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.

Are Currency Crises Self-Fulfilling?

Abstract: Recent theoretical analyses of currency crises have argued that, when a government's decision to defend its exchange rate depends on the government's broader macroeconomic objectives, then an exchange-rate crisis can be triggered by self-fulfilling expectations of traders. Some authors have been willing to draw strong policy implications from this result, in particular that fixed exchange rates cannot coexist with free capital mobility. This paper shows that the recent literature's result that expectations of crisis can be self-fulfilling is due less to the new assumption of endogeneity of government policy than to the dropping of the classical assumption that fundamentals are deteriorating. When objective economic conditions are steadily deteriorating, these fundamentals can be shown to determine uniquely the timing of a currency crisis, even if policy is endogenous and even if people are uncertain about the government's objective function. If fundamentals evolve randomly and are not certain to deteriora...

Limiting Exchange Rate Flexibility: The European Monetary System

Abstract: Events of recent years have exacerbated the dissatisfaction with the performance of flexible exchange rates, and prompted a number of proposals to limit exchange rate fluctuations among industrialized countries. This book provides the first in depth analysis of the European Monetary System (EMS), the only lasting experiment of this kind.The book's careful blend of theory and empirical analysis supports the view that, in Europe, nominal exchange rate targets have had significant real effects. Its detailed description of European economic institutions shows why exchange rate fluctuations are perceived as especially harmful.Giavazzi and Giovannini explain the institutional features of the EMS and describe how central banks run the system in practice. They offer an illuminating analysis of European capital controls and show how such regulations have guaranteed the survival of the EMS in a period characterized by unprecedented dollar fluctuations.The authors point out the lessons to be drawn from this experience with the EMS for the more general problem of reforming the international monetary system. Their forceful arguments are backed by analysis of such important issues as the determinants of international capital flows and international portfolio diversification, and the role of credibility and expectations in disinflation.Francesco Giavazzi is Professor of Economics at the University of Bologna. Alberto Giovannini is Associate Professor at the Columbia University Graduate School of Business.

Exchange Rates and Fundamentals

Abstract: We show analytically that in a rational expectations present value model, an asset price manifests near random walk behavior if fundamentals are I(1) and the factor for discounting future fundamentals is near one. We argue that this result helps explain the well known puzzle that fundamental variables such as relative money supplies, outputs, inflation and interest rates provide little help in predicting changes in floating exchange rates. As well, we show that the data do exhibit a related link suggested by standard models - that the exchange rate helps predict these fundamentals. The implication is that exchange rates and fundamentals are linked in a way that is broadly consistent with asset pricing models of the exchange rate.

Price competitiveness in export trade among industrial countries

Abstract: the revaluation of the German mark initiated a period of greater flexibility in exchange rates, and about one year since a new rate structure was agreed at the Smithsonian conference. Academic researchers and government officials everywhere are scrutinizing current trade data for signs indicating the effectiveness of the realignment, particularly any solid start toward reversals in the deficit of the United States or the surpluses of Japan, Germany, and Canada. The magnitude of the prospective total effect had been assessed largely on the assumption, unconfirmed by empirical work, that the response of trade flows to changes in the exchange rate would resemble that to changes in foreign trade prices in general; and the timing of the effect was almost pure guesswork.