Consider a hypothetical world economy with assets denominated in dollars and euros.
Category Archives: exchange rates
UAE & Other Gulf Countries Urged to Switch Currency Peg from the Dollar to a Basket That Includes Oil
By Jeffrey Frankel
Today, we’re fortunate to have Jeff Frankel, Harpel Professor at Harvard’s Kennedy School of Government, as a guest blogger. His blog is here.
The possibility that some Gulf states, particularly the UAE, might abandon their long-time pegs to the dollar is getting increasing attention (from Martin Feldstein and Brad Setser, for instance). It makes sense. The combination of high oil prices, rapid growth, a tightly fixed exchange rate, and the big depreciation of the dollar against other currencies (especially the euro, important for Gulf imports) was always going to be a recipe for strong money inflows and inflation in these countries. The economic dynamism — most striking in Dubai — is admirable and fascinating, but also now clearly indicative of overheating. Indeed inflation, as predicted, has risen alarmingly. Among other ill effects, it is producing unrest among immigrant workers. An appreciation of the dirham and riyal is the obvious solution.
Oil spike
Why did oil breach $138?
Oil Prices in Other Currencies
Some of the explanations for the dollar jump rely upon the perceived weakness in the dollar’s value (and hence, by extension, Fed policy). Does this make sense?
RMB Misalignment in a PPP Framework: The Impact of Data Revisions
The World Bank’s new World Development Indicators were released a bit over a month ago. The impact on the estimates of RMB misalignment are substantial. (This is an elaboration on a RGEMonitor post by Yin-Wong Cheung from a week and half ago, and is based on preliminary results from a presentation made yesterday at a Deutsche Bundesbank and Center for Financial Studies/Goethe University Frankfurt Workshop on Panel Methods and Open Economies”.)
Current Account Balances, Again
Two years ago, as part of a multi-year project, Charles Engel and I organized a conference on current account sustainability in major advanced economies.
Lask week, we convened a follow-up conference aimed at updating our knowledge on this subject. Below is the latest read on the U.S. current account to GDP.
The Monetary Model of Exchange Rates, Money Demand Shocks and Order Flow
Yes, exchange rate prediction once again. Last Thursday, Michael Moore (of Queen’s University Belfast) and I presented a new paper at the IMF’s conference on International Macro-Finance (co-sponsored with the ESRC funded World Economy and Finance Program). Here’s the paper [pdf].
Let’s Think Long and Hard about Extending Those Bush Tax Cuts
There was a time one could plausibly argue that importing lots of goods and services, and borrowing a lot from abroad (financing the budget deficits that we’ve incurred since 2001) was a great idea. But at the time, about two and a half years ago, I made the following warning in a Council of Foreign Relations report [pdf]:
The United States faces a wide variety of possible outcomes, with the most dire having a significant likelihood. One real possibility entails the satiation of global investors’ appetite for U.S. Treasury securities, combined with an endless vista of government budget deficits. After several years of large losses on dollar assets due to depreciation, they then demand a substantial premium for holding dollar-denominated assets; either the dollar must weaken so as to make Treasury securities cheap, or yields must rise relative to those on other assets.
Why new oil price highs?
West Texas Intermediate closed today above $115/barrel. Does that reflect changes in the fundamentals of world supply and demand? My answer is no.
The G-7 Communique and the Dollar
Was this the new (reverse) “Plaza Accord”? From Bloomberg: