November 21, 2013
Jeffrey Frankel: "The Dollar and Its Rivals"
From today's Project Syndicate:
August 13, 2013
The Yen's Progress and Japanese Exports
I'm just back from Japan, where disappointing GDP statistics have reinforced the fact that the economy is still far from full recovery.
July 30, 2013
Exchange Rates: What Exactly Are Those "Factors"?
One of the things that mystifies me is a branch of the asset pricing literature which models exchange rates as a function of a “factor” or “factors”. It’s not that I don’t think they make sense, statistically; it’s that my mind wants to know what those “factors” are.
April 29, 2013
Unconventional Monetary Policy Effects on the Exchange Rate at the ZLB
The descent of interest rates to near zero in the advanced economies has prompted something of a rethink of how monetary policy can affect exchange rates.
March 19, 2013
"Building U.S. Competitiveness"
The Economic Report of the President, 2013, released last Friday, devotes some attention to global rebalancing, a topic that I’ve addressed on a number of occasions.  ; and this paper. Exchange rate movements are critical, but so too are productivity and wage movements.
February 25, 2013
Yen Depreciation and the Scope for Expenditure Switching
With Haruhiko Kuroda ascending to head the Bank of Japan , it is likely that monetary policy will remain fairly expansionary. Even without direct intervention in foreign exchange markets, the yen will likely continue to weaken as expectations of inflation rise. What is the likely impact of trade flows?
February 14, 2013
Quantitative Easing, Intervention, and Currency Wars, Again
Thinking about what is driving -- and will drive -- the yen
January 28, 2013
Currency Wars in the Era of Unconventional Monetary Policies
Interpreting Monetary Policy’s Impact on Exchange Rates (and Economic Activity)
August 28, 2012
Expectations, Uncovered Interest Parity, and the Zero Interest Bound: New Results
One of the most robust findings in international finance is that interest differentials do not point in the right direction for subsequent exchange rate changes. This means that dollar returns on say one year certificates of deposit in the US and in the UK are not on average equalized. In Chinn and Meredith (2004), we show that this anomaly -- if it is one -- disappears as one goes to longer horizons. This finding was discussed previously here.
July 03, 2012
Emerging Reserve Currencies?
From the abstract to "A Note on Reserve Currencies with Special Reference to the G-20 Countries"
It is most likely that the current reserve currencies will retain their status in the near future, given the persistence in the composition of reserve holdings.
June 27, 2012
Links for 2012-06-27
Quick links to another proposal for Europe, and estimates of U.S. consumer benefits from lower natural gas and gasoline prices.
June 19, 2012
Europe in 1931
I was at a conference at the Cato Institute two weeks ago discussing some research by Dartmouth Professor Doug Irwin on the role of the gold standard in the Great Depression of 1929-1933. If you're interested, you can see a written version of my comments, the slides from my presentation, or a video of the session (my comments begin a little more than half way in). Here I'd like to relate some of the discussion of what happened in Europe in 1931, and comment on some of the parallels with what is going on today.
June 16, 2012
Options for Europe
This problem is not fixing itself.
June 03, 2012
Markets see bad news
May was a bad month for U.S. stocks. June started out worse, with the S&P500 on Friday down 9% from where it stood at the beginning of May. That puts us back about where we started the year in January, though still significantly above last fall's lows.
May 02, 2012
Should the Fed do more?
Johns Hopkins University Professor Larry Ball, Princeton Professor Paul Krugman, U.C. Berkeley Professor Brad DeLong, University of Oregon Professor Tim Duy and Texas State University Professor David Beckworth are among those recently arguing that Fed Chairman Ben Bernanke is neglecting his own earlier academic insights into what the central bank should be doing in a situation such as the United States presently finds itself. Here's what I think they're overlooking.
November 01, 2011
"An Examination of U.S. Dollar Declines"
...we examine the role of market uncertainty and currency risk premia in the pace and size of episodes of dollar weakness since 1991. We find that the most recent bout of U.S. dollar declines largely can be attributed to the recovery in global economic activity from the most recent recession.
August 25, 2011
In the excitement over the debt ceiling debate, the increasing extent of fiscal drag, and anxiety about an economic slowdown, I have neglected discussion of the dollar. I still think that continued dollar depreciation is necessary to effect global rebalancing. I’d prefer it to happen by way of expansionary monetary policy, but we might get dollar depreciation as intransigent policymakers work hard to destroy the safe-haven role of US Treasury securities.  So, while all eyes are on Jackson Hole, here’s a quick, stream of consciousness review of some dollar-related issues.
July 28, 2011
"Sex Ratios and Exchange Rates"
China and several other economies in Asia are experiencing an increasingly more severe relative surplus of men in the pre-marital age cohort. While the existing literature on the sex ratio has examined its social impact such as crime, we aim to explore neglected implications of the sex ratio imbalance for the real exchange rate. ...
July 05, 2011
"Effects of Abandoning Fixed Exchange Rates for Greater Flexibility"
At the recent NBER ISOM conference, Andy Rose presented a paper entitled Flexing Your Muscles: Effects of Abandoning Fixed Exchange Rates for Greater Flexibility, coauthored with Barry Eichengreen, following up on this 2010 paper, evaluating the effects of flexing (VoxEU post here).
For purposes of this short paper we examine a comprehensive data set covering over 200 countries and territories since 1957. ...
May 12, 2011
What Would Really Bring about a Dollar Dive?
One of the things about reading the op-eds and various articles in the blogosphere is the tendency to hype the possibility of the collapse in this, or the collapse in that. The most recent "bubble" in this type of writing involved hyper-inflation, commodities (silver, anyone?) and the dollar. Now I read things like QEIII would bring about a collapse in the dollar  (as if anybody really thought QEIII was politically likely, even if it were advisable on economic grounds); or easy monetary policy would be the culprit. Here's a choice quote from Jim Rogers:
May 08, 2011
Lower oil prices
Like a roller coaster ride, 2011 saw oil prices climb gradually, only to fall dramatically this last week. Here I offer my thoughts on some of the key contributing factors.
March 24, 2011
"Renminbi Going Global"
That's the title of a new working paper by Xiaoli Chen (Shandong University) and Yin-Wong Cheung (UCSC). Readers might recognize Cheung as a co-author with G. Ma and R. McCauley on a 2010 BIS paper, discussed in this May 2010 Econbrowser post, and just published in Pacific Economic Review. For anybody who is interested in the latest developments in the Chinese government's attempts to internationalize the Renminbi, this is essential reading. From the summary of the paper.
March 18, 2011
Coordinated Forex Intervention "Works"
A coordinated move by central banks of rich nations to stabilize the yen's value appeared to be having a decisive effect on Friday, after a sharp rise in the yen after Japan's devastating earthquake and nuclear crisis raised fears about the global economy.
March 10, 2011
The Macroeconomic Effects of Large Exchange Rate Appreciations
From the abstract to a new OECD Development Center working paper, by Marcus Kappler, Helmut Reisen, Moritz Schularick and Edouard Turkisch, the results of a large, cross-country study based upon a narrative approach to identifying appreciation episodes:
The study shows that currency appreciations can help to a certain extent in reducing global imbalances, and that it can go along with a shift from a mainly export-based model of growth towards a model with internal sources of growth. The cost in terms of growth would be very limited in the case of developed countries, but somewhat larger for developing countries.
February 25, 2011
Exchange Rates: Two Stylized Facts and Yet Another (Consequent) Puzzle
My colleague, Charles Engel, has a new paper entitled The Real Exchange Rate, Real Interest Rates, and the Risk Premium, in which he tries to identify what characteristics an exchange rate model must possess in order to explain two stylized facts.
...The well-known interest parity puzzle in foreign exchange markets finds ... the high interest rate country tends to have the higher expected return in the short run. The second stylized fact concerns evidence that when a country's relative real interest rate rises above its average, its currency tends to be stronger than average in real terms.
February 20, 2011
New indications of inflation
Where are the inflationary pressures?
February 03, 2011
The Real Value of the Yuan and Inflation
A recent NYT article highlighted the fact that international competitiveness (as defined by macroeconomists) depends on not just the nominal exchange rate, but also relative price levels. From Inflation in China May Limit U.S. Trade Deficit by Keith Bradsher:
Inflation is starting to slow China's mighty export machine, as buyers from Western multinational companies balk at higher prices and have cut back their planned spring shipments across the Pacific.
January 12, 2011
Exchange Rate Modelling at AEA
Or, at least one session's worth of recent thinking on the topic.
Presiding: Philippe Bacchetta (University of Lausanne)
- On the Unstable Relationship between Exchange Rates and Macroeconomic Fundamentals, by Philippe Bacchetta (University of Lausanne), and Eric van Wincoop (University of Virginia). Discussed by Ken Kasa (Simon Fraser University).
- Order Flow and the Monetary Model of Exchange Rates: Evidence from a Novel Data Set , by Menzie Chinn (University of Wisconsin), and Michael Moore (Queen's University Belfast). Discussed by Pierre-Olivier Gourinchas (University of California-Berkeley)
- Phoenix Taylor Rule Exchange Rate Forecasting During the Financial Crisis, by David Papell (University of Houston), and Tanya Molodtsova (Emory University) . Discussed by Jan Groen (Federal Reserve Bank of New York).
- The Scapegoat Model of Exchange Rates: An Empirical Test, by Marcel Fratzscher (European Central Bank), Lucio Sarno (Cass Business School), and Gabriele Zinna (Bank of England). Discussed by Nelson Mark (University of Notre Dame).
November 30, 2010
Europe and China: is this deja vu all over again?
The autumn of 2010 is in some ways a replay of what we saw last spring. Is what we saw then a guide to what's going to happen next?
November 22, 2010
Representative Ryan Requests
November 10, 2010
I guess now we know that the Fed has the tools to prevent deflation.
November 03, 2010
QE2: Been there, done that
The Federal Open Market Committee announced today that:
the Committee decided today to expand its holdings of securities. The Committee will maintain its existing policy of reinvesting principal payments from its securities holdings. In addition, the Committee intends to purchase a further $600 billion of longer-term Treasury securities by the end of the second quarter of 2011, a pace of about $75 billion per month.
October 21, 2010
Currency Wars and (Macro) Competitiveness
With the cover page of the Economist   worrying about currency wars, and various analysts arguing whether the US can or cannot win such a "war" (see Naked Capitalism for a discussion), I thought it would be useful to see where we now stand, in terms of "competitiveness", as understood by open economy macroeconomists.
October 20, 2010
Arguments against QE2
Having earlier reviewed some of the reasons in favor of additional quantitative easing (QE2), I'd like to acknowledge some of the dissenting views.
September 30, 2010
Frank Warnock on Two Myths about the Dollar
Frank Warnock, an expert on US capital flows and stocks, has just written a piece for CFR entitled Two Myths About the U.S. Dollar. In it, he examines "two factors that could substantially alter the long-run value of the U.S. dollar: the dollar's reserve status and the sustainability of U.S. international debt."
August 01, 2010
Options for monetary stimulus
The latest economic data have surely warranted a downward revision in the Federal Reserve's assessment of near-term economic performance. It therefore might be a good time to review the steps the Fed could take if it wishes to provide further economic stimulus.
July 10, 2010
Michael Rosenberg: Is the Euro Embarking on a New Long-Term Cycle of Currency Weakness?
From Bloomberg's Mike Rosenberg, in FX Market Insights (June 28):
The euro is now two years into what might be another long-term downtrend. ...
June 10, 2010
Exchange Rate Angst and Rebalancing
As the euro has plummeted against the USD, there's been concern that efforts to rebalance the global economy will face increasing headwinds. [Bergsten] [Duy]. This worry is only added to by the already widening US trade deficit . In this post, I don't want to dispute the difficulty of effecting global rebalancing. It was already a difficult task, even before the euro area's recent debt-related travails. What I do want to do is to put the recent exchange rate movements in perspective. My three observations are as follows:
May 03, 2010
"Reminbising China's Assets"
...Recent policies adopted by the Chinese authorities can be interpreted as allowing the rest of the world to denominate debt in renminbi. But if trading partners consider that the renminbi is subject to big jump risk, then prospects for its internationalisation are weak. ...
April 16, 2010
Recent estimates of Chinese Yuan misalignment
Yin-Wong Cheung, Eiji Fujii and I have just written a chapter for a VoxEU book The US-Sino Currency Dispute edited by Simon Evenett (link to blog post). After discussing the various approaches to measuring misalignment, we summarize the most recent estimates of CNY undervaluation.
April 08, 2010
Measuring the Long Run Real Exchange Rate - Income Relationship
Yanping Chong, Oscar Jorda and Alan M. Taylor have tackled the perennial challenge of measuring the long run relationship between the real exchange rate and per capita income levels. From the abstract to The Harrod-Balassa-Samuelson Hypothesis: Real Exchange Rates and their Long-Run Equilibrium:
Frictionless, perfectly competitive traded-goods markets justify thinking of purchasing power parity (PPP) as the main driver of exchange rates in the long-run. But differences in the traded/non-traded sectors of economies tend to be persistent and affect movements in local price levels in ways that upset the PPP balance (the underpinning of the Harrod-Balassa-Samuelson hypothesis, HBS). This paper uses panel-data techniques on a broad collection of countries to investigate the long-run properties of the PPP/HBS equilibrium using novel local projection methods for cointegrated systems. ...
March 25, 2010
A Still Relevant GAO Classic: Floating Exchange Rates in an Interdependent World and "Overvaluation"
Following up on my misalignment post from Tuesday, here's a volume compiled by the GAO when it was the General Accounting Office containing a symposium on exchange rates. The symposium took place in the midst of currency overvaluation: "Floating Exchange Rates in an Interdependent World". The authors included Richard Cooper, Stanley Black, Rudiger Dornbusch, Jeffrey Frankel, and Jacob Frenkel.
March 23, 2010
A Misalignment Primer
As the release of the next Treasury Report to Congress on International Economic and Exchange Rate Policies looms, it might be useful to recount the various ways in which different observers define currency "misalignment".
December 08, 2009
Exchange Rate Policies
September 30, 2009
The Dollar in Doubt?
I've found it puzzling that there's all this talk about the prospects for the dollar, in the wake of the G-20 meetings, and more recently World Bank President Zoellick's comments about the primacy of the dollar as a reserve currency. My puzzlement arises from the fact that many of the concerns now being voiced have been voiced before.
August 10, 2009
Exchange Rates: New Papers
During the summer, I had the good fortune to attend two excellent conferences focused on new findings in exchange rate economics (yes, not all economic research is focused on the financial crisis and recession). The first was a Bank of Canada-European Central Bank conference Exchange rates: The global perspective, and the second was the NBER International Finance and Macroeconomics Summer Institute session "Exchange Rates and Relative Prices".
April 13, 2009
The Demise of the Dollar? Should We Worry about Quantitative Easing and Deficit Spending?
Over the weekend, I was working on my long delayed manuscript on exchange rate modeling , and pondering how useful the conventional econometric techniques were for making predictions about the future value of the dollar.
December 22, 2008
ZIRP and the exchange rate...and other macro variables
Several months ago, I discussed the implications of a model of the exchange rate wherein Taylor rule fundamentals -- the output , inflation and exchange rate gaps -- were central (post). In that paper [pdf], I showed that Taylor rule fundamentals outperformed purchasing power parity, interest rate parity, and the monetary model of exchange rates in terms of in-sample fit, at least insofar as the dollar/euro exchange rate is concerned.
December 03, 2008
Measuring Import Prices: Implications for GDP Growth
A lot of what has happened to GDP growth over the past few quarters has, in a mechanical sense, depended upon developments in the external accounts. In this post, I examine whether mismeasurement of import prices might have induced mismeasurement of economic output. This idea was prompted by hearing a presentation of Nakamura and Steinsson a couple months ago. The abstract to "Lost in Transit: Product Replacement Bias and Pricing to Market":
October 14, 2008
The global recession
IMF research economist Prakash Loungani reports some statistics on the extent to which housing price declines are being seen worldwide.
October 01, 2008
Chinese Trade: An Update
I was surprised by this item from the BBC:
Chinese trade surplus at new high
Wednesday, 10 September 2008
China's trade surplus hit a monthly record of $28.7bn (£16.28bn) in August as the gap with the US and Europe widened, despite weaker world demand.
September 09, 2008
Taylor Rules, Synchronized Recession and the Potential for Competitive Depreciation
In yesterday's FT, "All in this together" assessed the possibility of a roughly synchronized downturn in the world's major economies, with the United States, ironically enough, suffering the smallest hit. This brings up all sorts of interesting questions regarding exchange rates, if one believes that Taylor rules define monetary policy making to some degree, and that interest differentials affect exchange rates.
August 25, 2008
The Dollar and the Trade Deficit: How Does Productivity Fit In?
Why is the trade deficit, even taking out oil, so large when the dollar is so weak? Maybe some insights can be gleaned from productivity measures.
August 19, 2008
Economic consequences of falling oil prices
I've maintained that rising oil prices put a significant burden on the U.S. economy in recent months. How much will falling oil prices help to alleviate those concerns?
August 10, 2008
Oil and the dollar
Although movements in the value of the dollar are one factor contributing to recent changes in the dollar price of oil, I do not believe they are the most important factor. Here I review some of the evidence that persuades me of this.
July 28, 2008
Taylor rules, exchange rates, and the speculation about the dollar/euro rate
As Europe teeters on the edge of recession , and the United States remains mired in slow growth, expectations of what interest rates, and hence exchange rates, are shifting. Here's a familiar depiction of where policy rates in the US and the euro area have been, and where they are predicted to go.
July 23, 2008
Implications of adjustment to riskier dollar assets in a portfolio balance framework, illustrated in three steps
Consider a hypothetical world economy with assets denominated in dollars and euros.
July 08, 2008
UAE & Other Gulf Countries Urged to Switch Currency Peg from the Dollar to a Basket That Includes Oil
By Jeffrey Frankel
The possibility that some Gulf states, particularly the UAE, might abandon their long-time pegs to the dollar is getting increasing attention (from Martin Feldstein and Brad Setser, for instance). It makes sense. The combination of high oil prices, rapid growth, a tightly fixed exchange rate, and the big depreciation of the dollar against other currencies (especially the euro, important for Gulf imports) was always going to be a recipe for strong money inflows and inflation in these countries. The economic dynamism -- most striking in Dubai -- is admirable and fascinating, but also now clearly indicative of overheating. Indeed inflation, as predicted, has risen alarmingly. Among other ill effects, it is producing unrest among immigrant workers. An appreciation of the dirham and riyal is the obvious solution.
June 08, 2008
Why did oil breach $138?
June 06, 2008
Oil Prices in Other Currencies
Some of the explanations for the dollar jump rely upon the perceived weakness in the dollar's value (and hence, by extension, Fed policy). Does this make sense?
May 22, 2008
RMB Misalignment in a PPP Framework: The Impact of Data Revisions
The World Bank's new World Development Indicators were released a bit over a month ago. The impact on the estimates of RMB misalignment are substantial. (This is an elaboration on a RGEMonitor post by Yin-Wong Cheung from a week and half ago, and is based on preliminary results from a presentation made yesterday at a Deutsche Bundesbank and Center for Financial Studies/Goethe University Frankfurt Workshop on Panel Methods and Open Economies".)
May 06, 2008
Current Account Balances, Again
Two years ago, as part of a multi-year project, Charles Engel and I organized a conference on current account sustainability in major advanced economies. Lask week, we convened a follow-up conference aimed at updating our knowledge on this subject. Below is the latest read on the U.S. current account to GDP.
April 28, 2008
The Monetary Model of Exchange Rates, Money Demand Shocks and Order Flow
Yes, exchange rate prediction once again. Last Thursday, Michael Moore (of Queen's University Belfast) and I presented a new paper at the IMF's conference on International Macro-Finance (co-sponsored with the ESRC funded World Economy and Finance Program). Here's the paper [pdf].
April 27, 2008
Let's Think Long and Hard about Extending Those Bush Tax Cuts
There was a time one could plausibly argue that importing lots of goods and services, and borrowing a lot from abroad (financing the budget deficits that we've incurred since 2001) was a great idea. But at the time, about two and a half years ago, I made the following warning in a Council of Foreign Relations report [pdf]:
The United States faces a wide variety of possible outcomes, with the most dire having a significant likelihood. One real possibility entails the satiation of global investors’ appetite for U.S. Treasury securities, combined with an endless vista of government budget deficits. After several years of large losses on dollar assets due to depreciation, they then demand a substantial premium for holding dollar-denominated assets; either the dollar must weaken so as to make Treasury securities cheap, or yields must rise relative to those on other assets.
April 17, 2008
Why new oil price highs?
West Texas Intermediate closed today above $115/barrel. Does that reflect changes in the fundamentals of world supply and demand? My answer is no.
April 14, 2008
The G-7 Communique and the Dollar
April 02, 2008
The Yuan on the Move: An Update
And a bit on the IMF's revised forecast for the US.
March 25, 2008
Recoupling, Monetary Policy Divergence, and the Dollar
At the risk of losing my audience by skipping over the the record housing price decline, and an outsized drop in the consumer confidence index, I'm going to focus on what seems like old news (but is being reflected in current news on the dollar), namely the OECD reduction in growth forecasts for the G-7 economies. The euro area economy is slated to do better than the US economy in 2008H1, but that's not saying much.
March 17, 2008
Limits to Expenditure Switching? Monetary Policy, Intervention, and Tradability
Currently, net exports are one of the few bright spots in the US economy. As Krugman points out, this is the one area where monetary policy is proving effective: by driving down the value of the dollar, expenditure switching is being induced.
March 12, 2008
"Bush Would Like a Stronger Dollar"
That's the title of a post in today's WSJ RealTime Economics:
President George W. Bush said in an interview today with Nightly Business Report that the dollar's fall to record lows against the euro is not a good thing and he "absolutely" wants a stronger dollar. Excerpts:
March 03, 2008
Two Questions: What Do Slowing Imports Mean? And Is There a J-Curve?
As the dollar continues to plumb new depths , and the economic slowdown continues, I want to discuss two questions about the trade balance that occur to me.
February 27, 2008
Musings on the Dollar: PPP and Thresholds
As the dollar hits a new low against the euro , some thoughts on what arguments make sense, given our knowledge of the statistical properties of real exchange rates.
February 25, 2008
What Explains Deviations from Interest Rate Parity in Emerging Markets?
Some people have the impression that financial capital zips to wherever the returns are highest. Maybe that's the case. But I'm not sure.
February 18, 2008
Trade, Exchange Rates and Pass Through
Some thoughts on what to make of the trade and export/import price releases.
February 07, 2008
Expenditure Switching or Expenditure Reduction Again: How Adjustment Is Occuring
The latest GDP release suggests trade balance adjustment is proceeding. Some of the adjustment is being driven by changes in the dollar's value. But I think a lot seems to be coming from the reduction in consumption and income growth.
January 03, 2008
Do We Really Know that a Flexible Exchange Rate Regime Facilitates Current Account Adjustment?
In an post in VoxEU, Shang-Jin Wei alluded to work we have undertaken examining whether de facto exchange rate regimes have an impact on current account reversion.
January 01, 2008
The Dollar in the New Year
Is there (an "equlibrium" exchange rate) model for all seasons?
December 17, 2007
An Exercise in Sheer Conjecture
China, PPP, and Misalignment Estimates
December 11, 2007
Is the Dollar Near the Bottom (II)
Last week, I wrote a post examining what the measures of central tendency for the dollar's trajectory were, based upon some standard forecasts. This week, I want to examine more closely whether we should anticipate more depreciation, in real terms, by way of discussing alternative measures of the dollar's value.
December 06, 2007
Is the Dollar Near the Bottom?
Some analysts think so.
November 24, 2007
Oil and the dollar
The dollar falls and oil prices go up. So the two must be related, right?
November 20, 2007
The Credit Card Bill Comes Due (International Version)
The nation borrowed from the rest-of-the-world when interest rates were low. But interest rates can adjust. So can exchange rates. What to think of our creditors re-appraisal of the "right" effective interest rate to lend to us?
November 11, 2007
Oil, gold, the dollar, and inflation
Do the ongoing surge in gold and oil prices and slide in the dollar signal a resurgence of inflation?
November 08, 2007
Modeling Exchange Rates: What Does Current Academic Thinking Have to Say about the Dollar's Future?
As the dollar continues its decline, I think it's useful to step away from the high frequency analysis ,, to consider what the currents in academic thinking on the enterprise of predicting exchange rates are.
November 01, 2007
Some Observations on the GDP Release
The BEA's NIPA release had some surprises for many. Here are some aspects of the release that I find surprising.
October 31, 2007
Does Dollar Weakness 'Cause' High Oil Prices?
There's an idea floating around that asserts that the high price of oil is -- at least in part -- due to the weak dollar. Does this make sense?
October 10, 2007
IMF World Economic Outlook on Managing Large Capital Inflows
The IMF has just released several chapters of its semi-annual World Economic Outlook. One chapter is entitled "Managing Large Capital Inflows".
October 08, 2007
What's a "Strong Dollar"?
I used to wonder about the use of this term a lot, at least in the context of government pronouncements. Here's my answer. First, the use of the term in context. From Bloomberg:
Weak Dollar Boosts Growth Without Fueling Inflation (Update1)
By Matthew Benjamin and Vivien Lou Chen
Oct. 8 (Bloomberg) -- Treasury Secretary Henry Paulson, whose signature appears on every new dollar bill, may find the weak currency with his name on it helps the U.S. economy more than the strong one he publicly endorses.
September 30, 2007
Foreign Exchange Market Transactions and Reserves: Recent Statistics
There's been a cornucopia of forex market information released in the past week, which I'm only now getting to. First, the BIS has released the preliminary results from its Triennial Central Bank Survey of Foreign Exchange and Derivatives Market Activity, conducted in April of this year. The results are interesting, insofar as they confirm trends evident in the previous survey in 2004. Second, the IMF released its most recent tabulation of foreign exchange reserve holdings (COFER).
September 24, 2007
What would be the implications of stagflation for the dollar?
The dollar is declining, with no apparent support. That's because the recessionary factors seem to be dominating. But a reporter's question about what factors might support the dollar prompted me to think about other influences that might work in a direction opposite the forces alluded to in the conventional wisdom.
September 19, 2007
Divining the Dollar
The dollar declines in response to the drop in the target Fed Funds rate. What next?
September 18, 2007
50 it is
For the first time in 5 years, markets were actually unsure what the Fed was going to do, with yesterday's fed funds options calling it an even chance that the Fed would settle for a 25-basis-point cut or go all the way to 50. Capital Chronicle had prepared amusing posters as to just how to interpret a 25-basis-point as opposed to a 50-basis-point cut. Fifty it was, disappointing perhaps knzn who wanted a 175-basis-point cut, but delighting economic researchers like Refet Gurkaynak and Eric Swanson who both emailed me their high spirits at finally getting another data point for what happens when the Fed surprises the markets.
Four Observations on Import and Export Prices and the Dollar
Some delayed reflections on exchange rates, trade prices, and the messages from the August data.
September 13, 2007
Saving Glut Redux
Bernanke recaps his interpretation of the explanation for global imbalances. Is it any more convincing than the first time?
August 03, 2007
Revaluation and China's Multilateral Trade Balance: First Estimates
Yin-Wong Cheung, Eiji Fujii and I have just completed a paper entitled China's Current Account and Exchange Rate" for a conference on China's Growing Role in World Trade. This paper follows up on some of the issues I laid out in these posts: , , , and .
July 30, 2007
US Economic Growth: Retrospect and Prospect
Some interesting tidbits can be gleaned from the BEA's recent release. First, despite the acceleration in growth in 2007Q2, the level of output in 2007Q2 is less than what we thought -- as of 28 June -- it was in 2007Q1. Second, q/q consumption growth now looks weaker than it did before. Third, while net exports provided a big boost to GDP growth, a large chunk of that effect is attributable to import compression, rather than export acceleration. How one views the durability of the net export effect depends in large part upon how one views the sources of import and export trends.
July 26, 2007
Will Dollar Depreciation Prevent A Recession?
As worries from ever expanding -- but always containable -- housing and mortgage market collapse mount (see this Reuters article), some analysts believe that the external accounts will save the day. From Bloomberg (July 23):
July 20, 2007
"We have always thought that America got away with something."
Well, maybe not anymore. And perhaps not even before.
The quote is from an article on how the weak dollar is raising the costs of traveling to Europe, as the USD/EUR rate flirts with 1.40. The longer quote, from yesterday's NYT article entitled "As Dollar Crumples, Tourists Overseas Reel" , is:
July 16, 2007
More on the Yuan and the Chinese Trade Balance
More speculation on the Yuan's prospects. From Bloomberg:
July 13, 2007
Import prices surge...
...but mostly due to increasing oil prices.
Import prices surge...
...but mostly due to increasing oil prices.
July 12, 2007
A Tipping Point for the Dollar?
In a post over a year ago, I observed that the relative stability of the dollar would come to an end as a confluence of events occurred. Those would be the end to rises in the US interest rates, and the continued increases in policy rates abroad, especially in the euro area and the UK, against a backdrop of a massive current account deficit that requires large and continuous infusions of saving from the rest of the world (and indeed consumes most of the world's excess saving).
July 05, 2007
Maybe the Euro Isn't the Competition
Typically, people think of the euro as the most likely competitor to the dollar. And maybe it is in the long run (see these posts , , and this paper). But in the short term, maybe it's the British pound.
June 28, 2007
The 2006 Net International Investment Position
The BEA released the end-2006 net international investment position (NIIP) today.
June 24, 2007
Following yields up and down
June 20, 2007
Thinking about import prices, the dollar, and inflation
Some delayed reflections on the May import/export price release, and how to interpret the data in light of the empirics of exchange rate pass through.
June 18, 2007
Rejoice! The 2006 current account to GDP ratio has been revised up by 0.3 percentage points
There's a temptation to view the upward revision to the current account balance, and the components thereof, as yet more evidence that the US external situation is in better shape than commonly perceived.
June 17, 2007
More on those rising interest rates
Rising rates look scary, but I still read it as good news.
June 14, 2007
Keeping China's Yuan in Perspective
The Treasury released its report International Economic and Exchange Rate Policies yesterday. As expected, the Treasury declined to declare China a currency manipulator. On the same day, four senators submitted legislation to tie Treasury's hands in terms of the actions it can take against countries with "misaligned" currencies.
June 10, 2007
Musings on Inflation Worries
The selloff in the stock market last week was attributed by some to inflation worries -- namely that persistent inflation means a reduction in the Fed Funds rate is less likely than the market had until recently believed.
June 08, 2007
The April Trade Release: Good and Ambiguous News
The April trade release surprised on the upside. Here are a few other insights, not all of which are unalloyed positives.
May 28, 2007
More on Real Exchange Rate Changes and Trade Adjustment
Time for an update on estimated income and price elasticities of US trade flows. These issues are important to those of us who believe that the US remains vulnerable to shifts in the rest-of-the-world's willingness to finance the current account deficit. If you think it's just jolly fine and likely for the US to keep on borrowing at around 6.5 percent of GDP for the indefinite future, skip this post.
May 13, 2007
Estimating equilibrium exchange rates: More reasons for humility
Last Tuesday, there was a unique joining of three subcommittees to address the issue of alleged Chinese currency manipulation. Here's Steve Roach's assessment , Mish's view , and news accounts by CNN  and by WSJ .
April 26, 2007
Further implications of the productivity slowdown for the dollar
In a previous post, I noted that the slowdown in economic growth in the US relative to rest-of-OECD would have a number implications for the dollar's value in nominal and real terms.
April 23, 2007
A New Era for the Dollar?
Riding the dollar's decline.
April 17, 2007
The Coming (?) US Current Account Adjustment: Two Questions Inspired by Two Graphs
The IMF has recently released its Global Financial Stability report. Two figures inspired two questions from me.
April 15, 2007
Trade adjustment via import compression or export expansion?
April 07, 2007
Exchange rate depreciation and expenditure switching in the United States
The IMF's April 2007 World Economic Outlook has been released -- or at least part of it. One chapter, entitled Exchange Rates and the adjustment of External Imbalances [pdf], deals with a subject close to my heart.
March 27, 2007
Maybe we can't count on exorbitant privilege/dark matter/manna from heaven...
The new conventional wisdom is that the return foreigners obtain on U.S. assets is less than the return U.S. residents obtain on foreign assets. And that this means that the U.S. can build up a bigger foreign debt than traditional analyses; I've been skeptical , . Now, we have more reason to ask how robust is the finding of a durable earnings differential in favor of U.S. investors?
March 18, 2007
Attaining Internal and External Equilibrium in China
China raises rates again. What will higher rates do?
March 15, 2007
Negative Net Income: The 2006 Balance of Payments
Most commentary on the 2006q4 current account balance release focused on the improvement in the overall balance. Little noted is the fact that 2006 is the first year in which the net income category has registered negative.
March 05, 2007
Globalization and Inflation: Thinking about Identification
Recent news articles (, ) and blog posts (Economists View, Big Picture) have discussed Bernanke's March 2 speech on globalization and inflation.
March 01, 2007
Whither the Chinese Yuan?
The problem with writing blog posts in advance (I wrote most of this on the 25th) is that they may very well be rendered obsolete by the passage of events, especially when covering financial markets. Hopefully, in this case, the heightened uncertainty in emerging markets -- as well as the durability of the yen carry trade -- will not change the outlook for the CNY very much.
February 12, 2007
The 2007 Economic Report of the President on Exchange Rate Determination (and the Renminbi)
The 2007 Economic Report of the President was released Monday afternoon. Chapter 7, entitled "Currency Markets and Exchange Rates," is a laudable exegesis on the determination of exchange rates.
February 04, 2007
Manufacturing, Tradables, and Trade Adjustment
In his preview of the 2007 Economic Report of the President, CEA Chair Ed Lazear presented the argument that manufacturing output is still growing.
January 25, 2007
Exchange rates, output gaps and inflation rates
Is there any role for the Taylor rule in helping predict exchange rates?
January 09, 2007
International Economics at the AEA/ASSA: Selected Items
The Allied Social Sciences Association (incorporating the AEA, the Econometric Society, the International Economics and Finance Society and many other groups) meetings took place in Chicago this last weekend. I wasn't able to go to that many sessions, but I did attend a few related to international issues.
December 20, 2006
The RMB: Where's it been and where's it going?
Faster appreciation against the dollar. And apparently against a broad basket of currencies.
December 18, 2006
Econoblog on "Dollars, Debt and the Trade Gap"
Thoughts on the Dropping Dollar
December 15, 2006
Bernanke in China
Distortion versus effective subsidy.
November 25, 2006
Will the Dollar Plunge? Would that Be So Bad?
Yesterday's dollar plunge unnerved markets. What's the likelihood of a sustained, drastic decline?
November 21, 2006
Some Puzzling Effects of Productivity on the Real Exchange Rate
What should be the effect of productivity increases on the real exchange rate?
November 10, 2006
RIP, Dark Matter As Cure-All
Two recent publications should help put to rest the conjecture that there are vast pools of U.S. wealth lying overseas, ready to save the day.
November 02, 2006
Estimating U.S.-China Trade Elasticities: Some Very Preliminary Results
Do we have any idea what the CNY appreciation against the dollar will accomplish?
October 16, 2006
How Strong Is (Was) the Dollar?
An alternative view on the dollar's strength and trend over time.
October 02, 2006
It's not such a small world after all (and it's getting bigger)
Taking a break from recession talk, I discuss some aspects of the progress of economic integration highlighted in a paper by Bergin and Glick presented at a SCCIE-JIMF conference on Financial and Commercial Integrations.
September 21, 2006
Two Pictures and Prospects for the Dollar
The dollar weakens. Why? For how long? Against Whom?
August 16, 2006
A closer look at the US-China trade figures...and more on the RMB
The Renminbi (RMB) is probably undervalued, according to some criteria. Would adjusting it fix the US-China trade deficit? Or the overall US trade deficit?
August 02, 2006
The enigmatic Yuan
The Yuan has not been moving much. Or has it? And does it matter much for the U.S. current account deficit
July 17, 2006
Some (delayed) reflections on whether the non-oil trade deficit stabilization at hand -- or not
I was out of the country when these data were released, so I didn't immediately write a post on the data. In any case several commentators covered the ground so well I didn't have much to add immediately. Several forwarded the possibility of trade deficit (as a share of GDP) stabiization (see here and here), in light of the fact that the May trade release which showed a smaller than consensus deficit. In the past I made similar observations (see here). I remain hopeful, but am still not yet convinced.
July 13, 2006
Out of sample prediction of the euro, pound and CAD
Once more unto the breach.
June 15, 2006
What happens to the dollar when interest rates stop rising?
Further predictions of secular dollar weakness, from a portfolio balance perspective
June 07, 2006
The dollar and interest rate expectations
What can one read from asset responses to "news"
May 23, 2006
Exchange rate pass through and dollar decline
Is there a direct relationship running from a change in the dollar's value and import and export prices and thence to consumer prices?
May 16, 2006
Is dollar depreciation a separate policy channel for trade balance adjustment?
The dollar is on the decline...more or less. Will this cause the long awaited adjustment?
May 11, 2006
The portfolio balance effect and reserve diversification
Implications from the debate over the Renminbi. And the Won. And the...
May 08, 2006
Interpreting and Re-interpreting Meese-Rogoff
What the Meese-Rogoff papers do and don't say, and the implications for empirical exchange rate modeling
May 01, 2006
New research on the current account adjustment process
Insights on how global current account imbalances might be resolved
April 29, 2006
New Research on the Sources of Current Account Deficits
Some excerpts from a recent conference on Current Account Sustainability in Major Advanced Economies
April 20, 2006
Is the Renminbi (Rmb) undervalued in price terms? Does it matter if it is?
With the visit of President Hu to the United States, Chinese currency misalignment is at the top of the agenda. What is "misalignment"?
April 04, 2006
Trends in Dollar Reserves
March 28, 2006
What would be the important effects?
March 23, 2006
The dollar and purchasing power parity
In my post on the dollar's trajectory, one person asked about purchasing power parity (PPP). Here is a brief discussion of the relevance of this concept to exchange rate forecasts.
March 13, 2006
Some views on the dollar's trajectory
Judgment, theory and correlations in exchange rate modeling.
February 16, 2006
Open Economy Macro in the 2006 Economic Report of the President
Beryl Sprinkel meets Ben Bernanke
February 10, 2006
December 2005 trade figures and implications
The trade deficit (total and ex-oil) widens again.
January 27, 2006
The 2005q4 GDP report and the trade balance
Little sign of the reversal in the trade deficit.
January 20, 2006
Strange ideas about the Iranian oil bourse
The internet can be a good source of information about issues that aren't adequately covered by the mainstream media. It can also be a font of considerable kookiness.
January 09, 2006
Hazards of partial reading and partial equilibrium analysis
For some people, the answer to every problem is a tax cut
October 19, 2005
Is the trade deficit set to stabilize as import prices rise?
Some thoughts on the latest trade price data.
October 12, 2005
Whither the dollar?
What the interest differentials say