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Tag Archives: Exchange Rates

Guest Contribution: “A Tale of Two Surplus Countries: China and Germany”

Today we are fortunate to present a guest contribution written by Yin-Wong Cheung (City University of Hong Kong), Sven Steinkamp (Universität Osnabrück) and Frank Westermann (Universität Osnabrück). This contribution is based on a paper forthcoming in the Open Economies Review. In recent years, large and sustained current account imbalances have been a focus of research in international economics. While there is a large literature on deficits and their economic implications, there is only...

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“Exchange rate models for a new era: Major and emerging market currencies”

That’s the title of a forthcoming special section in the Journal of International Money and Finance. Here’s the introductory article to the special section. Disruptions to financial markets, elevated risk levels, and unconventional monetary policies pursued by central banks have altered the landscape of international finance. The near zero and negative interest rates in several key advanced economies, for instance, present a new environment for pricing financial assets and shock...

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A Primer on Misalignment (You’ll Need It If Peter Navarro Has His Way)

Today’s Bloomberg article notes that my one-time coauthor Peter Navarro has pushed to have countervailing duty (CVD) investigations augmented with assessments of currency unvervaluation. A prominent target of CVD investigations has been China. Figure 1: USD/CNY bilateral nominal exchange rate (blue, left inverted scale), and real trade weighted (broad) value of the CNY (red, right scale). May 2019 observation is for first 20 days. Light orange denotes Trump administration. Source: Federal...

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“White House Considers Economist Judy Shelton for Fed Board”

That’s the title of an article in Bloomberg: Shelton, who’s served as an informal adviser to Trump, holds a Ph.D. in business administration with an emphasis on finance and international economics from the University of Utah. Here is a recent writing advocating return to “sound money”  in Cato Journal: The United States is the world’s largest holder of official gold reserves. Comprising 8,311.5 tonnes or 261 million troy ounces, those reserves are carried at a book value of roughly $11...

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A Gold Standard Exchange Rate Regime for the 21st Century

The quasi-nomination of Stephen Moore and Herman Cain to the Federal Reserve Board has resurrected the issue of the gold standard. Jim Hamilton has repeatedly — and convincingly — critiqued the idea of a return to the classical gold standard, here, here, here, and here. But here I talk about what a gold standard for the 21st century would entail. In “A Gold Standard Does Not Require Interest-Rate Targeting“, Lawrence White critiques an article by Matt O’Brien, noting the operation of the...

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Guest Contribution: “The Euro area: Are member countries similar enough to share the same currency?”

Today we are pleased to present a guest contribution written by Virginie Coudert (Banque de France and CEPII), Cécile Couharde (EconomiX-CNRS, University of Paris Nanterre), Carl Grekou (CEPII and EconomiX-CNRS), and Valérie Mignon (EconomiX-CNRS, University of Paris Nanterre, and CEPII). This blog post reflects the opinions of the authors and does not necessarily express the views of the institutions to which they belong. The 2008 financial crisis and the sovereign crisis that followed in...

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Forward Rate Bias over a Third of a Century

Just updated/cleaned and extended the survey and forward rate data used in Chinn and Frankel (2019) (discussed in this post). Here are preliminary results regard forward rate bias, both pre- and post-crisis. Consider the regression: st+3-st = α + β(ft,t+3 – st) + ut+3 Where st is the log spot rate at time t, ft,t+3 is the log forward rate at time t for a trade at time t+3. Then OLS estimates of β are illustrated below for the early period up to 2008M05 (starting in 1986M08 for advanced...

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When the Textbook Is Right: Implications of the Trump Fiscal/Trade Regime

Today we learned that through March, the Federal budget deficit was 15% larger than the corresponding point in the last fiscal year — as expected given a not particularly stimulative tax cut (so much for tax cuts paying for themselves, as Stephen Moore claimed) and the ending of spending restraints. The dollar remains at elevated levels, as interest rates have risen. The trade deficit, excluding petroleum, continues to deteriorate. As I explained to my macro class today… it’s all textbook...

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What Would It Take to Implement Cain’s Gold Standard, Interest-Rate-Wise?

Stabilizing the price of gold in US dollars requires adjusting the interest rate (akin to how the exchange rate is managed). Herman Cain’s call for a return to the gold standard would imply that the Fed funds rate would have to be about 15 percentage points higher than it was in January 2000 in order to keep the dollar’s value stable at January 2000 levels — a rate 18 percentage points higher than actually recorded in March 2019. Figure 1: Log price of gold relative 2000M01 (blue). Source:...

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The Fault Is … in Ourselves

Or more correctly, in Mr. Trump. As reported by Bloomberg, Mr. Trump has said: “a gentleman that likes raising interest rates in the Fed, we have a gentleman that loves quantitative tightening in the Fed, we have a gentleman that likes a very strong dollar in the Fed.” I think Mr. Trump is partly himself to blame for the strength of the dollar. To show this, I estimate the following relationship over 2014Q1-18Q3, with r the log real trade weighted value of the US dollar, EPU world economic...

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