From Bloomberg’s Mike Rosenberg, in FX Market Insights (June 28):
The euro is now two years into what might be another
long-term downtrend. …
Category Archives: exchange rates
Exchange Rate Angst and Rebalancing
As the euro has plummeted against the USD, there’s been concern that efforts to rebalance the global economy will face increasing headwinds. [Bergsten] [Duy]. This worry is only added to by the already widening US trade deficit [1]. In this post, I don’t want to dispute the difficulty of effecting global rebalancing. It was already a difficult task, even before the euro area’s recent debt-related travails. What I do want to do is to put the recent exchange rate movements in perspective. My three observations are as follows:
“Reminbising China’s Assets”
From a paper written by Yin-Wong Cheung (UCSC), Guonan Ma (BIS), and Robert McCauley (BIS):
…Recent policies adopted by the Chinese authorities
can be interpreted as allowing the rest of the world to denominate debt in renminbi. But if trading
partners consider that the renminbi is subject to big jump risk, then prospects for its
internationalisation are weak. …
Recent estimates of Chinese Yuan misalignment
Yin-Wong Cheung, Eiji Fujii and I have just written a chapter for a VoxEU book The US-Sino Currency Dispute edited by Simon Evenett (link to blog post). After discussing the various approaches to measuring misalignment, we summarize the most recent estimates of CNY undervaluation.
Measuring the Long Run Real Exchange Rate – Income Relationship
Yanping Chong, Oscar Jorda and Alan M. Taylor have tackled the perennial challenge of measuring the long run relationship between the real exchange rate and per capita income levels. From the abstract to The Harrod-Balassa-Samuelson Hypothesis: Real Exchange Rates and their Long-Run Equilibrium:
Frictionless, perfectly competitive traded-goods markets justify thinking of purchasing power parity (PPP) as the main driver of exchange rates in the long-run. But differences in the traded/non-traded sectors of economies tend to be persistent and affect movements in local price levels in ways that upset
the PPP balance (the underpinning of the Harrod-Balassa-Samuelson hypothesis, HBS). This paper uses panel-data techniques on a broad collection of countries to investigate the long-run properties of the PPP/HBS equilibrium using novel local projection methods for cointegrated systems. …
A Still Relevant GAO Classic: Floating Exchange Rates in an Interdependent World and “Overvaluation”
Following up on my misalignment post from Tuesday, here’s a volume compiled by the GAO when it was the General Accounting Office containing a symposium on exchange rates. The symposium took place in the midst of currency overvaluation: “Floating Exchange Rates in an Interdependent World”. The authors included Richard Cooper, Stanley Black, Rudiger Dornbusch, Jeffrey Frankel, and Jacob Frenkel.
A Misalignment Primer
As the release of the next Treasury Report to Congress on International Economic and Exchange Rate Policies looms, it might be useful to recount the various ways in which different observers define currency “misalignment”.
Exchange Rate Policies
My colleague Charles Engel has a new paper circulated by the Dallas Fed entitled “Exchange Rate Policies”, which brings theory to bear on the topic. From the introduction:
The Dollar in Doubt?
I’ve found it puzzling that there’s all this talk about the prospects for the dollar, in the wake of the G-20 meetings, and more recently World Bank President Zoellick’s comments about the primacy of the dollar as a reserve currency. My puzzlement arises from the fact that many of the concerns now being voiced have been voiced before.
Exchange Rates: New Papers
During the summer, I had the good fortune to attend two excellent conferences focused on new findings in exchange rate economics (yes, not all economic research is focused on the financial crisis and recession). The first was a Bank of Canada-European Central Bank conference Exchange rates: The global perspective, and the second was the NBER International Finance and Macroeconomics Summer Institute session “Exchange Rates and Relative Prices”.