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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.


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TL;DR: In this article, the authors present two different models in which crisis and realignment result from the interaction of rational private economic actors and a government that pursues well-defined policy goals.
Abstract: Once one recognizes that governments borrow international reserves and exercise other policy options to defend fixed exchange rates during currency crises, the question arises: What factors determine a government's decision to abandon a currency peg or hang on? In a setting of purposeful action by the authorities, the possibility of self-fulfilling crises becomes important. Speculative anticipations depend on conjectured government responses, which depend, in turn, on how price changes that are themselves fueled by expectations affect the government's economic and political positions. The circular dynamic implies a potential for crises that need not have occurred, but that do because market participants expect them to. In contrast to this picture, most previous literature on balance-of- payments crises ignores the response of government behavior to markets. That literature, I argue, throws little light on events such as the European Exchange Rate Mechanism collapse of 1992-93. This paper then presents two different models in which crisis and realignment result from the interaction of rational private economic actors and a government that pursues well-defined policy goals. In both, arbitrary expectational shifts can turn a fairly credible exchange-rate peg into a fragile one.

797 citations

Journal ArticleDOI
TL;DR: In this paper, the authors developed a general equilibrium exchange rate model consistent with the weak empirical evidence supporting the law of one price, where firms segment markets by country, and set prices in local currency of sale, referred to as pricing-to-market (PTM).

794 citations

Journal ArticleDOI
Dean Yang1
TL;DR: In this paper, the estimated elasticity of Philippine-peso remittances with respect to the exchange rate is 0.60, and the authors found that positive migrant shocks lead to enhanced human capital accumulation and entrepreneurship in origin households.
Abstract: How do households respond to overseas members’ economic shocks? Overseas Filipinos in dozens of countries experienced sudden, heterogeneous changes in exchange rates during the 1997 Asian financial crisis. Appreciation of a migrant's currency against the Philippine peso leads to increases in household remittances from overseas. The estimated elasticity of Philippine-peso remittances with respect to the exchange rate is 0.60. Positive migrant shocks lead to enhanced human capital accumulation and entrepreneurship in origin households. Child schooling and educational expenditure rise, while child labour falls. Households also work more hours in self-employment, and become more likely to start relatively capital-intensive household enterprises.

791 citations

ReportDOI
TL;DR: This article analyzed three views of the relationship between the exchange rate and financial fragility: (1) the moral hazard hypothesis, according to which pegged exchange rates offer implicit insurance against exchange risk and thereby encourage reckless borrowing and lending; (2) the original sin hypothesis, which emphasizes an incompleteness in financial markets which prevents the domestic currency from being used to borrow abroad or to borrow long term even domestically; and (3) the commitment problem hypothesis, who sees financial crises as resulting from neither moral hazard nor original sin but from the weakness of the institutions that address commitment problems.
Abstract: In this paper we analyze three views of the relationship between the exchange rate and financial fragility: (1) the moral hazard hypothesis, according to which pegged exchange rates offer implicit insurance against exchange risk and thereby encourage reckless borrowing and lending; (2) the original sin hypothesis, which emphasizes an incompleteness in financial markets which prevents the domestic currency from being used to borrow abroad or to borrow long term even domestically; and (3) the commitment problem hypothesis, which sees financial crises as resulting from neither moral hazard nor original sin but from the weakness of the institutions that address commitment problems. We examine the evidence on these hypotheses and draw out their implications for exchange-rate policy in emerging markets

787 citations

ReportDOI
TL;DR: In this paper, the authors examine the financial events following the Mexican peso devaluation to uncover new lessons about the nature of financial crises and explore the question of why, during 1995, some emerging markets were hit by financial crises while others were not.
Abstract: In this paper we examine closely the financial events following the Mexican peso devaluation to uncover new lessons about the nature of financial crises. We explore the question of why, during 1995, some emerging markets were hit by financial crises while others were not. To this end, we ask whether there are some fundamentals that help explain the variation in financial crises across countries or whether the variation just reflects contagion. We present a simple model identifying three factors that determine whether a country is more vulnerable to suffer a financial crisis: a high real exchange rate appreciation, a recent lending boom, and low reserves. We find that for a set of 20 emerging markets, differences in these fundamentals go far in explaining why during 1995 some emerging markets were hit by financial crises while others were not. We also find that alternative hypotheses that have been put forth to explain such crises often do not seem to be supported by the data, such as high current account deficits, excessive capital inflows and loose fiscal policies.

787 citations


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Performance
Metrics
No. of papers in the topic in previous years
YearPapers
20242
2023899
20222,022
20211,295
20201,609
20191,767