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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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Journal ArticleDOI
TL;DR: In this paper, the authors focus on three broad classes of explanations: hedging motives in frictionless financial markets, asset trade costs in international financial markets (such as transaction costs, differences in tax treatments between national and foreign assets), and informational frictions and behavioural biases.
Abstract: Standard theory would predict that investors hold a well diversified portfolio of equities across the world but despite the process of ‘financial globalization’, investors still hold a disproportionate share of local equities in their portfolio: the ‘equity home bias’ (French and Poterba (1991)). We review the various explanations of this puzzling phenomenon in the context of recent developments in macroeconomic modelling that have allowed to incorporate sophisticated international portfolio choices in standard two-country general equilibrium models. We refer to this literature as Open Economy Financial Macroeconomics. We focus on three broad classes of explanations : (i) hedging motives in frictionless financial markets (real exchange rate and non-tradable income risk), (ii) asset trade costs in international financial markets (such as transaction costs, differences in tax treatments between national and foreign assets...), (iii) informational frictions and behavioural biases. These recent developments raise the need for new portfolio facts beyond the equity home bias and we will present some new evidence on cross-border asset holdings across different types of assets: equities, bonds and bank lending. We also present some new micro data on institutional holdings of equity at the fund level. These data should inform macroeconomic modelling of the open economy and a growing literature of models of delegated investment.

362 citations

Journal ArticleDOI
TL;DR: This article provided a comprehensive history of anchor or reference currencies, exchange rate arrangements, and a new measure of foreign exchange restrictions for 194 countries and territories over 1946-2016, finding that the often cited post-Bretton Woods transition from fixed to flexible arrangements is overstated; regimes with limited flexibility remain in the majority.
Abstract: This article provides a comprehensive history of anchor or reference currencies, exchange rate arrangements, and a new measure of foreign exchange restrictions for 194 countries and territories over 1946-2016. We find that the often cited post-Bretton Woods transition from fixed to flexible arrangements is overstated; regimes with limited flexibility remain in the majority. Even if central bankers' communications jargon has evolved considerably in recent decades, it is apparent that many still place a large implicit weight on the exchange rate. The U.S. dollar scores as the world's dominant anchor currency by a very large margin. By some metrics, its use is far wider today than 70 years ago. In contrast, the global role of the euro appears to have stalled. We argue that in addition to the usual safe assets story, the record accumulation of reserves since 2002 may also have to do with many countries' desire to stabilize exchange rates in an environment of markedly reduced exchange rate restrictions or, more broadly, capital controls: an important amendment to the conventional portrayal of the macroeconomic trilemma.

361 citations

Journal ArticleDOI
TL;DR: In this paper, a stylized model that imposes uncovered interest rate parity (UIP) and allows the daily spot exchange rate to possess very persistent volatility is presented, and the model is calibrated around realistic parameter values for daily returns and the anomalous regressions with monthly data are found to be centered around unity, but are very widely dispersed, and converge to the true value of unity at a very slow rate.

360 citations

Journal ArticleDOI
TL;DR: In this paper, the authors used long-horizon returns and exchange-rate changes as the authors do to provide a clearer picture of exchange exposure, which may explain why prior empirical studies have failed to find an association between stock return and exchange rates.
Abstract: Real exchange-rate changes affect bonds differently from stocks. Bonds, having relatively fixed income streams, reflect only an interest-rate effect; stocks reflect a conjunction of interest-rate and cash-flow effects. If exchange rate changes contain information about future interest rates and cash flows over more than one period, then using short horizons may not fully capture exchange exposure, which may explain why prior empirical studies have failed to find an association between stock returns and exchange rates. Using long-horizon returns and long-horizon exchange-rate changes as the authors do provides a clearer picture of exchange exposure. Copyright 1997 by University of Chicago Press.

359 citations

Journal ArticleDOI
TL;DR: In this article, the authors developed models of exporting firms under imperfect competition to study the related phenomena of exchange rate exposure and pass-through, and derived the optimal passthrough decisions and the resulting exchange-rate exposure.
Abstract: Firms differ in the extent to which they “pass through” changes in exchange rates into foreign currency prices and in their “exposure” to exchange rates—the responsiveness of their profits to changes in exchange rates. Because pricing affects profitability, a firm’s pass-through and exposure should be related. This paper develops models of exporting firms under imperfect competition to study these related phenomena. From these models we derive the optimal pass-through decisions and the resulting exchange rate exposure. The models are estimated on eight Japanese export industries using both the price data pass-through and financial data for exposure. EXCHANGE RATES CAN HAVE A MAJOR inf luence on the pricing behavior and profitability of exporting and importing firms. Firms differ in the extent to which they “pass through” the change in exchange rates into the prices they charge in foreign markets. They also differ in their “exposure” to exchange rates— the responsiveness of their profits to changes in exchange rates. Previous papers have studied either pass-through or exposure, but none has studied these two phenomena together. Yet, because pricing directly affects profitability, the exposure of a firm’s profits to exchange rates should be governed by many of the same firm and industry characteristics that determine pricing behavior. This paper develops models of firm and industry behavior that are used to study these closely related phenomena together. It also provides estimates of pass-through and exposure behavior using data from Japanese export industries. To examine pass-through behavior and exchange rate exposure, we model a firm with sales to a foreign export market. This exporting firm competes with a foreign firm in that export market. The costs of the exporting firm are based primarily in the local ~domestic! currency, while the foreign firm

357 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