nep-ifn New Economics Papers
on International Finance
Issue of 2016‒12‒04
four papers chosen by
Vimal Balasubramaniam
University of Oxford

  1. A Model of the International Monetary System By Emmanuel Farhi; Matteo Maggiori
  2. Operational Hedging of Exchange Rate Risks By Tscheke, Jan
  3. Measuring Cross Country Monetary Policy Uncertainty By Lucas F. Husted; John H. Rogers; Bo Sun
  4. Decomposing Global Yield Curve Co-Movement By Byrne, Joseph P; Cao, Shuo; Korobilis, Dimitris

  1. By: Emmanuel Farhi (Harvard University); Matteo Maggiori (Harvard University)
    Abstract: We propose a simple model of the international monetary system. We study the world supply and demand for reserve assets denominated in different currencies under a variety of scenarios: under a Hegemon vs. a multi-polar world; when reserve assets are abundant vs. scarce; under a gold exchange standard vs. a floating rate system; away from or at the zero lower bound (ZLB). We rationalize the Triffin dilemma which posits the fundamental instability of the system, the common prediction regarding the natural and beneficial emergence of a multi-polar world, the Nurkse warning that a multi-polar world is more unstable than a Hegemon world, and the Keynesian argument that a scarcity of reserve assets under a gold exchange standard or at the ZLB is recessive. We show that competition among few countries in the issuance of reserve assets can have perverse effects on the total supply of reserve assets. Our analysis is both positive and normative.
    Date: 2016
  2. By: Tscheke, Jan
    Abstract: Exchange rate exposure of firms diminishes when imported intermediates and exports are denominated in currencies that move together. Appreciations of the domestic currency, raising foreign currency export prices, then also reduce marginal costs, allowing firms to counter the increase in foreign prices. Using firm-level data from seven European countries I estimate a structural model showing how exchange rate pass-through into sales depends on intermediate imports and the co-movement of export and import related exchange rates. I find that operational hedging requires firms to intentionally choose export and import regions with comoving currencies. Analyzing the locational choice of firms confirms that the co-movement of currencies indeed appears to be taken into consideration
    Keywords: Hedging; Offshoring; Intermediate Imports; Foreign Sourcing; Exporter; Effective Exchange Rates; Pass-Through; Disconnect Puzzle; Exchange Rate Co-Movement
    JEL: D21 D22 F12 F14 F31 G15 L21 L23 L25 M16
    Date: 2016–11–10
  3. By: Lucas F. Husted; John H. Rogers; Bo Sun
    Abstract: In previous work, we constructed a news-based index of U.S. monetary policy uncertainty (MPU) that captures the degree of uncertainty the public perceives about Federal Reserve policy actions and their consequences. In this note, we extend that work to Canada, the Euro Area, Japan, and United Kingdom.
    Date: 2016–11–23
  4. By: Byrne, Joseph P; Cao, Shuo; Korobilis, Dimitris
    Abstract: This paper explains the co-movement of global yield curve dynamics using a Bayesian hierarchical factor model augmented with macro fundamentals. Our novel modeling approach reveals the relative importance of global shocks through two transmission channels: the policy and risk channels. Global inflation is the most important traditional macro fundamentals for international yields and operates through a policy channel. Economic uncertainty and sentiment are also important in driving global yield co-movements, through a risk channel.
    Keywords: Global Yield Curves, Co-Movement, Transmission Channels, Global Fundamentals, Sentiment, Economic Uncertainty, Bayesian Factor Model
    Date: 2016–08

This nep-ifn issue is ©2016 by Vimal Balasubramaniam. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.