This paper uses quarterly data from 1980 to 2004 for ASEAN-5 founder countries to estimate the weight of the Augmented Monetary Conditions Index (AMCI), and identifies the key transmission mechanism paths using Pesaran and Pesaran’s (1997) ARDL procedure, and Pesaran et al.’s (2001) bounds procedure. The roles of credit and asset price channels are assessed for aggregate demand conditions and i...

Treasury bonds provide money-like services, while other bonds do not. These money-like services, which include safety and liquidity, are valued more during financial crises, reducing the substitutability of actual Treasuries and synthetic Treasuries—other types of bonds that yield the same cash flows. Large equilibrium yield spreads between actual and synthetic Treasuries result. During the rec...

This paper provides a complete analytical characterization of the positive and normative effects of alternative exchange rate regimes in a simple two-country sticky-price dynamic general equilibrium model with money, technology, and government spending shocks. A central question addressed is whether fixing the exchange rate prevents macroeconomic adjustment in relative prices from occurring, in...

Monetary policy is sometimes formulated in terms of a target level of inflation, a fixed time horizon and a constant interest rate that is anticipated to achieve the target at the specified horizon. These requirements lead to constant interest rate (CIR) instrument rules. Using the standard New Keynesian model, it is shown that some forms of CIR policy lead to both indeterminacy of equilibria a...

This paper reassesses the prospects for greater monetary integration in Asia in the wake of the Asian financial crisis of 1997. The Asian crisis highlighted the absence of well-developed supranational institutions in Asia to provide early warning signals of impending currency or balance of payments problems, access to unconditional funds to cope with financial problems, and a common defensive m...

Microfoundations are provided for a common model of balance of payments crises by showing formal equivalence to a standard overlapping generations model. Certain domestic policy rules are inconsistent with fixed exchange rate equilibrium, which is in agreement with previous results. However, when policy is consistent with a fixed exchange rate equilibrium (1) there are multiple stationary equil...

Abstract: Central banks have long been interested in obtaining precise estimations of money demand given the fact that the evolution of money demand plays a key role over several monetary variables. One implication of currency substitution is that the exchange rate could serve as another determinant of the demand for money. Due to the recent currency crisis in Iran, it would be important to inv...