we used a combination of country-specific macroeconomic and financial indicators which are commonly used in reference literature, as well as relevant institutional variables. Our results show that there is a negative relationship between increases in GDP and rise of the NPL ratio. Along with GDP, foreign currency loans ratio and level of exchange rate are positively related with the increase of NPL ratio. This confirms the expectation that countries where domestic currency is not the main medium of credit placements will have larger problems with the level of NPLs, which is even more pronounced in periods of domestic currency depreciation. In the presented models, the inflation rate is reported as statistically insignificant for sample countries. In the group of institutional variables, only financial market level of development is reported as statistically significant in relation to the level of NPL - with a more developed financial market the level of NPLs should be lower.
This paper aims to evaluate the relationship of real exchange rates of domestic currencies with macroeconomic variables in Macedonia, Croatia and Serbia by using econometric approaches. Macedonia is characterized by the regime of a fixed exchange rate, Croatia is characterized by a managed floating exchange rate, while Serbia is characterized by the regime of a floating exchange rate. The choice of an exchange rate regime is an important aspect of economic management, in order to ensure competitiveness, macroeconomic stability and development. Evaluation of the relationship of Croatian, Macedonian and Serbian real exchange rates is performed by employing the consistent methodology of vector error correction modelling (VECM). According to the results of the analyses of the real exchange rates on the long run, the selected independent variables have long-run causality in case of the real exchange rate of Croatian Kuna. In case of Macedonian Denar and Serbian Dinar the VECM is inappropriate.