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.

Exchange Rate Disconnect in General Equilibrium

Abstract: We propose a dynamic general equilibrium model of exchange rate determination that accounts for all major exchange rate puzzles, including Meese-Rogoff, Backus-Smith, purchasing power parity, and u...

Openness and Inflation: A New Assessment

Abstract: Romer [1993] uses a Barro-Gordon-type model' to argue that openness puts a check on the government's incentive to engage in unanticipated inflation, because of induced exchange rate depreciation.2 Therefore, in the absence of precommitment in monetary policy, more open economies will tend to have lower inflation rates. Romer finds that empirically, over a large sample of countries and over a broad time frame, "average inflation rates are lower in smaller, more open economies. This relationship is significant, quantitatively large, and robust." Moreover, "these findings suggest that models in which the absence of precommitment in monetary policy leads to inefficiently high average levels of inflation are essential to understanding inflation in most of the world." This comment suggests that the negative link between inflation and openness Romer found may be largely driven by the responses of severely indebted countries (SICs) to the debt crisis of the 1980s. Figures I and II show the scatterplots of the logarithms of average inflation and openness for the subperiods 1973 to 1981 (predebt crisis) and 1982 to 1990 (the debt crisis period). Different groups of countries are separated according to their indebtedness level.3 The solid lines in the figures represent the predicted value of inflation, obtained from a regression of openness on inflation for the countries in each group. As the scatterplots show, there is indeed a strong negative relation between openness and inflation among SICs during the debt crisis

Gold and the Dollar (and the Euro, Pound, and Yen)

Abstract: Usually, gold and the Dollar are negatively related; when the Dollar price of gold increases, the Dollar depreciates against other currencies. This is intuitively puzzling because it seems to suggest that gold prices are associated with appreciation in other currencies. Why should the Dollar be different? We show here that there is actually no puzzle. The price of gold can be associated with currency depreciation in every country. The Dollar price of gold can be related to Dollar depreciation and the Euro (Pound, Yen) price of gold can be related to Euro (Pound, Yen) depreciation. Indeed, this is usually the case empirically.