Exchange rate

About: Exchange rate is a research topic. Over the lifetime, 47255 publications have been published within this topic receiving 944563 citations. The topic is also known as: foreign-exchange rate & forex rate.

The Technology and Economic Determinants of Cryptocurrency Exchange Rates: The Case of Bitcoin

Abstract: Bitcoin, a digital currency created based on modern P2P and cryptograph technologies, has ignited much discussion among professionals. However, there is a lack of empirical understanding about the Bitcoin exchange rate. In this paper, we propose a theoretical framework from an economic-technological perspective for understanding determination of the Bitcoin exchange rate and to empirically examine dynamics of the Bitcoin exchange rate against the USD in an error correction model. Our findings suggest that it is critical to extend traditional economic exchange rate models and treat Bitcoin as both a medium for economic transactions and a technology innovation. Specifically, we find that the Bitcoin exchange rate responds to short-term changes in the US inflation rate and money supply as well as the market size of the Bitcoin economy as measured by the total number of transactions and total Bitcoin value of the transactions. Meanwhile, public recognition, reflected by Google search index and number of Twitter mentions, as well as mining difficulty have positive impacts on the Bitcoin exchange rate. Additional analysis suggests that the impact of mining difficulty diminishes as mining technology evolves.

A Global Perspective on External Positions

Abstract: The paper highlights the increased dispersion in net external positions in recent years, particularly among industrial countries. It provides a simple accounting framework that disentangles the factors driving the accumulation of external assets and liabilities (such as trade imbalances, investment income flows, and capital gains) for major external creditors and debtors. It also examines the factors driving the foreign asset portfolio of international investors, with a special focus on the weight of U.S. liabilities in the rest of the world’s stock of external assets. Finally, it relates the empirical evidence to the current debate about the roles of portfolio balance effects and exchange rate adjustment in shaping the external adjustment process.

Currency Misalignments and Optimal Monetary Policy: A Reexamination

Abstract: Exchange rates among large economies have fluctuated dramatically over the past 30 years. The dollar/euro exchange rate has experienced swings of greater than 60 percent. Even the Canadian dollar/US dollar exchange rate has risen and fallen by more than 35 percent in the past decade, but inflation rates in these countries have differed by only a percentage point or two per year. Should these exchange rate movements be a concern for policymakers? Or would it not be better for policymak ers to focus on output and inflation and let a freely floating exchange rate settle at a market determined level? Empirical evidence points to the possibility of "local-currency pricing" (LCP) or "pricing to market."1 Exporting firms may price discriminate among markets, and/ or set prices in the buyers' currencies. A currency could be overvalued if consumer prices are generally higher at home than abroad when compared in a common cur rency, or undervalued if these prices are lower at home.2 Currency misalignments can be very large even in advanced economies. In a simple, familiar framework, this paper draws out the implications for monetary policy when currency misalignments are possible. Currency misalignments lead to inefficient allocations for reasons that are analogous to the problems with inflation in a world of staggered price setting. When there are currency misalignments, households in the Home and Foreign countries may pay different prices for the identical good. A basic tenet of economics is that violations of the law of one price are inefficient—if the good's marginal cost is the same irrespective of where the good is sold, it is not efficient for the good to sell at different prices. We find that these violations lead to a reduction in world welfare and that optimal monetary policy trades off targeting these misalignments with inflation and output goals. In our model, because there are no transportation costs or distribution costs, any deviation from the law of one price would be inefficient. More generally, if those costs were to be included, then pricing

The International Price System

Abstract: I define and provide empirical evidence for an “International Price System” in global trade employing data for thirty-five developed and developing countries. This price system is characterized by two features. First, the overwhelming share of world trade is invoiced in very few currencies, with the dollar the dominant currency. Second, international prices, in their currency of invoicing, are not very sensitive to exchange rates at horizons of up to two years. In this system, a good proxy for a country's inflation sensitivity to exchange rate fluctuations is the fraction of its imports invoiced in a foreign currency. U.S. inflation is consequently more insulated from exchange rate shocks, while other countries are highly sensitive to it. Exchange rate depreciations (appreciations) make U.S. exports cheaper (expensive), while for other countries they mainly raise (lower) mark-ups and hence profits. U.S. monetary policy has spillover effects on inflation in other countries, while spillovers from other countries monetary policies on to U.S. inflation are more muted.

Evolution and Performance of Exchange Rate Regimes

Abstract: The issue of the appropriate exchange rate regime for individual countries has been perennially lively, and the role played by international capital flows and domestic financial systems in determining the performance of these regimes has gained prominence in the policy debate. Using recent advances in the classification of exchange rate regimes, the key message in this paper is that, as economies and their institutions mature, the value of exchange rate flexibility increases. This study assesses the historical durability and performance of alternative exchange rate regimes, with special focus on developing and emerging market countries. It describes trends in the distribution of regimes and examines the transitions between regimes. It also reviews the performance of exchange rate regimes in terms of inflation and business cycles.