Mr. Trump tweeted today:
Russia and China are playing the Currency Devaluation game as the U.S. keeps raising interest rates. Not acceptable!
— Donald J. Trump (@realDonaldTrump) April 16, 2018
Category Archives: exchange rates
Some Thoughts on Chinese Tariffs on US Exports: Tariff Incidence, Value Added, Exchange Rates
Reader Bruce Hall, opining on the impact of mooted Chinese tariffs on US hog and soybean exports.
As with pork, it looks as if the cost of food is going down for Americans as the Chinese bury their citizens in food price increases.
The New Fama Puzzle, post-ZLB
In a previous post, I documented the fact that the Fama puzzle had transformed post-global financial crisis, so that for most currency pairs, interest rate differentials pointed in the right direction for subsequent exchange rate depreciation, from 2006 through end-2015 (Bussiere, Chinn, Ferrara, Heipertz (2018)). Here I show that the new puzzle persists through the end of 2017, a period when US interest rates were rising.
The World-Wide Fama Puzzle Reversal
In my previous post, I recounted “The New Fama Puzzle” as it applied to dollar exchange rates, with focus on the euro/dollar rate. A quick observation: the reversal also appears for non-US dollar based exchange rates (against euro, yen, pound).
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Interest Differentials and Exchange Rate Changes Before and After the Global Crisis
Before 2007M08
and After 2007M09
If the joint hypothesis of uncovered interest rate parity (UIP) and rational expectations –- sometimes termed the unbiasedness hypothesis — held, then the slope of the regression lines (in red) would be indistinguishable from unity. In fact, they are significantly different from that value. This pattern of coefficient reversal holds up for other dollar-based exchange rates, as well as for other currency pairs (with a couple exceptions). The fact that the coefficient is positive in the post-global financial crisis period is what we term “the New Fama puzzle”.
Farm Sector Prices and Income under Mr. Trump
So far, so-so.
The Course of the Dollar
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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“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.