West Texas Intermediate sold for $105 a barrel at the start of July, but ended last week at $58. The most important factor has been surging U.S. production. But another reason oil prices have slid so much is weakness in demand for the product, which may be related to a slowdown of overall world economic growth. Here I comment on the importance of that second factor.
Category Archives: exchange rates
And in Russia
Government borrowing costs are spiking.
Known Unknowns in International Finance
Implications for the dollar’s trajectory
The Rising Dollar and Macroeconomic and Policy Prospects
From Buoyant Dollar Recovers Its Luster, Underlining Rebound in U.S. Economy in today’s NY Times:
The United States dollar, after one of its most prolonged weak spells ever, has now re-emerged as the preferred currency for global investors. Across trading desks in New York, London and elsewhere, analysts are rushing to raise their dollar forecasts based on the resurgence in the American economy.
The ECB Does QE/CE
From Simon Kennedy in “Draghi Sees Almost $1 Trillion Stimulus With No QE Fight” (Bloomberg):
Mario Draghi signaled at least 700 billion euros ($906 billion) of fresh aid for his moribund economy and left a fight with Germany over sovereign-bond purchases for another day.
Forward Premia and the Carry Trade
I was at the NBER Summer Institute’s meeting of the International Finance and Macro group where (in addition to finally meeting Jim Hamilton) I had the opportunity to hear two papers on a topic near and dear to me — namely the relationship between the forward premium (the gap between the forward and spot rate, or equivalently in the absence of political risk, the interest differential) and the carry trade. (For discussion of related papers at last year’s IFM, see this post).
What to Do about the “Crazy Euro”?
From today’s FT:
International Trade and Finance…and Policy
I’ve just returned from two highly stimulating conferences in Beijing. The first was a Columbia-Tsinghua conference on “Capital Flows and International Financial Systems”, organized by Jiandong Ju and Shang-Jin Wei, and the second a NBER-China Center for Economic Research conference on “China and the World Economy”, organized by Yang Yao, Shang-Jin Wei, and Chong-En Bai.
Negative interest rates
The European Central Bank announced on Thursday that it is moving interest rates into negative territory, charging banks for maintaining deposits with the ECB rather than paying the banks positive interest. The hope is that lower (now even negative) interest rates may provide some stimulus to the European economy which might help bring European inflation closer to the ECB’s 2% target. Here I offer a few thoughts on this move.
Russian ForEx Reserves and Balance of Payments Vulnerabilities
Russian foreign exchange reserves, while large, are declining. Since reserve holdings (or lack thereof) are one of the best predictors of balance of payments/currency crises, it’s worth taking a look at their trajectory. (See Frankel and Saravelos, 2012 for a recent example)