“Exchange rate models for a new era: Major and emerging market currencies”

That’s the title of a forthcoming special section in the Journal of International Money and Finance. Here’s the introductory article to the special issue [link].

Disruptions to financial markets, elevated risk levels, and unconventional monetary policies pursued by central banks have altered the landscape of international finance. The near zero and negative interest rates in several key advanced economies, for instance, present a new environment for pricing financial assets and shock transmission. The ultra-accommodative policy stance has affected exchange rates via, for instance, its effects on expectations, capital flows and global liquidity. As a result, new challenges in modelling equilibrium exchange rates, assessing exchange rate misalignment, and evaluating their roles in re-balancing external imbalances, and shock transmission have arisen. Against this backdrop, a conference was convened to provide a platform for discussing recent advances in modelling exchange rates, from perspectives of both major and emerging market currencies. This special issue of the Journal of International Money and Finance consists of eight papers presented at a conference organized by Global Research Unit at Department of Economics and Finance, City University of Hong Kong, Bank for International Settlements, Asian Office, and Centre for Economic Policy Research, with advice from Nelson Mark, and held at City University of Hong Kong, May 18–19, 2017. The topics covered advances in empirical exchange rate modeling, the effect of news, risk and uncertainty on currency values, order flow and exchange rates, monetary policy and interest rate parity, and the behavior of the Renminbi duringthe post-crisis. We describe below the main take-aways from these papers. …

The entire article is here (ungated for 50 days). special issue [link]. Published online: Adler, Lama & Medina, Berg & Mark,  Cao, Huang, Liu & MacDonald, Cheung, Chinn, Garcia Pascual & Zhang (ungated for 50 days), Cheung, Fatum & Yamamoto, Engel, Lee, Liu, Liu & Wu, Krohn & Moore, and McCauley & Shu.

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Bleg: Puzzles in the Hassett Economic Report of the President, 2019

In the wake of the discussion of Figure 1-6 in the ERP, I thought it might be useful for me to collect up questions about puzzling or misleading graphs/tables or conclusions in the Report.

The entire document is here.

I don’t think I have ever made a similar request. However, I don’t think I’ve ever seen a similar CEA “massage the message” in quite the same way. Even the G.W. Bush CEA (of which I was briefly a part of) did not make such blatantly misleading graphics as highlighted in this post.

Clarification (3PM): I’ll then compile the contributions with my comments in a new post.

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Seven (Business) Days in May

[updated 6/3] Undervalued currencies as countervailable subsidies, tariffs on Mexico, flash mfg PMI drops, Drumpf again insists China pays US tariffs…so the yield curve inverts!

Figure 1: [Updated 6/3) Treasury 10yr-3mo spread (blue, left scale), 10yr-2yr (red, left scale), 5yr-3mo (teal, left scale), in %; 6/3 interest rates on-the-run at 1:30PM EST, and Economic Policy Uncertainty index (black, right scale). Source: Fed via FRED, US Treasury, and policyuncertainty.com, accessed 6/3/2019.

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Yield curve inversion

The gap between long-term and short-term interest rates has narrowed sharply over the last year and is now dipping into negative territory. Historically that’s often been a signal that slower economic growth or even an economic recession could lie ahead.

Gap between average interest rate on 10-year Treasury bond and 3-month Treasury bill during the last month of the quarter (1953:Q2 to 2019:Q1) and May 1-24 for 2019:Q2. NBER dates for U.S. recessions shown as shaded regions.


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The “Blip” Continues! Soybean Edition

A year ago, the July 2019 futures were $10.46, compared to $8.296 today.

Reader CoRev writes on July 9th:

…no one has denied the impact of tariffs on FUTURES prices. Those of us arguing against the constant anti-tariff, anti-Trump dialogs have noted this will probably be a price blip lasting until US/Chinese negotiations end. We are on record saying the prices will be back approaching last year’s harvest season prices.

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