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.

Are Free Trade Agreements Contagious

Abstract: This paper presents empirical evidence on the extent to which FTAs are "contagious", using empirical techniques inspired by the study of contagion in exchange rate crises Applying a series of different econometric techniques, it tests the null hypothesis that the signing of an FTA between one nation's trade partners has no affect on the probability of the nation signing a new FTA The hypothesis is tested against other political, economical and geographical determinants of the FTA formation previously stated in the literature, finding evidence that the contagion phenomenon is present in different specifications and samples

Financial openness, sudden stops and current account reversals

Abstract: In this paper I use a panel data set to investigate the mechanics of sudden stops of capital inflows and current account reversals. I am particularly interested in four questions: (a) What is the relationship between sudden stops and current account reversals? (b) To what extent does financial openness affect the probability of a country being subject to a current account reversal? In other words, do restrictions on capital mobility reduce the probability of such occurrences? (C) Does openness -- both trade openness and financial openness -- play a role in determining the effect of current account reversals on economic performance (i.e. GDP growth)? And, (d) does the exchange rate regime affect the intensity with which reversals affect real activity? The empirical analysis shows that sudden stops and current account reversals have been closely related. The econometric analysis suggests that restricting capital mobility does not reduce the probability of experiencing a reversal. Current account reversals, in turn, have had a negative effect on real growth that goes beyond their direct effect on investment. The regression analysis indicates that the negative effects of current account reversals on growth will depend on the country's degree of trade openness: More open countries will suffer less in terms of lower growth relative to trend than countries with a lower degree of trade openness. On the other hand, the degree of financial openness does not appear to be related to the intensity with which reversals affect real economic performance. The empirical analysis also suggests that countries with more flexible exchange rate regimes are able to accommodate better shocks stemming from a reversal than countries with more rigid exchange rate regimes.

The East Asian Dollar Standard, Fear of Floating, and Original Sin

Abstract: Before the crisis of 1997-98, the East Asian economies — except for Japan but including China — pegged their currencies to the U.S. dollar. To avoid further turmoil, the IMF now argues that these currencies should float more freely. However, our econometric estimations show that the dollar's predominant weight in East Asian currency baskets has returned to its pre-crisis levels. By 2002, the day-to-day volatility of each country's exchange rate against the dollar has again become negligible. In addition, most governments are rapidly accumulating a "war chest" of official dollar reserves, which portends that this exchange rate stabilization will come to extend over months or quarters. From the doctrine of "original sin" applied to emerging-market economies, we argue that this fear of floating is entirely rational from the perspective of each individual country. And, although Japan remains an important outlier, their joint pegging to the dollar benefits the East Asian dollar bloc as a whole.

Economic growth and currency crisis: A real exchange rate entropic approach

Abstract: We propose a classification of currency crisis consequences based on the entropic analysis of a macroeconomic variable uniquely, without any further assumption. The entropy information carried by the real exchange rate time series serves to order the sampled countries. We show that this ranking is highly correlated with the annual minimum growth of gross domestic product, a proxy used to quantify real currency crisis effects. We compare this criterion against that most currently used, variance based methodology. In addition, cross-country correlations support the hierarchical ordering based on the entropic criterion.