In the excitement over the debt ceiling debate, the increasing extent of fiscal drag, and anxiety about an economic slowdown, I have neglected discussion of the dollar. I still think that continued dollar depreciation is necessary to effect global rebalancing. I’d prefer it to happen by way of expansionary monetary policy, but we might get dollar depreciation as intransigent policymakers work hard to destroy the safe-haven role of US Treasury securities. [0] So, while all eyes are on Jackson Hole, here’s a quick, stream of consciousness review of some dollar-related issues.
Category Archives: exchange rates
“Sex Ratios and Exchange Rates”
From a paper (Ungated/Scribed version here) by Shang-Jin Wei and Qingyuan Du:
China and several other economies in Asia are experiencing an increasingly more severe relative
surplus of men in the pre-marital age cohort. While the existing literature on the sex ratio has examined
its social impact such as crime, we aim to explore neglected implications of the sex ratio imbalance for
the real exchange rate. …
“Effects of Abandoning Fixed Exchange Rates for Greater Flexibility”
At the recent NBER ISOM conference, Andy Rose presented a paper entitled Flexing Your Muscles: Effects of Abandoning Fixed Exchange Rates for Greater Flexibility, coauthored with Barry Eichengreen, following up on this 2010 paper, evaluating the effects of flexing (VoxEU post here).
For purposes of this short paper we examine a
comprehensive data set covering over 200 countries and territories since 1957. …
What Would Really Bring about a Dollar Dive?
One of the things about reading the op-eds and various articles in the blogosphere is the tendency to hype the possibility of the collapse in this, or the collapse in that. The most recent “bubble” in this type of writing involved hyper-inflation, commodities (silver, anyone?) and the dollar. Now I read things like QEIII would bring about a collapse in the dollar [1] (as if anybody really thought QEIII was politically likely, even if it were advisable on economic grounds); or easy monetary policy would be the culprit. Here’s a choice quote from Jim Rogers:
Lower oil prices
Like a roller coaster ride, 2011 saw oil prices climb gradually, only to fall dramatically this last week. Here I offer my thoughts on some of the key contributing factors.
“Renminbi Going Global”
That’s the title of a new working paper by Xiaoli Chen (Shandong University) and Yin-Wong Cheung (UCSC). Readers might recognize Cheung as a co-author with G. Ma and R. McCauley on a 2010 BIS paper, discussed in this May 2010 Econbrowser post, and just published in Pacific Economic Review. For anybody who is interested in the latest developments in the Chinese government’s attempts to internationalize the Renminbi, this is essential reading. From the summary of the paper.
Coordinated Forex Intervention “Works”
From Reuters:
A coordinated move by central banks of rich nations to stabilize the yen’s value appeared to be having a decisive effect on Friday, after a sharp rise in the yen after Japan’s devastating earthquake and nuclear crisis raised fears about the global economy.
The Macroeconomic Effects of Large Exchange Rate Appreciations
From the abstract to a new OECD Development Center working paper, by Marcus Kappler, Helmut Reisen, Moritz Schularick and Edouard Turkisch, the results of a large, cross-country study based upon a narrative approach to identifying appreciation episodes:
The study shows that currency appreciations can help to a certain extent in reducing global imbalances, and that it can go along with a shift from a mainly export-based model of growth towards a model with internal sources of growth. The cost in terms of growth would be very limited in the case of developed countries, but somewhat larger for developing countries.
Exchange Rates: Two Stylized Facts and Yet Another (Consequent) Puzzle
My colleague, Charles Engel, has a new paper entitled The Real Exchange Rate, Real Interest Rates, and the Risk Premium, in which he tries to identify what characteristics an exchange rate model must possess in order to explain two stylized facts.
…The well-known interest parity puzzle in foreign exchange markets finds … the high interest rate country tends to have the higher expected return in the short run. The second stylized fact concerns evidence that when a country’s relative real interest rate rises above its average, its currency tends to be stronger than average in real terms.
New indications of inflation
Where are the inflationary pressures?