2016年-BIS国际清算银行_When_pegging_ties_your_hands_56页_744kb

Summary of BIS Working Paper No. 547: "When Pegging Ties Your Hands"

Core Content

This working paper by Nikola Tarashev and Anna Zabai examines the intertemporal considerations in currency crises, particularly focusing on the role of central bank conservatism in the credibility of a currency peg. The paper challenges traditional currency crisis models that suggest a less conservative central bank is more likely to be attacked on its currency peg. Instead, it argues that intertemporal trade-offs and long-run benefits of pegging may reverse this conclusion.

Main Points

• Traditional Models suggest that a less conservative central bank (more willing to allow inflation) is more likely to face a speculative attack on its currency peg. This is due to the time inconsistency of monetary policy, where the central bank has an incentive to devalue to boost output, but such behavior is inconsistent with long-term inflation control.

• Credible Pegs eliminate inflation-driven losses and provide long-term benefits by institutionalizing the exchange rate regime, such as joining a currency union. This addresses the time inconsistency problem, making the peg more sustainable.

• The central bank's conservatism is defined by its aversion to inflation, which affects its output and inflation-driven losses. A more conservative central bank is less inclined to devalue, while a less conservative one is more tempted to do so.

• The paper introduces a two-period model to explore the intertemporal trade-offs of pegging:

  • Short-run costs of pegging increase with the central bank's conservatism.
  • Long-run benefits of pegging also depend on the central bank's conservatism, but in a negative relationship.

• The net cost of pegging is defined as the difference between the loss from pegging and the loss from devaluing. This cost is positive and increases with the central bank's conservatism.

• The paper explores two different frameworks:

  • One-shot game: Central bank faces a fixed cost of abandoning the peg. Workers anticipate devaluation and set higher wages, increasing the short-run pressure on the peg.
  • Repeated games: Central bank may choose to preserve the peg in the short run to join a currency union in the long run, which reduces the time inconsistency problem.

Key Findings

• Strategic uncertainty and dispersed information among workers lead to unique threshold equilibria and reduce the impact of the central bank's conservatism on short-run outcomes.

• Under perfect foresight, the central bank's conservatism still increases the likelihood of devaluation due to higher short-run costs.

• However, dispersed information dampens the short-run costs of pegging, making it more cost-effective for a less conservative central bank to uphold the peg in the short run to gain long-term benefits.

• The introduction of predetermined wages (e.g., due to rigid contracts) further reduces the short-run costs of pegging and lowers the elasticity of these costs with respect to the central bank's conservatism. This can reverse the textbook result, where a less conservative central bank is more likely to devalue.

• The long-run elasticity of pegging benefits remains unchanged due to flexible wages in the long term.

Implications

• A less conservative central bank may benefit more from pegging in the short run, as it can avoid devaluation and gain long-term credibility by joining a currency union.

• The textbook result that a less conservative central bank is more likely to devalue is not robust when intertemporal considerations are taken into account.

• Strategic uncertainty and predetermined wages are important mechanisms that can improve the credibility of a currency peg and reduce the time inconsistency problem.

Conclusion

The paper demonstrates that currency peg credibility can be enhanced by considering long-run benefits and intertemporal trade-offs, which can counteract the time inconsistency problem. By balancing short-run costs and long-run gains, a less conservative central bank may be more likely to uphold a peg, contrary to traditional models. This suggests that currency unions and predetermined wages can play a crucial role in stabilizing exchange rate regimes and reducing strategic uncertainty.

Keywords

• Currency crises
• Strategic uncertainty
• Global games
• Time inconsistency
• Intertemporal considerations
• Currency union
• Peg credibility
• Central bank conservatism

JEL Classification

• D82: Asymmetric information; adverse selection; signaling
• D84: Principal-agent problems; reputation; screening
• F31: Foreign exchange
• F33: International monetary arrangements

Structure

• Introduction: Sets up the problem of time inconsistency in currency pegs.
• Model: Describes a small open economy with labour market distortions and a monetary authority.
• Reduced-form of the model: Simplifies the model into a linear-quadratic framework.
• Time inconsistency of monetary policy: Analyzes the trade-offs between short-run and long-run outcomes.
• Repeated games: Introduces intertemporal decisions and long-run benefits of pegging.
• Results: Compares elasticities of short-run costs and long-run benefits to determine peg credibility.
• Roadmap: Outlines the structure of the paper and the methodology used in the analysis.