F31

Suman Basu · Emine Boz · Gita Gopinath · Francisco Roch · Filiz Unsal

Prepared as background for the IMF's Integrated Policy Framework, this paper builds a three-period small open economy in which monetary policy, capital inflow controls, sterilized foreign exchange …

Pierre-Olivier Gourinchas · Walker Ray · Dimitri Vayanos

The paper develops a two-country preferred-habitat model in which currency and bond markets are populated by different investor clienteles — currency traders with price-elastic demand for foreign …

Charles Engel

This 1999 Journal of Political Economy paper (NBER Working Paper 5394, 1995) by Charles Engel asks how much of the historical variation in the U.S. real exchange rate against other high-income …

Alfred Wong · Jiayue Zhang

Cross-currency basis swap spreads are widely read as a post-crisis anomaly in which covered interest parity has broken down; this paper argues the opposite -- that a swap dealer who priced a …

R. A. Mundell

This 1963 Canadian Journal of Economics and Political Science paper by Robert Mundell asks what happens to monetary and fiscal policy's power over domestic income and employment once capital is …

Hanno Lustig · Nikolai Roussanov · Adrien Verdelhan

Sorting currencies into six portfolios by their forward discounts, this paper shows that a single return-based factor -- the return on the highest minus the return on the lowest interest rate currency …

Wenxin Du · Alexander Tepper · Adrien Verdelhan

Covered interest rate parity, the no-arbitrage cornerstone of currency forward pricing, is shown to be systematically and persistently violated among G10 currencies after the 2008 crisis, in ways that …

Hanno Lustig · Adrien Verdelhan

Even the most extreme departure from complete international asset markets -- one in which investors can hold nothing abroad but the foreign risk-free bond -- fails to match the smoothness of exchange …

J. Marcus Fleming

This 1962 IMF Staff Papers article by J. Marcus Fleming compares how effective monetary policy and budgetary (fiscal) policy are at stimulating domestic income and output under fixed versus floating …

Richard A. Meese · Kenneth Rogoff

Across the dollar/mark, dollar/pound, dollar/yen and trade-weighted dollar rates over November 1976 to June 1981, no structural exchange rate model, univariate time series model, vector autoregression …

Rudiger Dornbusch

Motivated by the large, persistent real appreciation of the dollar between 1980 and 1985, this paper takes the nominal exchange rate movement as given (it does not explain it) and asks, in a …

Stefan Avdjiev · Cathérine Koch · Hyun Song Shin

Across four econometric approaches and up to 114 borrowing countries, a stronger international funding currency goes with less cross-border bank lending denominated in that currency: a one percentage …

Rudiger Dornbusch

This 1976 Journal of Political Economy paper by Rudiger Dornbusch builds a small open-economy model in which capital is perfectly mobile and asset markets clear instantly, but the price of domestic …

Philip R Lane · Jay C Shambaugh

This paper builds a database of international currency exposures for a large panel of countries over 1990-2004 and uses it to construct financially-weighted exchange rate indices, showing that …

Giancarlo Corsetti · Bartosz Maćkowiak

This paper builds a model in which a currency crisis is triggered by a "fiscal imbalance" -- an anticipated decline in the government's future primary surpluses -- and shows that the size and maturity …

Craig Burnside · Martin Eichenbaum · Sergio Rebelo

This paper builds a general-equilibrium model in which a currency crisis is triggered by prospective government deficits and shows that governments finance the resulting fiscal costs mainly through …

Fabio Ghironi · Daisoon Kim · Galip Kemal Ozhan

Sanctions are increasingly used as an instrument of economic statecraft, yet their macroeconomic consequences—especially the transitional dynamics and their effects on business cycles—are poorly …

Ariel Burstein · Martin Eichenbaum · Sergio Rebelo

This paper argues, using data from five large devaluation episodes (Argentina 2001, Brazil 1999, Korea 1997, Mexico 1994, Thailand 1997), that the large post-devaluation fall in the real exchange rate …

Wenxin Du · Jesse Schreger

Emerging-market governments that borrow in their own currency still pay a measurable default premium: stripping out currency risk with cross-currency swaps leaves a "local currency credit spread" …

Jordi Galí · Tommaso Monacelli

This paper builds a tractable small open economy version of the Calvo sticky-price New Keynesian model, shows its equilibrium reduces to a two-equation system in domestic inflation and the output gap …

Craig Burnside · Martin Eichenbaum · Sergio Rebelo

Studies how governments finance the fiscal costs of "twin" currency-and-banking crises and shows that debt devaluation and implicit or explicit fiscal reform, not just money printing, can explain why …

Craig Burnside · Martin Eichenbaum · Sergio Rebelo

Argues that the 1997 Asian currency crisis was driven by large prospective government deficits -- the anticipated future fiscal cost of bailing out failing banking systems -- rather than by the …

Paul R. Krugman

Krugman presents a highly simplified continuous-time model of how an exchange rate behaves inside a credible target zone -- a band the authorities are committed to defend at its edges, but need not …

Benjamin Hébert · Jesse Schreger

US court rulings in Republic of Argentina v. NML Capital moved the market-implied probability that Argentina would default on its restructured bonds without carrying any news about the Argentine …

Maurizio Michael Habib · Fabrizio Venditti

Decomposing a global risk factor built from stock returns in 63 economies into structural shocks, this paper finds that exogenous shifts in the financial sector's risk-bearing capacity matter more …

Masao Fukui · Emi Nakamura · Jón Steinsson

How does an exchange rate depreciation causally affect macroeconomic outcomes? The paper asks whether depreciations are expansionary or contractionary, and through which mechanism. The core …

Kenneth Rogoff

This 1996 Journal of Economic Literature survey by Kenneth Rogoff states the purchasing power parity (PPP) puzzle as a reconciliation problem: the empirical literature finds that real exchange rates …

Maurice Obstfeld · Kenneth Rogoff

Six of international macroeconomics' most stubborn puzzles -- home bias in trade, Feldstein-Horioka, home bias in equity portfolios, low consumption correlations, the slow mean reversion of real …

Stephen Morris · Hyun Song Shin

This 1998 American Economic Review paper by Stephen Morris and Hyun Song Shin resolves the multiple-equilibrium indeterminacy of standard self-fulfilling currency-attack models by replacing common …