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The article presents a concise review of the potential development of the Bank of Lithuania and the litas within the context of Lithuania's further integration in the European Union and the Economic and Monetary Union.The paper mostly focuses on the Exchange Rate Mechanism II as a period of transition from the litas to the euro and the preparation of the Bank of Lithuania and other national institutions for that step. The authors deal with theoretical and practical aspects of ERM n, present a review of European Central Bank requirements and analyse the Danish experience of its participation in the Mechanism. In addition, the article stresses the possibilities for the practical application of the Exchange Rate Mechanism and the expected impact on the future of the litas.From the starting date of their membership in the EU, the new Member States undertake a commitment of adopting the euro in due course. During the period of the participation in ERM II, these countries have to pursue such macroeconomic policies that would facilitate real and nominal convergence and would allow a country, wishing to adopt the euro, to meet Maastricht criteria.ERM II is an exchange rate policy system of euro area countries and EU Member States that have not adopted the euro. The key feature of the system is the central parity between the national currency of a country that has not adopted the euro vis-a-vis the euro. and the allowed exchange rate fluctuation band of ± 15 per cent in relation to that central parity. However. the European Commission and. more recently, the European Central Bank, have sought to narroW down the fluctuation band within ERM II (± 2,25%) with regard to the new EU Member States.The central bank of Denmark has managed to maintain a very stable exchange rate of the nacional currency against the euro throughout the whole period of its participation in ERM II since 1999 by using a significantly narrower fluctuation band than the adopted ± 2,25%. Lithuania is onc of the few EU candidate countries that already meets Maastricht requirements for the adoption of the euro. It is expected that Lithuania will join ERM II soon after assuming membership in the EU.The position of the Bank of Lithuania is that the present fixed exchange rale regime and the current official exchange rate between the litas and the euro of LTL 3.4528 for EUR I with a zero band is suitable for partiCipation in ERM II and the adoption of the euro.Regardless of certain differences between the operation of the currency board arrangement and the interventions undertaken in ERM II, the currency board arrangement is deemed to he an acceptable exchange rate regime for this Mechanism. After becoming a EU member from 1 May 2004, immediately joining ERM II and staying in it for at least two years, Lithuania will he meeting the requirements for the adoption of the euro. Thus, Lithuania would be in a position to give up the litas and adopt the euro in late 2006 or early 2007. ; Straipsnyje glaustai apžvelgiama galima Lietuvos centrinio banko ir lito raida, atsižvelgiant į tolesnę Lietuvos integraciją į Europos ekonominę sąjungą bei Europos ekonominę ir pinigų sąjungą. Daugiausia dėmesio skiriama valiutos kurso mechanizmui Nr. 2 (VKM II - Exchange-rate mechanism II) kaip tarpiniam etapui pereinant nuo lito prie euro bei Lietuvos banko ir kitų šalies institucijų pasirengimui šiam žingsniui. Jame pateikiami teoriniai bei praktiniai VKM II aspektai, apvelgiami Europos centrinio banko reikalavimai, nagrinėjama šio mechanizmo taikymo Danijoje patirtis. Straipsnyje taip pat akcentuojamos šio valiutos kurso mechanizmo praktinio taikymo Lietuvoje galimybės bei tikėtinas poveikis lito ateities gairėms nubrėžti.

The main source of financial resources of enterprises of the agro-food complex is the favorable proportions of the purchase and sale prices for goods/services. In the Soviet period, the ratio of prices for input and output of agriculture provided collective farms and state farms with almost 40 percent profitability. Subsequently, hyperinflation of the era of coupon-karbovanets violated price parity in agricultural production, which resulted in the majority of agrarian enterprises being in a zone of loss-making. With the introduction of hryvnia, the parity of price movement in agriculture gradually improved, and today the agricultural sector is a highly profitable sector of the national economy. Currently, food consumption by the population of Ukraine is almost 20% lower than the norm recommended by the doctors. The combination of significant volumes of food exports with mass malnutrition is a sign of a drastic price disproportion – a violation of parity between the dynamics of household incomes and price movements in the national food market. The reason for the disparity is the high rate of inflation, which causes a permanent depreciation of the national currency. In 2014–2015, real incomes of the population declined by 30%, which by one third reduced its costs for the purchase of food products. Positive but insufficient rates of post-crisis recovery were observed in 2016–2017. If a third of effective demand is lost, and the pace of its recovery is at the level of 3–4% per annum, then the elimination of the consequences of the crisis will be delayed. One should follow the experience of developed countries that use higher consumption rates (the policy of "quantitative easing") as an anti-crisis measure. In Ukraine, the opposite trend is observed: in times of crisis, consumption rate is declining. In the author's opinion, it is advisable to increase it to 75% of national GDP and increase savings due to the growth of investment attractiveness for foreign investors. The main indicator that characterizes the price situation is the consumer price index. According to official statistics, real incomes of the population of Ukraine during the post-Soviet period have increased significantly, but the indicators of food consumption have considerably deteriorated. Such a contradiction shows understatement of the inflation index and requires clarification of the methodological principles of its calculation.

Handbook of Exchange Rates is an impressive compilation of research from more than thirty-five leading researchers and experts on the topic. The book is clearly organized into five succinct sections that explore the foreign exchange (FX) market, from its background and economic foundation to current practices, obstacles, and policies in the modern foreign exchange market. Part I presents an overview of the history of the FX market and exchange rate regimes, the key instruments/players in the FX trading environment, and both macro and micro approaches to FX determination. Next, Part II focuses on forecasting exchange rates, featuring methodological contributions on the sstatistical methods for evaluating forecast performance, parity relationships, fair value models, and flow-based models. Part III treats FX as an asset class, outlining active currency management, currency hedging, hedge accounting, high frequency and algorithmic trading in FX, and FX strategy-based products. Part IV discusses products and pricing in FX, the FX options market, and volatility derivatives. Finally, the book concludes with a section on FX markets and policy, prediction and management of FX crises, FX regimes and policy; regulation in FX market that also features discussion of the effects of exchange rate regime choice on international trade. Each chapter follows the same easy-to-follow format. Following an introduction, a description of theory is presented along with key formulae. Next, the discussed theory is applied to a real data set and accompanied with illustrative descriptions. Exercises and real-world examples from the finance industry are spread throughout each chapter, and a summary provides a brief overview of main points and concepts.

"Handbook of Exchange Rates is an impressive compilation of research from more than thirty-five leading researchers and experts on the topic. The book is clearly organized into five succinct sections that explore the foreign exchange (FX) market, from its background and economic foundation to current practices, obstacles, and policies in the modern foreign exchange market. Part I presents an overview of the history of the FX market and exchange rate regimes, the key instruments/players in the FX trading environment, and both macro and micro approaches to FX determination. Next, Part II focuses on forecasting exchange rates, featuring methodological contributions on the sstatistical methods for evaluating forecast performance, parity relationships, fair value models, and flow-based models. Part III treats FX as an asset class, outlining active currency management, currency hedging, hedge accounting, high frequency and algorithmic trading in FX, and FX strategy-based products. Part IV discusses products and pricing in FX, the FX options market, and volatility derivatives. Finally, the book concludes with a section on FX markets and policy, prediction and management of FX crises, FX regimes and policy; regulation in FX market that also features discussion of the effects of exchange rate regime choice on international trade. Each chapter follows the same easy-to-follow format. Following an introduction, a description of theory is presented along with key formulae. Next, the discussed theory is applied to a real data set and accompanied with illustrative descriptions. Exercises and real-world examples from the finance industry are spread throughout each chapter, and a summary provides a brief overview of main points and concepts"--

The article discusses the key factors of the ruble exchange rate dynamics, analyzes the features of Russian currency market in the context of inflation targeting and the application of the budget rule. The basic theoretical approaches to modeling the dynamics of real and nominal exchange rates are presented, including behavioral models of the exchange rate, the monetary model of the exchange rate, and the hypothesis of uncovered interest parity. The most important factors of long-term and short-term dynamics of the exchange rate are revealed. The results of an econometric evaluation of the models of the real and nominal ruble exchange rates using dynamic least squares method (DOLS) are presented. It is shown that the key factors shaping the dynamics of the nominal ruble exchange rate are the terms of trade, the interest rate spread, the VIX volatility index, and the operations of the Russian Ministry of Finance under the budget rule. The long-term trajectory of the real exchange rate is formed by the terms of trade conditions, the Balassa—Samuelson effect, the dynamics of net foreign assets of the private sector.

This paper presents a framework for exploring the sustainability of U.S. domestic budget deficits in the presence of the currently experienced capital inflows. A 'sustainable' deficit-financing policy is defined as one in which the combination of debt-financing and seigniorage precludes the creation of a large unanticipated inflation to wipe out the debt in real terms. The model implemented is a rational expectations model of the open economy and two separate cases are analyzed. In Case I, domestic money creation is held 'fixed' and any increases in the deficit are financed by the sale of one-year discounted government bonds to domestic and foreign residents. In Case II domestic money and bonds are both endogenously determined. The asset market, in both the cases, is characterized by perfect capital mobility as defined by uncovered nominal interest parity. Real interest parity, however, does not exist as domestic and foreign goods are not perfect substitutes. In Case I, the solution of the domestic price level exhibits price-neutrality with respect to the deficits. The nominal and real exchange rates, however, are found to appreciate with increases in deficits and the situation is aggravated further by an exodus of domestic real wealth. In Case II, on the other hand, deficits are found to be inflationary and both nominal and real exchange rates depreciate with increases in the deficit. Furthermore, increases in the amount of debt being rolled over cause even greater upward pressures on domestic inflation and result in the further weakening of the dollar. The solutions also provide us with an expression for the maximum amount of debt that can be rolled over without causing the domestic price level to explode or the currency to collapse. This 'critical value' of debt is found to bear an inverse relationship to the rate of growth of the domestic deficit. Bond-financed deficits are therefore non-sustainable in both the cases discussed, and the arithmetic, it seems, is unpleasant indeed. ; Ph. D.

Maintaining the balance of the state budget is carried out in the short term to create a favorable investment climate in the country, which requires above all an orderly, extremely stable, concise tax and customs legislation, a limited number of taxes. The average tax rate should not exceed one third of the income of economic entities. Relieving the country's debt dependence involves strengthening the national currency. Long-term trade deficit causes devaluation of the national currency, as the country is forced to apply for foreign loans, increases the deviation of the national currency from purchasing power parity in the direction of its underestimation, foreign economic relations become unprofitable, country net wealth decreases due to savings and capital transfers.Key words: introduction of intellectual labor products, financing of science, negative consequences of production and consumption, world economic crisis and hybrid war, capitalization, ecosystem regulation, foreign economic relations. ; Соблюдение сбалансированности государственного бюджета осуществляется в краткосрочном периоде для создания благоприятного инвестиционного климата в стране, что требует прежде всего упорядоченного, исключительно стабильного, лаконичного налогового и пошлинного законодательства, ограниченного количества налогов. Средняя ставка налогообложения не должна превышать треть доходов субъектов хозяйствования. Облегчение долговой зависимости страны предполагает укрепление национальной валюты. Длительный дефицит торгового баланса страны вызывает обесценивание национальной валюты, поскольку страна вынужденно прибегает к внешним займам, усиливается отклонение курса национальной валюты от паритета покупательной способности в направлении её обесценивания. Внешнеэкономические отношения становятся невыгодными, уменьшается чистое богатство страны за счет сбережений и капитальных трансфертов.Ключевые слова: внедрение продуктов интеллектуального труда, финансирование науки, негативные последствия производства и потребления, мировой экономический кризис и гибридная война, капитализация, экосистемное регулирование, внешнеэкономические отношения. ; Дотримання збалансованості державного бюджету здійснюється в короткостроковому періоді для створення сприятливого інвестиційного клімату в країні, що вимагає передусім впорядкованого, виключно стабільного, лаконічного податкового і митного законодавства, обмежену кількість податків. Середня ставка оподаткування не повинна перевищувати третину доходів суб'єктів господарювання. Полегшення боргової залежності країни передбачає зміцнення національної валюти. Довготривалий дефіцит торговельного балансу країни спричиняє знецінення національної валюти, оскільки країна вимушено вдається до зовнішніх позик, посилюється відхилення курсу національної валюти від паритету купівельної спроможності в напрямку її недооцінення, зовнішньоекономічні відносини стають невигідними, зменшується чисте багатство країни за рахунок заощаджень і капітальних трансфертів.Ключові слова: впровадження продуктів інтелектуальної праці, фінансування науки, негативні наслідки виробництва і споживання, світова економічна криза і гібридна війна, капіталізація, екосистемне регулювання, зовнішньоекономічні відносини.

"This timely book will explain, via a number of thematic and case studies, that international economics is not an independent terrain of economic activity reproducing itself throughout history, but a complex articulation of social, political and culturally determined actions that are inextricably linked. Chapters will address the role of dominant global powers in the making of global industrial and monetary relations, and, in particular, ways in which, and the degrees to which dominant economic and military powers, such as the USA, tend to shape the domestic economic environments of lesser powers after their own image. Supplementing the chapters will be a comprehensive A - Z glossary section, which will include key International Political Economy terms, e.g. international debt, European free trade area, International Bank for Reconstruction and Development, IMF, GATT-WTO, Foreign exchange, fixed exchange rates, floating exchange rates, reserve currency, gold-dollar parity, multinational corporation, preferential trade agreement, hedge funds, etc. Entries will be cross-referenced for ease of use.This book will be ideal for researchers and students in the areas of politics, international relations and international economics, as well as for academics, economists, business people, and those with an interest in the workings of international political economy"..

"This timely book will explain, via a number of thematic and case studies, that international economics is not an independent terrain of economic activity reproducing itself throughout history, but a complex articulation of social, political and culturally determined actions that are inextricably linked. Chapters will address the role of dominant global powers in the making of global industrial and monetary relations, and, in particular, ways in which, and the degrees to which dominant economic and military powers, such as the USA, tend to shape the domestic economic environments of lesser powers after their own image. Supplementing the chapters will be a comprehensive A - Z glossary section, which will include key International Political Economy terms, e.g. international debt, European free trade area, International Bank for Reconstruction and Development, IMF, GATT-WTO, Foreign exchange, fixed exchange rates, floating exchange rates, reserve currency, gold-dollar parity, multinational corporation, preferential trade agreement, hedge funds, etc. Entries will be cross-referenced for ease of use. This book will be ideal for researchers and students in the areas of politics, international relations and international economics, as well as for academics, economists, business people, and those with an interest in the workings of international political economy"--

This research shows how U.S. and German government bond yields can determine the EUR/USD exchange rate in the short run. After presenting the discussion on fundamental, technical and microstructure approach exchange rate determination models, a conclusion is made that out of the components of fundamental models the interest rates could be the best determinants for explaining exchange rate fluctuations in the short term. For the research the mostly traded currency pair, the EUR/USD, was chosen and 2-year, 10-year U.S. and German government bond yields were selected as determinants of the exchange rate. After performing the linear regression procedure it has shown that the model can determine 5 per cent of the daily EUR/USD fluctuations with a change in 2-year U.S. government debt yield being the greatest determinant in the model. It affects the exchange rate as it is stated in the uncovered interest rate parity model – when the yield increases, the USD declines against the euro and vice versa. Another finding is that an increase in the German 10-year government bond yield increases the price of the euro and the increase in the U.S. 10-year debt yield leads to an appreciation of the USD.

Section 1650 of the cica Handbook allows firms to defer foreign exchange gains and losses on foreign currency denominated debt, as long as the debt was raised to hedge either a foreign currency revenue stream or foreign currency assets. Hence, the accounting treatment of foreign current debt is tied to the underlying motivation for issuing it.This paper analyses this hedging motivation for issuing foreign currency debt. It concludes the following: First, the hedging decision may conflict with the normal rationale for the financing decision as one that maximises the firm's market value. Hence, it makes sense to separate the hedging decision from the financing decision by using other hedging vehicles, like forward and futures contracts. Second, real hedges must be differentiated from nominal hedges, since the exchange uncertainty may merely reflect domestic uncertainty through purchasing power parity. Finally, even in the simplest case of pure exchange uncertainty, the foreign exchange gain/loss must be included in the income statement to offset revenue uncertainty.The main conclusion of the paper is that the basic hedging rationale for issuing foreign debt is extremely tenuous, and that even where it holds, the proposed accounting treatment in Section 1650 may be inconsistent with the definition of a hedge.RésuméL'article 1650 du manuel de l'ICCA permet le report des gains et penes de change relatifs à une dette libellée en devises étrangères, si cette dette a pour but de couvrir une source continue de revenu en devises étrangeres ou un actif en devises étrangères. Le traitement de la dette libellée en devises étrangeres cst relié aux raisons qui ont motivé sa création.La présente étude analyse cette motivation et offre les conclusions suivantes. En premier lieu, la décision d'arbitrage peut aller à l'encontre de la justification habituelle à la base d'une decision de financement qui a pour but de maximiser la valeur marchande de l'entreprisc. Il est done logique de séparer la décision d'arbitrage de la décision de financement en utilisant d'autres procédés d'arbitrage comme le opérations de change à terme. En dcuxième lieu, les operations d'arbitrage réel doivent être diflércnciées des opérations d'arbitragc nominales puisque l'incertitude du change pcut simplement refléter l'incertitute des coût domestiques due a la parité du pouvoir d'achat. En dernier lieu, même dans les cas les plus simples d'incertitude de change, Iles gains et pertes de change doivent être inclus dans la déclaration de rcvenus pour contrcbalanccr l'incrctitude des revenus.La conclusion principalc de cette étude vcut que la justification de l'usage d'arbitrage dans le but de produire une dettcen devise étrangère cst enticrement tenuc et que meme lorsqu'clle vaut, le traitement comptable décrit dans l'article 1650 nc correspond pas à la définition d'une opération d'arbitrage.

In this paper we provide new empirical evidence relevant for discussions on monetary policy independence in the context of euro adoption in three Central and Eastern European (CEE) countries: Czechia, Hungary and Poland. Unlike many other authors, in this paper we focus on real and not nominal interest rates as real interest rates are at the hearth of modern macroeconomic and monetary policy theory. In the paper we employ several methodologies to test the convergence of real interest rates between these countries and the euro area and to determine the main drivers of real interest rates. Based on the unit root analysis we find evidence of convergence of real interest rates in these countries, thus confirming the real interest rate parity (RIRP) hypothesis. Next, using principle component analysis (PCA) we show that common factor extracted from the sample of CEE countries and individual euro area countries can explain high proportion of real interest rate developments in these countries. Finally, results of our newly proposed analytical framework for the analysis of determinants of real interest rates in small open economies, based on a Bayesian VAR model with block exogeneity, show that external shocks have non-negligible effect on real interest rate developments in selected CEE countries. Thus, our results indicate that real interest rates in CEE depend on factors that are beyond the scope of domestic monetary policy makers. In this sense we can conclude that (conventional) monetary policy independence in these countries is limited. Thus, we see the loss of monetary policy independence as overly emphasized argument in discussions on the euro adoption in these countries. However, we are aware that national central banks in CEE started to rely more on non-conventional measures recently, which gives them a higher degree of flexibility (and autonomy). ; U ovom radu daju se novi empirijski dokazi relevantni za rasprave o neovisnosti monetarne politike u kontekstu uvođenja eura u tri zemlje Srednje i Istočne Europe (CEE): Češkoj, Mađarskoj i Poljskoj. Za razliku od mnogih drugih autora, u ovom se radu težište stavlja na realne, a ne na nominalne kamatne stope, jer su realne kamatne stope u središtu moderne makroekonomske teorije i monetarne politike. U istraživanju se primjenjuje nekoliko metodologija za ispitivanje konvergencije realnih kamatnih stopa između ovih zemalja i euro-područja kako bi se utvrdili glavne odrednice realnih kamatnih stopa. Na temelju testova jediničnog korijena nalazimo dokaze o konvergenciji realnih kamatnih stopa u tim zemljama, čime se potvrđuje hipoteza o realnom kamatnom paritetu (RIRP). Nadalje, primijenjena analiza glavnih komponenata (PCA) ukazuje na činjenicu da se zajedničkim faktorom izdvojenim iz uzorka zemalja Srednje i Istočne Europe i pojedinih zemalja euro-područja može objasniti visok udio kretanja realnih kamatnih stopa u tim zemljama. Konačno, rezultati našeg predloženog novog analitičkog okvira za analizu odrednica realnih kamatnih stopa u malim otvorenim gospodarstvima, temeljenog na Bayesovskom VAR modelu s pretpostavkom blok-egzogenosti (eng. block exogeneity ), pokazuju da vanjski šokovi imaju nezanemariv učinak na kretanje realnih kamatnih stopa u odabranim zemljama srednje i istočne Europe. Dakle, naši rezultati pokazuju da realne kamatne stope u SIE ovise o čimbenicima koji su izvan dosega domaćih kreatora monetarne politike. U tom smislu može se zaključiti da je (konvencionalna) neovisnost monetarne politike u tim zemljama ograničena. Stoga gubitak neovisnosti monetarne politike vidimo kao pretjerano naglašeni argument u raspravama o uvođenju eura u tim zemljama. Međutim, svjesni smo da su se nacionalne središnje banke u Srednjoj i Istočnoj Europi nedavno počele više oslanjati na nekonvencionalne mjere, što im daje veći stupanj fleksibilnosti (i autonomije).

PurposeThis paper aims to explain real exchange rate fluctuations by means of a model including both standard fundamentals and two alternative measures of inflation expectations for five inflation targeting countries (the UK, Canada, Australia, New Zealand and Sweden) over the period January 1993–July 2019.Design/methodology/approachBoth a benchmark linear autoregressive distributed lag (ARDL) model and a nonlinear autoregressive distributed lag (NARDL) specification are considered.FindingsThe results suggest that the nonlinear framework is more appropriate to capture the behaviour of real exchange rates given the presence of asymmetries both in the long and short run. In particular, the speed of adjustment towards the purchasing power parity (PPP) implied long-run equilibrium is three times faster in a nonlinear framework, which provides much stronger evidence in support of PPP. Moreover, inflation expectations play an important role, with survey-based ones having a more sizable effect than market-based ones.Originality/valueThe focus on linearities and the estimation of a NARDL model, which is shown to outperform the linear ARDL model both within sample and out of sample, is an important contribution to the existing literature which has rarely applied this type of framework; the choice of an appropriate econometric method also makes the policy implications of the analysis more reliable; in particular, monetary authorities should aim to achieve a high degree of credibility to manage them and thus currency fluctuations effectively; the inflation targeting framework might be especially appropriate for this purpose.