Topic
Currency
About: Currency is a research topic. Over the lifetime, 26697 publications have been published within this topic receiving 485370 citations. The topic is also known as: monetary unit & unit of money.
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TL;DR: In this paper, the authors study the monetary theory implications of fixed costs associated with trade in private assets and show that with heterogeneous endowment profiles, it is possible for an endogenous subset of agents to hold currency even when it is dominated in return by a competing asset.
Abstract: We study the monetary theory implications of fixed costs associated with trade in private assets. We show that with heterogeneous endowment profiles it is possible for an endogenous subset of agents to hold currency even when it is dominated in return by a competing asset. With respect to positive issues in monetary theory, the model implies that changes in the steady-state growth rate of the money supply have a negative effect on real interest rates because of endogenous market participation measures. On the normative side, we show that there may be an equity-efficiency trade-off from monetary deflation.
105 citations
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TL;DR: This paper showed that countries that primarily export basic commodities exhibit systematically high (real) interest rates while countries that specialize in exporting finished consumption goods typically have lower rates, and that the resulting interest rate differentials do not fully translate into the depreciation of the commodity currencies, on average.
Abstract: Persistent differences in interest rates across countries account for much of the profitability of currency carry trade strategies. We relate these differences to the differences of economic fundamentals across countries. We show that countries that primarily export basic commodities exhibit systematically high (real) interest rates while countries that specialize in exporting finished consumption goods typically have lower rates. The resulting interest rate differentials do not fully translate into the depreciation of the commodity currencies, on average. Instead, they translate into expected returns that capture the bulk of the unconditional risk premia that can be obtained in the currency markets. We provide a general equilibrium model of commodity trade and currency pricing that can rationalize these facts by relying on adjustment costs in the shipping sector.
104 citations
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TL;DR: The authors analyzed the development of 49 local bond markets and found that countries with stable inflation rates and strong creditor rights have more developed local bond market and rely less on foreign-currency-denominated bonds.
Abstract: We analyze the development of 49 local bond markets. Our main finding is that policies and laws matter: Countries with stable inflation rates and strong creditor rights have more developed local bond markets and rely less on foreign-currency-denominated bonds. The results suggest that "original sin" is a misnomer. Emerging economies are not inherently dependent upon foreign-currency debt. Rather, by improving policy performance and strengthening institutions they may develop local currency bond markets, reduce their currency mismatch, and lessen the likelihood of future crises.
104 citations
TL;DR: This paper showed that in the presence of high import content, exports are not adversely affected by currency appreciation because the lower import prices due to appreciation reduce the cost of export production, and this cushioning effect outweighs that of the effect of productivity gains on export competitiveness.
Abstract: Policy prescriptions have generally assumed that exchange rate depreciation would stimulate exports and curtail imports, while exchange rate appreciation would be detrimental to exports and encourage imports. This prediction has, however, often neglected to consider the existence of the import content of exports, as well as the dynamic effects of productivity improvements. Our paper seeks to show empirically, the significance of these two factors in affecting the competitiveness of Singapore's exports. Specifically, the paper shows that in the presence of high import content, exports are not adversely affected by currency appreciation because the lower import prices due to appreciation reduce the cost of export production. In the case of Singapore, this cushioning effect outweighs that of the effect of productivity gains on export competitiveness. The service exports, however, with a very low import content tend to suffer from currency appreciation.
104 citations
TL;DR: In this paper, the authors proposed increasing the weight of the yen in East Asian currency baskets, which could lead to a deflationary spiral in the region, as the East Asian economies transform themselves from being dollar debtors into dollar creditors.
Abstract: Before the 1997–98 crisis, the East Asian economies – except for Japan – informally pegged their currencies to the dollar. These soft pegs made them vulnerable to a depreciating yen, thereby aggravating the crisis. To limit future misalignments, the IMF wants East Asian currencies to float freely. Alternatively, authors have proposed increasing the weight of the yen in East Asian currency baskets. However, dollar pegs are entirely rational from the perspective of each Asian country – both to facilitate hedging by merchants and banks against exchange risk, and to help central banks anchor their domestic price levels. Post-crisis, as the East Asian economies transform themselves from being dollar debtors into dollar creditors, they face ‘conflicted virtue’: pressure to appreciate their currencies that could lead to a deflationary spiral. Rather than undervaluing their currencies to promote exports as is commonly alleged, East Asian governments are trapped into returning to – and then maintaining – soft dollar pegs.
104 citations