Exchange rates

Jeffrey Frankel, 02 May 2021

Richard Cooper, Robert Mundell, and John Williamson made important contributions on a variety of topics in international economics throughout their careers, particularly in terms of how we think about currency arrangements. This column reviews the work of all three, tracing their ideas and drawing lessons for policymakers today.

Viral Acharya, Siddharth Vij, 29 April 2021

Emerging market economies increasingly rely on foreign currency debt, leaving borrowing firms exposed to sudden stops and currency depreciations. This column examines the dynamics of corporate foreign currency borrowing in India using new firm-level data. It finds that interest rate differentials are a strong predictor of foreign currency debt issuance, particularly after the Global Crisis. After the ‘taper tantrum’ of 2013, the Reserve Bank of India introduced new macroprudential policies that were effective at mitigating the riskiest borrowing and reducing the vulnerability of Indian firms. 

Paul Krugman, 12 April 2021

Nobel Laureate Robert Mundell passed away on 4 April 2021. In this column, Paul Krugman describes the evolution of Mundell’s contribution to economic thought and policy, from his early pathbreaking models that remain the foundation of modern international macroeconomics to his later views that were more controversial and less influential in the profession. He also offers an explanation of how the man who brought Keynesian analysis to the open economy and highlighted the difficult tradeoffs in creating a currency area could come to be seen as the father of both supply-side economics and the euro.

Sebastian Edwards, Luis Cabezas, 08 April 2021

The nominal exchange rate plays a dual role in macroeconomic adjustments – it is part of the transmission mechanism of monetary policy, and it also helps accommodate external and domestic shocks through its effect on the real exchange rate. This column uses disaggregated price index data from Iceland to test how exchange rate pass-through varies with the international tradability of goods and with the monetary policy framework. It shows that pass-through is significantly higher for tradables relative to nontradables. In addition, it finds that improvements in the credibility of the central bank are associated with declines in the exchange rate pass-through. 

Jon Danielsson, 26 March 2021

What would the world look like if Bitcoin completely displaced fiat currency? Jon Danielsson tells Tim Phillips that it wouldn't be a society that he would like to live in. 

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