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Financial Globalization and Exchange Rates

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  • Philip R. Lane
  • G Milesi-Feretti

Abstract

The founders of the Bretton Woods System sixty years ago were primarily concerned with orderly exchange rateadjustment in a world economy that was characterized by widespread restrictions on international capitalmobility. In contrast, the rapid pace of financial globalization during recent years poses new challenges for theinternational monetary system. In particular, large gross cross-holdings of foreign assets and liabilities meansthat the valuation channel of exchange rate adjustment has grown in importance, relative to the traditional tradebalance channel. Accordingly, this paper empirically explores some of the inter-connections between financialglobalization and exchange rate adjustment and discusses the policy implications.

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Bibliographic Info

Paper provided by Centre for Economic Performance, LSE in its series CEP Discussion Papers with number dp0662.

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Date of creation: Dec 2004
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Handle: RePEc:cep:cepdps:dp0662

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Web page: http://cep.lse.ac.uk/_new/publications/series.asp?prog=CEP

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Keywords: Financial integration; capital flows; external assets and liabilities;

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  1. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 2000. "Risk sharing and industrial specialization ; regional and international evidence," Research Working Paper, Federal Reserve Bank of Kansas City RWP 00-06, Federal Reserve Bank of Kansas City.
  2. Heathcote, Jonathan & Perri, Fabrizio, 2004. "Financial globalization and real regionalization," Journal of Economic Theory, Elsevier, Elsevier, vol. 119(1), pages 207-243, November.
  3. Pierpaolo Benigno, 2008. "Price stability with imperfect financial integration," Proceedings, Board of Governors of the Federal Reserve System (U.S.), Board of Governors of the Federal Reserve System (U.S.).
  4. Hau, Harald & Rey, Hélène, 2003. "Exchange Rates, Equity Prices and Capital Flows," CEPR Discussion Papers, C.E.P.R. Discussion Papers 3735, C.E.P.R. Discussion Papers.
  5. Philip Lane & Gian Maria Milesi-Ferretti, 2001. "THE EXTERNAL WEALTH OF NATIONS: Measures of Foreign Assets and Liabilities For Industrial and Developing Countries," Trinity Economics Papers, Trinity College Dublin, Department of Economics 20014, Trinity College Dublin, Department of Economics.
  6. Anna Pavlova & Roberto Rigobon, 2007. "Asset Prices and Exchange Rates," Review of Financial Studies, Society for Financial Studies, Society for Financial Studies, vol. 20(4), pages 1139-1180.
  7. Gourinchas, Pierre-Olivier & Rey, Hélène, 2005. "International Financial Adjustment," Center for International and Development Economics Research, Working Paper Series, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkele qt124628cx, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  8. Cedric Tille, 2003. "The impact of exchange rate movements on U.S. foreign debt," Current Issues in Economics and Finance, Federal Reserve Bank of New York, Federal Reserve Bank of New York, vol. 9(Jan).
  9. Chen, Yu-chin & Rogoff, Kenneth, 2003. "Commodity currencies," Journal of International Economics, Elsevier, Elsevier, vol. 60(1), pages 133-160, May.
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