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 used a multifactor market model to estimate the expected returns to Canadian oil and gas industry stock prices, and showed that exchange rates, crude oil prices and interest rates each have large and significant impacts on stock price returns in the Canadian Oil and Gas industry.
628 citations
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TL;DR: The 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century (since the Bretton Woods conference) into flexible (though managed) rates as discussed by the authors.
Abstract: Recent experience with flexible exchange rate systems has led to renewed interest in the operation of foreign exchange markets as reflected in many recent studies of the principal determinants of exchange rates. The 1970s witnessed the dramatic alteration of the international monetary system from a regime of pegged exchange rates which prevailed for about a quarter of a century (since the Bretton Woods conference) into a regime of flexible (though managed) rates. As a consequence of the emergence of the new legal and economic system traders, national governments and international organisations were confronted with new economic problems, choices and instruments. During the 1970s ex-change rates fluctuated widely and inflation rates accelerated. The international monetary system had to accommodate extraordinarily large oil-related shocks which affected trade flows in goods and assets. Huge oil payments had to be recycled. Uncertainties concerning future developments in international politics reached new heights and the prospects for the world economy got gloomier. These developments placed unprecedented pressures on the markets for foreign exchange as well as on other asset markets. They were associated with a large slide in the value of the US dollar, and resulted in speeding up the creation of new institutions like the European monetary system which provided the formal framework for the management of exchange rates among members.
623 citations
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TL;DR: In this paper, the authors extended their analysis to the case of a small open economy and showed that under certain conditions, the monetary policy design problem for the small-open economy is isomorphic to the problem of the closed economy that they considered earlier.
Abstract: In Clarida et al. (1999; hereafter CGG), we presented a normative analysis of monetary policy within a simple optimization-based closedeconomy framework. We derived the optimal policy rule and, among other things, characterized the gains from commitment. Also, we made precise the implications for the kind of instrument feedback rule that a central bank should follow in practice. In this paper we show how our analysis extends to the case of a small open economy. Openness complicates the problem of monetary management to the extent the central bank must take into account the impact of the exchange rate on real activity and inflation. How to factor the exchange rate into the overall design of monetary policy accordingly becomes a central consideration. Here we show that, under certain conditions, the monetary-policy design problem for the small open economy is isomorphic to the problem of the closed economy that we considered earlier. Hence, all our qualitative results for the closed economy carry over to this case. Openness does affect the parameters of the model, suggesting quantitative implications. Though the general form of the optimal interest-rate feedback rule remains the same as in the closedeconomy case, for example, how aggressively a central bank should adjust the interest rate in response to inflationary pressures depends on the degree of openness. In addition, openness gives rise to an important distinction between domestic inflation and consumer price inflation (as defined by the CPI). To the extent that there is perfect exchange-rate pass-through, we find that the central bank should target domestic inflation and allow the exchange rate to float, despite the impact of the resulting exchangerate variability on the CPI (Kosuki Aoki, 1999; Gali and Tommaso Monacelli, 2000).
621 citations
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22 Mar 2005TL;DR: The U.S. current account deficit today is running at around 6 percent of GDP, an all-time record as mentioned in this paper, and the potential for sharp exchange rate movements any future adjustment toward current account balance might imply.
Abstract: THIS IS THE third in a series of papers we have written over the past five years about the growing U.S. current account deficit and the potentially sharp exchange rate movements any future adjustment toward current account balance might imply. (1) The problem has hardly gone away in those five years. Indeed, the U.S. current account deficit today is running at around 6 percent of GDP, an all-time record. Incredibly, the U.S. deficit now soaks up about 75 percent of the combined current account surpluses of Germany, Japan, China, and all the world's other surplus countries. (2) To balance its current account simply through higher exports, the United States would have to increase export revenue by a staggering 58 percent over 2004 levels. And, as we argue in this paper, the speed at which the U.S. current account ultimately returns toward balance, the triggers that drive that adjustment, and the way in which the burden of adjustment is allocated across Europe and Asia all have enormous implications for global exchange rates. Each scenario for returning to balance poses, in turn, its own risks to financial markets and to general economic stability. Our assessment is that the risks of collateral damage--beyond the risks to exchange rate stability--have grown substantially over the five years since our first research paper on the topic, partly because the U.S. current account deficit itself has grown, but mainly because of a mix of other factors. These include, not least, the stunningly low U.S. personal saving rate (which, driven by unsustainable rates of housing appreciation and record low interest rates, fell to 1 percent of disposable personal income in 2004). But additional major risks are posed by the sharp deterioration in the U.S. federal government's fiscal trajectory since 2000, rising energy prices, and the fact that the United States has become increasingly dependent on Asian central banks and politically unstable oil producers to finance its deficits. To these vulnerabilities must be added Europe's conspicuously inflexible economy, Japan's continuing dependence on export-driven growth, the susceptibility of emerging markets to any kind of global financial volatility, and the fact that, increasingly, the counterparties in international asset transactions are insurance companies, hedge funds, and other relatively unregulated nonbank financial entities. Perhaps above all, geopolitical risks and the threat of international terror have risen markedly since September 2001, confronting the United States with open-ended long-term costs for financing wars and homeland security. True, if some shock (such as a rise in foreign demand for U.S. exports) were to close up these global imbalances quickly without exposing any concomitant weaknesses, the damage might well be contained to exchange rates and to the collapse of a few large banks and financial firms--along with, perhaps, mild recession in Europe and Japan. But, given the broader risks, it seems prudent to try to find policies that will gradually reduce global imbalances now rather than later. Such policies would include finding ways to reverse the decline in U.S. saving, particularly by developing a more credible strategy to eliminate the structural federal budget deficit and to tackle the country's actuarially insolvent old-age pension and medical benefit programs. More rapid productivity growth in the rest of the world would be particularly helpful in achieving a benign adjustment, but only, as the model we develop in this paper illustrates, if that growth is concentrated in nontraded (domestically produced and consumed) goods rather than the export sector, where such productivity growth could actually widen the U.S. trade deficit. It is also essential that Asia, which now accounts for more than one-third of global output on a purchasing power parity basis, take responsibility for bearing its share of the burden of adjustment. Otherwise, if demand shifts caused the U. …
621 citations
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TL;DR: In this article, the authors investigate pricing to market when the exchange rate changes in cases where firms' future demands depend on their current market shares and show that profit maximizing foreign firms may either raise or lower their domestic currency export prices when the domestic exchange rate appreciates temporarily.
Abstract: We investigate pricing to market when the exchange rate changes in cases where firms' future demands depend on their current market shares. We show that i) profit maximizing foreign firms may either raise or lower their domestic currency export prices when the domestic exchange rate appreciates temporarily (i.e. the "pass-through" from exchange rate changes to import prices may be perverse); ii) current import prices may be more sensitive to the expected future exchange rate than to the current exchange rate; iii) current import prices fall in response to an increase in uncertainty about the future exchange rate. We present evidence that suggests the behavior of expected future exchange rates may provide a clue to the puzzling behavior of U.S. import prices during the 1980s.
620 citations