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.
Papers published on a yearly basis
Papers
More filters
TL;DR: In this article, the authors developed a model of learning by doing and the Dutch disease that extends the earlier literature in two ways: first, it is assumed that both the traded and the non-traded sector can contribute to learning; second, there are learning spillovers between the sectors.
452 citations
TL;DR: In this paper, the authors explore the implications of a country's external budget constraint to study the dynamics of net foreign assets and exchange rate movements, and find that deterioration in a country net exports or net foreign asset position relative to their trend have to be matched either by future net export growth (the trade channel) or by future increases in the returns of the net-foreign asset portfolio, a hitherto unexplored valuation channel.
Abstract: The paper explores the implications of a country’s external budget constraint to study the dynamics of net foreign assets and exchange rate movements. We show that deteriorations in a country’s net exports or net foreign asset position relative to their trend have to be matched either by future net export growth (the trade channel) or by future increases in the returns of the net foreign asset portfolio, a hitherto unexplored valuation channel. Using a newly constructed data set on US gross foreign positions, we find that stabilizing valuation effects contribute as much as 27% of the cyclical external adjustment. Our approach also has asset pricing implications. Our measure of external imbalance predicts net foreign asset portfolio returns one quarter to two years ahead and net exports at longer horizons. The exchange rate affects the trade balance and the valuation of net foreign assets. It is forecastable in and out of sample at one quarter and beyond. A one standard deviation increase in external imbalances predicts an annualized 4% depreciation of the exchange rate over the next quarter.
447 citations
TL;DR: In this paper, the authors present a small open economy version of the Calvo sticky price model, and show how the equilibrium dynamics can be reduced to simple representation in domestic inflation and the output gap.
Abstract: We lay out a small open economy version of the Calvo sticky price model, and show how the equilibrium dynamics can be reduced to simple representation in domestic inflation and the output gap. We use the resulting framework to analyze the macroeconomic implications of three alternative rule-based policy regimes for the small open economy: domestic inflation and CPI-based Taylor rules, and an exchange rate peg. We show that a key difference among these regimes lies in the relative amount of exchange rate volatility that they entail. We also discuss a special case for which domestic inflation targeting constitutes the optimal policy, and where a simple second order approximation to the utility of the representative consumer can be derived and used to evaluate the welfare losses associated with the suboptimal rules.
446 citations
TL;DR: In this article, the authors present a simple model of currency crises which is driven by the interplay between the credit constraints of private domestic firms and the existence of nominal price rigidities.
445 citations
TL;DR: The authors argue that developing economies are as or more likely to be investment- than savings-constrained and that the effect of foreign finance is often to aggravate this investment constraint by appreciating the real exchange rate and reducing profitability and investment opportunities in the traded goods sector, which have adverse long-run growth consequences.
Abstract: The stylized fact that there is no correlation between long-run economic growth and financial globalization has spawned a recent literature that purports to provide newer evidence and arguments in favor of financial globalization. We review this literature and find it unconvincing. The underlying assumptions in this literature are that developing countries are savings-constrained; that access to foreign finance alleviates this to boost investment and long-run growth; and that insofar as there are problems with financial globalization, these can be remedied through deep institutional reforms. In contrast, we argue that developing economies are as or more likely to be investment- than savings-constrained and that the effect of foreign finance is often to aggravate this investment constraint by appreciating the real exchange rate and reducing profitability and investment opportunities in the traded goods sector, which have adverse long-run growth consequences. It is time for a new paradigm on financial globalization, and one that recognizes that more is not necessarily better. Depending on context and country, the appropriate role of policy will be as often to stem the tide of capital inflows as to encourage them. Policymakers who view their challenges exclusively from the latter perspective risk getting it badly wrong.
444 citations