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Financial Globalization and Exchange Rates

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  • Gian-Maria Milesi-Ferretti
  • Philip R. Lane

Abstract

The founders of the Bretton Woods System 60 years ago were primarily concerned with orderly exchange rate adjustment in a world economy that was characterized by widespread restrictions on international capital mobility. In contrast, the rapid pace of financial globalization during recent years poses new challenges for the international monetary system. In particular, large gross cross-holdings of foreign assets and liabilities mean that the valuation channel of exchange rate adjustment has grown in importance, relative to the traditional trade balance channel. Accordingly, this paper empirically explores some of the interconnections between financial globalization and exchange rate adjustment and discusses the policy implications.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 05/3.

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Length: 45
Date of creation: 01 Jan 2005
Date of revision:
Handle: RePEc:imf:imfwpa:05/3

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Keywords: Capital flows; Financial assets; Exchange rates; Emerging markets; Economic models; foreign assets; foreign asset; net foreign asset; net foreign assets; foreign liabilities; foreign asset position; net foreign asset position; international balance sheet; globalization; fdi; industrial countries; financial globalization; return on foreign assets; foreign asset positions; net foreign asset positions; financial integration; international financial; international investment; foreign exchange; foreign investors; international financial integration; foreign currency; international balance sheets; direct investment; foreign affiliates; foreign bond; foreign exchange reserves; gross holdings of foreign assets; capital markets; international financial statistics; foreign asset accumulation; foreign asset holdings; financial markets; equity flows; international integration; global capital; global stock market; foreign goods; globalization process; industrial country;

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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. Pierre-Olivier Gourinchas & Hélène Rey, 2007. "International Financial Adjustment," Journal of Political Economy, University of Chicago Press, vol. 115(4), pages 665-703, 08.
  3. Chen, Yu-chin & Rogoff, Kenneth, 2003. "Commodity currencies," Journal of International Economics, Elsevier, vol. 60(1), pages 133-160, May.
  4. Jonathan Heathcote & Fabrizio Perri, 2001. "Financial Globalization and Real Regionalization," Working Papers 01-11, New York University, Leonard N. Stern School of Business, Department of Economics.
  5. Pavlova, Anna & Rigobon, Roberto, 2003. "Asset Prices and Exchange Rates," Working papers 4322-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  6. Harald Hau & Helene Rey, 2002. "Exchange Rate, Equity Prices and Capital Flows," NBER Working Papers 9398, National Bureau of Economic Research, Inc.
  7. Kalemli-Ozcan, S. & Sorensen, B.E. & Yosha, O., 1999. "Risk Sharing and Industrial Specialization: Regional and International Evidence," Papers 16-99, Tel Aviv.
  8. Pierpaolo Benigno, 2008. "Price stability with imperfect financial integration," Proceedings, Board of Governors of the Federal Reserve System (U.S.).
  9. 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).
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