nep-ifn New Economics Papers
on International Finance
Issue of 2010‒02‒05
four papers chosen by
Yi-Nung Yang
Chung Yuan Christian University

  1. On Equilibrium Exchange Rates: is Emerging Asia Different? By Antonia Lopez-Villavicencio; Valerie Mignon
  2. Deciding to peg the exchange rate in developing countries: the role of private-sector debt By Harms, Philipp; Hoffmann, Mathias
  3. Limited asset market participation and the consumption-real exchange rate anomaly By Robert Kollmann
  4. Customer Trading in the Foreign Exchange Market: Empirical Evidence from an Internet Trading Platform By Sandra Lechner; Ingmar Nolte

  1. By: Antonia Lopez-Villavicencio; Valerie Mignon
    Abstract: The aim of this paper is to provide equilibrium exchange rates values for a large set of currencies and to study the adjustment process of observed exchange rates towards these levels by paying a special attention to emerging Asian countries. Relying on panel smooth transition regression models, we show that the real exchange rate dynamics in the long run is nonlinear for emerging Asian countries, while it is linear for the G7 currencies. More especially, there exists an asymmetric behavior of the real exchange rate when facing an over or undervaluation in Asia: the adjustment speed is more important in case of undervaluation, a result that may be explained by the international pressure to limit undervaluations. However, this adjustment being long-lasting, undervaluations may persist over time, as observed since the beginning of the 1990s.
    Keywords: Equilibrium exchange rates; misalignments; panel smooth transition models; emerging Asia
    JEL: F31 C23
    Date: 2009–12
  2. By: Harms, Philipp; Hoffmann, Mathias
    Abstract: We argue that a higher share of the private sector in a country's external debt raises the incentive to stabilize the exchange rate. We present a simple model in which exchange rate volatility does not affect agents' welfare if all the debt is incurred by the government. Once we introduce private banks who borrow in foreign currency and lend to domestic firms, the monetary authority has an incentive to dampen the distributional consequences of exchange rate fluctuations. Our empirical results support the hypothesis that not only the level, but also the composition of foreign debt matters for exchange-rate policy. --
    Keywords: Exchange rate regimes,foreign debt,monetary policy
    JEL: E52 F31 F41
    Date: 2009
  3. By: Robert Kollmann
    Abstract: Under efficient consumption risk sharing, as assumed in standard international business cycle models, a country's aggregate consumption rises relative to foreign consumption, when the country's real exchange rate depreciates. Yet, empirically, relative consumption and the real exchange rate are essentially uncorrelated. I show that this "consumption-real exchange rate anomaly" can be explained by a simple model in which a subset of households trade in complete financial markets, while the remaining households lead hand-to-mouth (HTM) lives. HTM behavior also generates greater volatility of the real exchange rate and of net exports, which likewise brings the model closer to the data.
    Keywords: International economic integration ; Economic forecasting ; Financial markets ; Foreign exchange rates ; Consumption (Economics)
    Date: 2010
  4. By: Sandra Lechner; Ingmar Nolte
    Date: 2009

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