The Dominant Currency Financing Channel of External Adjustment - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook The Dominant Currency Financing Channel of External Adjustment write by Camila Casas. This book was released on 2023-08-11. The Dominant Currency Financing Channel of External Adjustment available in PDF, EPUB and Kindle. We provide evidence of a new channel through which exchange rates affect trade. Using a novel identification strategy that exploits firms’ maturity structure of foreign currency debt around a large depreciation in Colombia, we show that firms experiencing a stronger debt revaluation of dominant currency debt due to a home currency depreciation compress imports relatively more while exports are unaffected. Dominant currency financing does not lead to an import compression for firms that export, hold foreign currency assets, or are active in the foreign exchange derivatives markets, as they are all hedged against a revaluation of their debt. These findings can be rationalized through the prism of a model with costly state verification and foreign currency borrowing. Quantitatively, the dominant currency financing channel explains a significant part of the external adjustment process in addition to the expenditure switching channel. Pricing exports in the dominant currency, instead of the producer’s currency, mutes the effect of dominant currency financing on trade flows.
Dominant Currencies and External Adjustment
Dominant Currencies and External Adjustment - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Dominant Currencies and External Adjustment write by Gustavo Adler. This book was released on 2020-07-20. Dominant Currencies and External Adjustment available in PDF, EPUB and Kindle. The extensive use of the US dollar when firms set prices for international trade (dubbed dominant currency pricing) and in their funding (dominant currency financing) has come to the forefront of policy debate, raising questions about how exchange rates work and the benefits of exchange rate flexibility. This Staff Discussion Note documents these features of international trade and finance and explores their implications for how exchange rates can help external rebalancing and buffer macroeconomic shocks.
Dominant Currency Paradigm: A New Model for Small Open Economies
Dominant Currency Paradigm: A New Model for Small Open Economies - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Dominant Currency Paradigm: A New Model for Small Open Economies write by Camila Casas. This book was released on 2017-11-22. Dominant Currency Paradigm: A New Model for Small Open Economies available in PDF, EPUB and Kindle. Most trade is invoiced in very few currencies. Despite this, the Mundell-Fleming benchmark and its variants focus on pricing in the producer’s currency or in local currency. We model instead a ‘dominant currency paradigm’ for small open economies characterized by three features: pricing in a dominant currency; pricing complementarities, and imported input use in production. Under this paradigm: (a) the terms-of-trade is stable; (b) dominant currency exchange rate pass-through into export and import prices is high regardless of destination or origin of goods; (c) exchange rate pass-through of non-dominant currencies is small; (d) expenditure switching occurs mostly via imports, driven by the dollar exchange rate while exports respond weakly, if at all; (e) strengthening of the dominant currency relative to non-dominant ones can negatively impact global trade; (f) optimal monetary policy targets deviations from the law of one price arising from dominant currency fluctuations, in addition to the inflation and output gap. Using data from Colombia we document strong support for the dominant currency paradigm.
External Adjustment
External Adjustment - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook External Adjustment write by Maurice Obstfeld. This book was released on 2004. External Adjustment available in PDF, EPUB and Kindle. "Gross stocks of foreign assets have increased rapidly relative to national outputs since 1990, and the short-run capital gains and losses on those assets can amount to significant fractions of GDP. These fluctuations in asset values render the national income and product account measure of the current account balance increasingly inadequate as a summary of the change in a country's net foreign assets. Nonetheless, unusually large current account imbalances, especially deficits, should remain high on policymakers' list of concerns, even for the richer and less credit-constrained countries. Extreme imbalances signal the need for large and perhaps abrupt real exchange rate changes in the future, changes that might have undesired political and financial consequences given the incompleteness of domestic and international asset markets. Furthermore, of the two sources of the change in net foreign assets -- the current account and the capital gain on the net foreign asset position -- the former is better understood and more amenable to policy influence. Systematic government attempts to manipulate international asset values in order to change the net foreign asset position could have a destabilizing effect on market expectations"--NBER website
Currencies of External Balance Sheets
Currencies of External Balance Sheets - read free eBook in online reader or directly download on the web page. Select files or add your book in reader. Download and read online ebook Currencies of External Balance Sheets write by Mr. Cian Allen. This book was released on 2023-11-17. Currencies of External Balance Sheets available in PDF, EPUB and Kindle. This paper assembles a comprehensive dataset of the currency composition of countries’ external balance sheets for 50 economies over the period 1990–2020. We document the following findings: (i) the US dollar and the euro still dominate global external balance sheets; (ii) there were striking changes in the currency composition across countries since the 1990s, with many emerging markets having moved from short to long positions in foreign currency, thus moving away from the so-called “original sin”; (iii) financial and tradeweighted exchange rates are weakly correlated, suggesting the commonly used trade indices do not adequately reflect the wealth effects of currency movements, and (iv) the large wealth transfers across countries during COVID-19 and the global financial crises increased global imbalances in the former, and reduced them in the latter.
