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International Monetary Fund. Research Dept.
The Q&A in this issue features seven questions on the role of precautionary savings in open economies (by Damiano Sandri); the research summaries are "The Macroeconomics of Aid (by Andrew Berg, Rafael Portillo, and Luis-Felipe Zanna) and "The Building Blocks to Measure Inflation" (by Mick Silver). The issue also lists the contents of the March 2011 issue of the IMF Economic Review, Volume 59 Number 1; visiting scholars at the IMF during January?March 2011; and recent IMF Working Papers and Staff Discussion Notes.
International Monetary Fund
The October 2007 Communiqué of the IMFC called on the Executive Board to develop specific proposals on a new income model and a new expenditure framework by the time of the 2008 Spring Meetings. On April 7, 2008, the Executive Board endorsed a new income model for the Fund and considered a new medium-term budgetary envelope for financial years 2009–11, which includes deep spending cuts, and approved administrative, restructuring, and capital budgets for financial year 2009. As a key element of this new income-expenditure framework, the Executive Board ecommended the adoption by the Board of Governors of an amendment of the Articles of Agreement to expand the Fund’s investment authority. The Executive Board’s recommendation was sent to the Board of Governors, with the voting period running through 6:00 p.m., Washington time, May 5, 2008.
Tugrul Temel and Mr. Michael G. Papaioannou
In managing their foreign exchange exposure, international investors, including central banks, often compare actual portfolios with hypothetical portfolios that have been calculated using certain assumptions regarding the statistical properties of interest rates and exchange rates. One of these assumptions is that the variability of returns on various currency assets is time invariant. This assumption is tested in this paper using autoregressive conditional heteroskedastic (ARCH) models. Using weekly aata for the period February 1982 to December 1991 for major reserve currencies, including the SDR, we find evidence that the variances of returns do vary over time (i.e., they do not exhibit stationarity) and that ARCH models that specify changing variances are superior to models that assume constant variance. By incorrectly assuming constant variability of returns, currency-asset allocations are not necessarily optimal and the measures of riskiness of a fixed-income portfolio may not be accurate. Furthermore, the error introduced by incorrectly assuming stationarity is smaller with the SDR than with any other national currency in the portfolio to be managed.
International Monetary Fund
This paper analyzes reasons for the high post-war correlations of saving and investment, both across countries and over time. It is concluded that the main reason for the observed high correlations over the recent period is probably government policy.
International Monetary Fund. Research Dept.
This chapter examines if there was a fundamental shift in the demand for international reserves of countries in 1973 because of the change in the international monetary system from one of generally fixed exchange rates to one of greater exchange rate flexibility. Particular attention was also paid to the question whether the relationship between reserves and certain important variables remained stable during the period 1973–1976. The results indicated that there was a shift in the demand for reserves by industrial countries in response to the move to floating, however, that this shift occurred toward the end of 1973 rather than at the beginning of the year. Obviously, there was some lag in the response of these countries to the change in the system; however, the behavior of non-oil developing countries did not appear to be affected by the change. This can perhaps be attributed to the fact that most of these countries continued to peg their currencies to another currency, and thus there was no real change in the exchange rate regime relevant to them.
International Monetary Fund

Abstract

This paper examines legal developments in area of floating currencies, special drawing rights, and gold in the IMF. It highlights that the breakdown of the par value system of the original Articles of the IMF and the failure of the IMF’s efforts to substitute a comparable system based on central rates are producing widespread effects in international and domestic law. The floating of sterling has been an impetus to the reversal of the ancient rule that English courts can give monetary judgments only in sterling. It has also influenced the choice of the exchange rate on the day when payment is actually made.

International Monetary Fund

Abstract

This paper discusses Article IV, Section 8 of the Articles of Agreement which states the requirement of maintenance of the gold value of the IMF’s assets. Each member of the IMF is bound to maintain the gold value of the IMF’s holdings of the member’s currency notwithstanding changes in the par or foreign exchange value of the currency. This obligation applies to devaluation, depreciation, revaluation, and appreciation. It prevents the IMF from making profits or sustaining losses as a result of changes in the value of its currency holdings. An additional purpose is to enable the IMF to continue to conduct its operations in a manner consistent with its purposes, notwithstanding such changes.