Topic
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 paper, the authors compared stock price indices across countries in an attempt to explain why they exhibit such disparate behavior, and empirically documented three separate explanatory influences are empirically validated.
Abstract: Stock Price Indices are compared across countries in an attempt to explain why they exhibit such disparate behavior. Three separate explanatory influences are empirically documented. First, part of the behavior can be attributed to a technical aspect of index construction; some indices are more diversified than others. Second, each country's industrial structure plays a major role in explaining stock price behavior. Third, for the majority of countries, a portion of national equity index behavior can be ascribed to exchange rate behavior. Exchange rates explain a significant portion of common currency denominated national index returns, although the amount explained by exchange rates is less than the amount explained by industrial structure for most countries.
709 citations
TL;DR: In this paper, the authors show that with incomplete asset markets, productivity disturbances can have large uninsurable effects on wealth, depending on the value of the trade elasticity and shock persistence.
Abstract: This paper shows that standard international business cycle models can be reconciled with the empirical evidence on the lack of consumption risk sharing. First, we show analytically that with incomplete asset markets productivity disturbances can have large uninsurable effects on wealth, depending on the value of the trade elasticity and shock persistence. Second, we investigate these findings quantitatively in a model calibrated to the U.S. economy. With the low trade elasticity estimated via a method of moments procedure, the consumption risk of productivity shocks is magnified by high terms of trade and real exchange rate (RER) volatility. Strong wealth effects in response to shocks raise the demand for domestic goods above supply, crowding out external demand and appreciating the terms of trade and the RER. Building upon the literature on incomplete markets, we then show that similar results are obtained when productivity shocks are nearly permanent, provided the trade elasticity is set equal to the high values consistent with micro-estimates. Under both approaches the model accounts for the low and negative correlation between the RER and relative (domestic to foreign) consumption in the data—the “Backus–Smith puzzle”.
704 citations
TL;DR: In this article, a structural model is proposed to explicitly account for the features of the small open economy and the dynamic responses to the identified monetary policy shock are consistent with standard theory and highlight the exchange rate as a transmission mechanism.
704 citations
TL;DR: In this article, the authors show that real exchange rate volatility can have a significant impact on productivity growth, but the effect depends critically on a country's level of financial development, and they also offer a simple monetary growth model in which real exchange-rate uncertainty exacerbates the negative investment effects of domestic credit market constraints.
699 citations
TL;DR: The authors rationalizes these facts as an equilibrium outcome when different regions of the world differ in their capacity to generate financial assets from real investments, and extends the basic model generate exchange rate and foreign direct investment excess returns broadly consistent with the recent trends in these variables.
Abstract: The sustained rise in US current account deficits, the stubborn decline in long- run real rates, and the rise in US assets in global portfolios appear as anoma - lies from the perspective of conventional models. This paper rationalizes these facts as an equilibrium outcome when different regions of the world differ in their capacity to generate financial assets from real investments. Extensions of the basic model generate exchange rate and foreign direct investment excess returns broadly consistent with the recent trends in these variables. The frame - work is flexible enough to shed light on a range of scenarios in a global equilib - rium environment. (JEL: E44, F21, F31, F32)
698 citations