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Financial exchange rates and international currency exposures

Listed author(s):
  • Lane, Philip R.
  • Shambaugh, Jay C.

Our goal in this project is to gain a better empirical understanding of the international financial implications of currency movements. To this end, we construct a database of international currency exposures for a large panel of countries over 1990-2004. We show that trade-weighted exchange rate indices are insufficient to understand the financial impact of currency movements. We show that our currency measure has high explanatory power for the valuation term in net foreign asset dynamics: exchange rate valuation shocks are sizable, not quickly reversed and may entail substantial wealth redistributions. Further, we demonstrate that many developing countries hold short foreign-currency positions, leaving them open to negative valuation effects when the domestic currency depreciates. However, we also show that many of these countries have substantially reduced their foreign currency exposure over the last decade.

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File URL: https://www.econstor.eu/bitstream/10419/27646/1/200822dkp.pdf
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Paper provided by Deutsche Bundesbank, Research Centre in its series Discussion Paper Series 1: Economic Studies with number 2008,22.

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Date of creation: 2008
Handle: RePEc:zbw:bubdp1:7561
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  1. Michael B. Devereux & Philip Lane, 2001. "Exchange Rates and Monetary Policy in Emerging Market Economies," Trinity Economics Papers 200111, Trinity College Dublin, Department of Economics.
  2. Morris Goldstein & Philip Turner, 2004. "Controlling Currency Mismatches in Emerging Markets," Peterson Institute Press: All Books, Peterson Institute for International Economics, number 373, January.
  3. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
  4. Charles Engel & Akito Matsumoto, 2006. "Portfolio Choice in a Monetary Open-Economy DSGE Model," NBER Working Papers 12214, National Bureau of Economic Research, Inc.
  5. Michael B. Devereux & Alan Sutherland, 2007. "Solving for Country Portfolios in Open Economy Macro Models," IMF Working Papers 07/284, .
  6. Mendoza, Enrique G & Quadrini, Vincenzo & Ríos-Rull, José-Víctor, 2007. "Financial Integration, Financial Deepness and Global Imbalances," CEPR Discussion Papers 6149, C.E.P.R. Discussion Papers.
  7. Cédric Tille & Eric Van Wincoop, 2007. "International capital flows," Staff Reports 280, Federal Reserve Bank of New York.
  8. Maurice Obstfeld, 2004. "External Adjustment," NBER Working Papers 10843, National Bureau of Economic Research, Inc.
  9. Philip R. Lane & G.M. Milesi-Ferretti, 2003. "International Financial Integration," Trinity Economics Papers 20031, Trinity College Dublin, Department of Economics.
  10. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "Financial Globalization and Exchange Rates," CEPR Discussion Papers 4745, C.E.P.R. Discussion Papers.
  11. Pavlova, Anna & Rigobon, Roberto, 2004. "Asset Prices and Exchange Rates," Working papers 4322-03, Massachusetts Institute of Technology (MIT), Sloan School of Management.
  12. Caballero, Ricardo J. & Farhi, Emmanuel & Gourinchas, Pierre-Olivier, 2008. "An Equilibrium Model of "Global Imbalances" and Low Interest Rates," Scholarly Articles 3229094, Harvard University Department of Economics.
  13. John Y. Campbell & Karine Serfaty-De Medeiros & Luis M. Viceira, 2010. "Global Currency Hedging," Journal of Finance, American Finance Association, vol. 65(1), pages 87-121, 02.
  14. Devereux, Michael B & Saito, Makoto, 2006. "A Portfolio Theory of International Capital Flows," CEPR Discussion Papers 5746, C.E.P.R. Discussion Papers.
  15. 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).
  16. Hau, Harald & Rey, Hélène, 2003. "Exchange Rates, Equity Prices and Capital Flows," CEPR Discussion Papers 3735, C.E.P.R. Discussion Papers.
  17. Michael B. Devereux & Philip R. Lane, 2002. "Understanding Bilateral Exchange Rate Volatility," Trinity Economics Papers 200211, Trinity College Dublin, Department of Economics.
  18. Philippe Martin & H=E9l=E8ne Rey=, 2001. "Financial Super-Markets: Size Matters for Asset Trade," International Finance 0012001, EconWPA.
  19. Lane, Philip R. & Shambaugh, Jay C, 2008. "The Long or Short of it: Determinants of Foreign Currency Exposure in External Balance Sheets," CEPR Discussion Papers 6887, C.E.P.R. Discussion Papers.
  20. Michael B. Devereux & Alan Sutherland, 2008. "Country Portfolios in Open Economy Macro Models," NBER Working Papers 14372, National Bureau of Economic Research, Inc.
  21. Durdu, Ceyhun Bora & Mendoza, Enrique G. & Terrones, Marco E., 2009. "Precautionary demand for foreign assets in Sudden Stop economies: An assessment of the New Mercantilism," Journal of Development Economics, Elsevier, vol. 89(2), pages 194-209, July.
  22. Burnside, Craig & Eichenbaum, Martin & Kleshchelski, Isaac & Rebelo, Sérgio, 2006. "The Returns to Currency Speculation," CEPR Discussion Papers 5883, C.E.P.R. Discussion Papers.
  23. Anna Wong, 2007. "Measurement and Inference in International Reserve Diversification," Working Paper Series WP07-6, Peterson Institute for International Economics.
  24. Edwin M. Truman & Anna Wong, 2006. "The Case for an International Reserve Diversification Standard," Working Paper Series WP06-2, Peterson Institute for International Economics.
  25. Lane, Philip & Milesi-Ferretti, Gian Maria, "undated". "External Wealth of Nations," Instructional Stata datasets for econometrics extwealth, Boston College Department of Economics.
  26. Ewe-Ghee Lim, 2006. "The Euro’s Challenge to the Dollar; Different Views from Economists and Evidence from COFER (Currency Composition of Foreign Exchange Reserves) and Other Data," IMF Working Papers 06/153, .
  27. André Faria & Philip R. Lane & Paolo Mauro & Gian Maria Milesi-Ferretti, 2007. "The Shifting Composition of External Liabilities," Journal of the European Economic Association, MIT Press, vol. 5(2-3), pages 480-490, 04-05.
  28. Kollmann, Robert, 2006. "International Portfolio Equilibrium and the Current Account," CEPR Discussion Papers 5512, C.E.P.R. Discussion Papers.
  29. Barry J. Eichengreen & Donald J Mathieson, 2000. "The Currency Composition of Foreign Exchange Reserves; Retrospect and Prospect," IMF Working Papers 00/131, .
  30. Pierre-Olivier Gourinchas & Hélène Rey, 2005. "From World Banker to World Venture Capitalist: US External Adjustment and the Exorbitant Privilege," NBER Working Papers 11563, National Bureau of Economic Research, Inc.
  31. Francis E. Warnock, 2006. "How Might a Disorderly Resolution of Global Imbalances Affect Global Wealth?," IMF Working Papers 06/170, .
  32. Jay C. Shambaugh, 2004. "The Effect of Fixed Exchange Rates on Monetary Policy," The Quarterly Journal of Economics, Oxford University Press, vol. 119(1), pages 301-352.
  33. Chris Becker & Daniel Fabbro, 2006. "Limiting Foreign Exchange Exposure through Hedging: The Australian Experience," RBA Research Discussion Papers rdp2006-09, Reserve Bank of Australia.
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