Kris Mitchener, Gonçalo Pina, 04 May 2017

Fixed exchange-rate regimes reduce uncertainty, which may increase trade and encourage investment and capital flows. This column identifies and tests one reason why markets expect countries to abandon pegs and devalue their currencies – shocks to the value of their output. During the classical gold standard era, commodity price fluctuations determined expected devaluation by investors, as measured by currency risk. These results highlight how trade shocks in an integrated world may undermine fixed exchange rate regimes under limited fiscal adjustments.

Filippo di Mauro, Konstantins Benkovskis, Sante De Pinto , Marco Grazioli, 29 June 2016

In the ‘currency wars’ discussion, it is almost taken for granted that exchange rate depreciations will result in non-trivial export gains.  Using evidence from countries in Europe and Asia, this column argues instead that factors unrelated to prices/exchange rates often play a predominant role in shaping trade developments. Moreover, these factors affect export outcomes in a very diversified manner across countries, in part because of the interplay of global value chains.

Jörg Decressin, Prakash Loungani, 02 December 2015

Internal devaluations have been suggested as a possible policy option for countries in a currency union facing large external deficits. These policy actions seek to restore competitiveness by replicating the outcomes of an external devaluation. This column examines wage moderation as a potential means of internal devaluation for EZ countries. If pursued by several countries, wage moderation can work if monetary policy is not constrained by the zero lower bound, or if supported by quantitative easing. Without sufficient monetary accommodation, it will not deliver much of a boost to output, and may hurt overall EZ output.

Sebastian Edwards, 06 August 2015

Many commentators continue to think that Greece’s best bet is Grexit and the drachma, but few are talking about what will happen to contracts. This column uses Franklin D Roosevelt’s devaluation of the US dollar to give an historical perspective on currency devaluations and contract litigation. Roosevelt got away with it because the Supreme Court ruled that prices in old contracts were void and, importantly, because everyone trusted the Supreme Court’s rulings. Grexit would mean litigation in international courts – courts that are likely to side with the plaintiffs.

Hans-Werner Sinn, Akos Valentinyi, 09 March 2013

Will addressing large internal imbalances lead us out of the Eurozone crisis? This column argues that it might. Periphery countries should devalue in order to regain competitiveness and reduce imbalances. As to whether they should pursue internal or external devaluation, the answer remains unclear. Overall, given that policymakers have excluded the option of exit, economic policymaking must focus on the possibilities for internal devaluations, despite some of the difficulties it may bring.

Miranda Xafa, 18 March 2012

With Greece in deep recession for the fifth year running, several prominent observers have been calling on it to exit the Eurozone. This column argues this would not help Greece’s economy recover faster from its deep recession. Greece will still be the most heavily regulated country in the OECD and returning to a drachma would only add to the debt burden.

Eduardo Levy Yeyati, 02 October 2011

One of the many proposals for escaping the Eurozone crisis is to follow in the footsteps of Argentina since its currency fiasco a decade ago. This column points out the realities of such a path: regressive wealth transfers and debt dilution. Against this dismal backdrop, a fiscal union might well be a better option.

Augusto de la Torre, Eduardo Levy Yeyati, Sergio Schmukler, 06 March 2010

The fiscal crisis in several European countries has led many commentators to suggest novel solutions, including a holiday from the euro. This column examines the much-cited example of Argentina and argues that such ideas look better on paper than in practice. What these countries need is a “good old bailout” – conditional on “getting the house in order”.

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