Exchange rates

Rashad Ahmed, Joshua Aizenman, Yothin Jinjarak, 28 June 2019

Countries have significantly increased their public-sector borrowing since the Global Crisis. This column documents several potential fiscal dominance effects during 2000-17 under inflation targeting and non-inflation-targeting regimes. A higher ratio of public debt to GDP is associated with lower policy interest rates in advanced economies. In emerging economies under non-inflation-targeting regimes, composed mostly of exchange-rate targeters, the interest rate effect of higher public debt is non-linear and depends both on the ratio of foreign currency to local currency debt, and on the ratio of hard currency debt to GDP.

Gino Cenedese, Pasquale Della Corte, Tianyu Wang, 19 June 2019

Deviations from covered interest parity represent, in theory, an arbitrage opportunity. This column shows that post-crisis, financial regulation may explain why this mispricing persists and cannot be arbitraged away. It also finds that more constrained dealers demand an extra premium from their clients for synthetic dollar funding relative to direct dollar funding, resulting in deviations in covered interest parity.

Stan Olijslagers, Annelie Petersen, Nander de Vette, Sweder Van Wijnbergen, 17 June 2019

The decade since the Global Crisis has seen central banks employ a range of monetary policy tools. This column draws two lessons from the unconventional monetary policy measures employed during the European sovereign debt crisis. First, central banks should communicate clearly – and with sufficient detail – in times of heightened market stress to lower tail risk perceptions in financial markets. Second, policies aimed at changing the relative supply within different asset classes have an impact on perceived crash risk, while measures aimed at easing financing costs of commercial banks do not.

Wilko Bolt, Maarten R C van Oordt, 14 May 2019

What drives the volatility of Bitcoin? This column explains a theoretical framework to link exchange rates to currency creation, speculative behaviour, and real growth in goods and services transactions. It suggests that the exchange rate will be less sensitive to speculators' beliefs when a virtual currency becomes more established as a means of payment. 

Martin Guzman, José Antonio Ocampo, Joseph Stiglitz, 21 February 2019

The role of exchange rate policies in economic development is still largely debated. This column argues that there are theoretical foundations for policies that guarantee competitive and stable real exchange rates. When there are constraints on the available set of policy instruments, the complementary use of competitive exchange rates with export taxes for traditional export sectors would result in effectively multiple real exchange rates. The empirical evidence suggests that both foreign exchange interventions and capital account regulations can be effectively used for maintaining competitive exchange rates and for dampening the effects of boom-bust cycles in external financing and the terms of trade on the exchange rate, thereby promoting growth and stability.

Other Recent Articles:


  • 17 - 18 August 2019 / Peking University, Beijing / Chinese University of Hong Kong – Tsinghua University Joint Research Center for Chinese Economy, the Institute for Emerging Market Studies at Hong Kong University of Science and Technology, the Guanghua School of Management at Peking University, the Stanford Center on Global Poverty and Development at Stanford University, the School of Economics and Management at Tsinghua University, BREAD, NBER and CEPR
  • 19 - 20 August 2019 / Vienna, Palais Coburg / WU Research Institute for Capital Markets (ISK)
  • 29 - 30 August 2019 / Galatina, Italy /
  • 4 - 5 September 2019 / Roma Eventi, Congress Center, Pontificia Università Gregoriana Piazza della Pilotta, 4, Rome, Italy / European Center of Sustainable Development , CIT University
  • 9 - 14 September 2019 / Guildford, Surrey, UK / The University of Surrey

CEPR Policy Research