We tell our students not to read too much into the strength or weakness of a currency. However, the dollar’s trajectory since November 2016 is quite striking.
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Category Archives: exchange rates
“West Coast Workshop in International Finance 2017”
Taking place today, this is the fifth in the series, with topics this year on exchange rates and monetary policy, macroprudential policy, credit and business cycles (sponsored by UC Santa Cruz Economics, Santa Clara Economics, and Federal Reserve Bank of San Francisco, organization chaired by Helen Popper at SCU and Grace Weishi Gu at UCSC).
The website is here with links to papers, conference agenda here.
Day 279: China Still Not Yet Declared a Currency Manipulator
Not that I’m complaining. But seriously, it’s far past the “day one” of the new Administration when Donald Trump promised China would be declared a currency manipulator.
Guest Contribution: “EQCHANGE: A Worldwide Database on Actual and Equilibrium Effective Exchange Rates”
Today we are pleased to present a guest contribution written by Cécile Couharde (EconomiX-CNRS, University of Paris Nanterre), Carl Grekou (CEPII), Anne-Laure Delatte (CEPII, EconomiX-CNRS and CEPR), Valérie Mignon (EconomiX-CNRS, University of Paris Nanterre and CEPII) and Florian Morvillier (EconomiX-CNRS, University of Paris Nanterre).
The widening and persistence of current account disequilibria at the international level have refocused real exchange rate distortions at the core of international debates. What are the exchange rate adjustments needed to correct excessive imbalances? How to assess whether a currency is fundamentally misaligned, i.e. under- or over-valued? We introduce a new database, EQCHANGE, which includes nominal and real effective exchange rates, as well as equilibrium real effective exchange rates for more than 180 countries from 1973 onwards. It represents the longest and largest publicly available database on equilibrium exchange rates and corresponding misalignments.
A New Puzzle à la Fama
In a forthcoming paper (“The New Fama Puzzle”), coauthored with Matthieu Bussière (Banque de France), Laurent Ferrara (Banque de France), Jonas Heipertz (Paris School of Economics), we re-examine uncovered interest parity – the proposition that anticipated exchange rate changes should offset interest rate differentials. This is one of the most central concepts in international finance. At the same time, empirical validation of this concept has proven elusive. In fact, the failure of the joint hypothesis of uncovered interest rate parity (UIP) and rational expectations – sometimes termed the unbiasedness hypothesis – is one of the most robust empirical regularities in the literature. The most commonplace explanations – such as the existence of an exchange risk premium, which drives a wedge between forward rates and expected future spot rates – have little empirical verification.
Guest Contribution: “The Real Exchange Rate and Economic Growth: Revisiting the Case Using External Instruments”
Today we are pleased to present a guest contribution written by Maurizio Michael Habib, Elitza Mileva and Livio Stracca. The views expressed belong to the authors and are not necessarily shared by the institutions to which the authors are affiliated.
Is the Trump Dollar Rally Over?
Mix together the dashing of great (plutocratically oriented tax cut) expectations, the complete absence of any plan for infrastructure spending, and mix in some risk, and one gets this:
Figure 1: Dollar index (DXY). Source: Tradingeconomics.
“Exchange Rate Models for a New Era: Major and Emerging Market Currencies”
That’s the title of an upcoming conference organized by Global Research Unit at Department of Economics and Finance, City University of Hong Kong, Bank for International Settlements, Asian Office, Centre for Economic Policy Research, and Journal of International Money and Finance, May 18-19 at City University Hong Kong. The conference program is here, official conference website here.
China’s tetralemma
Many countries have three policy objectives: (1) being able to set their own monetary policy, in order to keep their own inflation and unemployment at desired levels; (2) having a stable exchange rate, in order to avoid disruptive shifts in exports or imports; and (3) allowing free capital flows, in order to help the country’s citizens and firms find the most efficient sources and uses of capital. But the famous policy trilemma of international economics claims that any country is going to be forced to give up on one of those three goals.
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Treasury Semi-Annual Report to Congress on Foreign Exchange Policies Released
The report, released yesterday, is here.