Exchange rates

Stefan Gerlach, 04 April 2018

It was generally expected that the new US administration’s economic policies would lead to an appreciation of the US dollar. Yet the opposite has happened. This column argues that a large part of the fluctuations of the US dollar against the euro since the election of President Trump can be tied to movements in the relative attractiveness of holding US dollars versus the euro.

Linda Goldberg, Signe Krogstrup, 05 March 2018

The role of the global financial factor in the international monetary system has been well discussed, with some economists suggesting its role may in fact be overstated. This column argues that some of the empirical evidence on the role of global factors in driving capital flows and exchange rates across countries may be inaccurate because it has ignored key features of the operation of central banks. The authors propose a new metric – a recast exchange market pressure index which captures country-specific capital flow pressures in a way that is comparable across countries with different exchange rate regimes.

Marcel Fratzscher, Lukas Menkhoff, Lucio Sarno, Tobias Stöhr, 23 February 2018

Central bank interventions in foreign exchange markets have long been viewed with scepticism by academics. This column examines foreign exchange interventions for a sample of 33 advanced and developing economies. Interventions occur frequently, in episodes that can last several days, and are often successful in smoothing exchange rates. These results show that central bankers, particularly in emerging markets, appreciate the efficacy of interventions.

Emine Boz, Gita Gopinath, Mikkel Plagborg-Moller, 11 February 2018

In international macroeconomics, it is typically assumed that the exchange rate between two trading partners matters most for trade prices, quantities, and terms of trade. This column presents evidence supporting an alternate view – that a country’s exchange rate relative to the US dollar is most important. This is because invoicing in dollars is common, even when the US is not part of a transaction. The findings have important implications for the conduct of monetary and exchange rate policies.

Filippo di Mauro, Vlad Demian, Jan-Paul van de Kerke, 08 December 2017

It is well-established in theoretical and empirical models that an exchange rate movement affects exports, but we are far from a consensus on the size and relevance of this effect. Macro-based analyses tend to yield very low values for the elasticity of exports to the exchange rate, while micro- or sectoral-based estimations tends to be higher. This column shows that one reason for the disagreement is that macro estimations fail to incorporate the characteristics of the underlying distribution of firm productivity and its asymmetries. Doing so generates higher elasticity estimates than the macro estimations, and greater country-level diversification.

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