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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. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2001. "The external wealth of nations: measures of foreign assets and liabilities for industrial and developing countries," Journal of International Economics, Elsevier, vol. 55(2), pages 263-294, December.
  2. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 2000. "Risk sharing and industrial specialization ; regional and international evidence," Research Working Paper RWP 00-06, Federal Reserve Bank of Kansas City.
  3. Heathcote, Jonathan & Perri, Fabrizio, 2004. "Financial globalization and real regionalization," Journal of Economic Theory, Elsevier, vol. 119(1), pages 207-243, November.
  4. Pierre-Olivier Gourinchas & Helene Rey, 2005. "International Financial Adjustment," NBER Working Papers 11155, National Bureau of Economic Research, Inc.
  5. Harald Hau & Helene Rey, 2002. "Exchange Rate, Equity Prices and Capital Flows," NBER Working Papers 9398, National Bureau of Economic Research, Inc.
  6. Pierpaolo Benigno, 2009. "Price Stability with Imperfect Financial Integration," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 41(s1), pages 121-149, 02.
  7. Anna Pavlova & Roberto Rigobon, 2003. "Asset Prices and Exchange Rates," NBER Working Papers 9834, National Bureau of Economic Research, Inc.
  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, vol. 9(Jan).
  9. Chen, Yu-chin & Rogoff, Kenneth, 2003. "Commodity currencies," Journal of International Economics, Elsevier, vol. 60(1), pages 133-160, May.
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