Questions tagged [exchange-rates]
the price at which one currency may be exchanged for another.
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Uncovered Interest Rate Parity Assumptions (UIRP)
When learning about UIRP i have naturally come across the assumptions under which it may hold. However i am having trouble understanding the role of these assumptions and what the actual consequences ...
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7 views
Exchange rate target zone 45 degree line in the free float case - Krugman Target Zones
As far as i understand in the Krugman target zone model the following equation describes the behaviour of the exchange rate within and outside a target zone $s_t = f_t + \alpha E_t(ds_t/dt)$. But if ...
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1answer
116 views
What negative effects would result from globally fixing currency exchange rates?
Assuming one had the power to enact such a wide-ranging change, what would the negative effects of fixing the exchange rates between all currencies at the current rates, or the mean of the last week/...
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1answer
26 views
Questions about the gold standard and exchange rates
So I'm a total economics noob and I'm trying to understand some of the consequences of using vs. not using a gold standard listed on Brad DeLong's blog here: https://www.bradford-delong.com/why-not-...
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In an unsterilized purchase of dollars and sale of foreign assets, why doesn't the supply of dollar assets fall?
From Mishkin (2016, p. 500):
Explanation of what the supply curve here is, from p. 478:
The quantity of dollar assets supplied is primarily the quantity of bank deposits, bonds, and equities in ...
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8 views
Nominal GDP to Current purchasing power parity
Hi I would like to convert nominal GDP in current US dollars to current purchasing power parity in 2011 US dollars. Is this nominal GDP already converted? if GDP were in LCU I would convert it to ...
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18 views
A quick math question for NX curve
My text book says as if this $NX$ and $S-I$ graph can explain everything, like even when the economy experiences trade deficit. But shouldn't $S-I$ be a minus value when it's in a deficit? Then how ...
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Deficit adjustment - role of exchange rates
Krugman states the following:
Suppose the world economy is in equilibrium. Suddenly the dollar depreciates for some reason. Almost all economists would agree that long run effect would be some ...
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8 views
Investor sentiments in large open economy under Mundell Fleming Model
So I have been studying the Mundell Fleming Model,
I fail to understand the impact of investment sentiments in a large open economy.
This is what I think :
Positive investment sentiments will ...
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1answer
41 views
Balance of payments and the free floating exchange rate system
I am a beginner economics student and recently, I have been learning about how balance of payments surpluses are important for a country to control the value of its currency using its accumulated ...
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1answer
40 views
Why a current account surplus is bond to lead to an appreciation of a currency?
I have got some confusion in trying to explain why a trade surplus is going to lead to an increase in the exchange rate. The usual logic goes as follows.
Export X > Import M
Demand for the country's ...
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1answer
27 views
Does a strong exchange rate always mean a cheap holiday regardless of where you are from and going?
As question title states, does going from one country with a much stronger exchange rate, or a moderately higher exchange rate, in comparison to a country you visit always mean you get more bang for ...
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why doesn't every country scale up the prices to the international level?
I live in an Asian country in which the average monthly salary is maybe 300-400 dollars but things (apart from exported goods like laptops or smartphones) are reasonably cheap compared to their price ...
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2answers
44 views
Question about maintaining fixed exchange rates
In my textbook, borrowing from abroad is listed as one of the method to increase the value of a currency by shifting its demand curve to the right.
"If the country borrows from abroad, its loans ...
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0answers
10 views
Two deflator series with different base year to proxy real exchange rate
I'm conducting a research in which the real exchange rate serves as a variable. A quick literature review shows that we can use the product of the nominal exchange rate and the ratio between the US ...
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0answers
29 views
What does an increase in REER signify?
What does an increase in the real effective exchange rate signify? I read from a news report that (localized for India):
Furthermore, REER is calculated in such a way that an increase in its
...
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gdp growth outliers reflect exchange rate variations
I have nominal GDP for 20 countries and I need it in dollars. I noticed that some observations like Belgium 1986 are havily influenced by exchange rate variations so that we have real GDP growth of 45%...
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The Crisis of Argentina
newbie here.
Q1 - What needs to be done by the Argentinian government for their currency to regain back its strength?
Q2 - Why has the Argentine Peso depreciated against the U.S Dollar for more than ...
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1answer
20 views
exchange rate calculation
Suppose you have one U.S. dollar with which you wish to purchase U.K. (one-year) bonds in period t. Which of the following expressions represents the amount of U.K. pounds you will receive in one year ...
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2answers
39 views
How to convert an historic value denoted in foreign currency to a modern value in local currency?
I want to convert GBP in 1968 to USD in 2018, in order to "translate" an amount paid by an individual in Britain fifty years ago. My intention is that an American reader today will be able to better ...
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Exposure of two companies in a transaction involving an FX option
An American company $A$ has sold a manufactured product to a German company $B$, and they agree for the payment of 100,000 EUR in 1 year.
What type of exposure does $B$ have?
What type of exposure ...
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1answer
39 views
Justification for my Random Effects estimation
I need to defend my use of the Random Effects (RE) estimator in my economics project. I've been told in cross validated that the proper place for the question is here.
The causal effect of the ...
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2answers
29 views
Theory of Optimal Currency Areas
Should a country be more inclined or less inclined to join a currency union (common currency) under the following events:
a) Increase in the size and frequency of AD shocks to the economy.
b)...
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1answer
29 views
Real exchange rate
I have a doubt: I'm studying about real exchange rates and I'm having some problem with the formula.
RER= NER* price ratio
What I don't understand is how do you take this price ratio? Which price ...
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16 views
Can the USA really have an exchange rate policy?
I'm reading Martin Wolf's book The Shifts And The Shocks, about the global crisis. In it, there's a section where the author claims that the USA cannot not have an exchange rate policy, since all the ...
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2answers
50 views
Exchange Rate Determination
Most introductory international economics textbooks use the Uncovered Interest Rate Parity condition for deriving bilateral exchange rates. In other words, it is solely interest rate differential ...
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J Curve and DD Schedule in the Short Run (International Finance)
Assume that the J-curve is true. What would the DD curve look like during the early period of the J-curve (where the value effect dominates)? What would the effect of temporary changes in monetary ...
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1answer
44 views
How does imposing 100 percent cash margin requirement on imports help to stabilize foreign exchange reserves of a country?
My country is facing a critical depreciation of its currency's exchange rate and the central bank has introduced a 100 percent cash margin requirement on a selected set of imports.
My main problem is ...
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2answers
1k views
real exchange rate appreciation
i find the topic of real exchange rate appreciation / depreciation often not very well explained.
even the excerpt below from the following accepted answer on this website is not correct in my ...
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1answer
40 views
What could happen if a country changes their currency rate constantly?
Introduction
Imagine this random country. "Yolistan", it is a new country that appeared after a war/revolution/independence/whatever.
The currency it's the "Yolo"
Yolistan needs to import resources ...
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1answer
27 views
Emerging Market dollar debt, FX swaps and exchange rate risks
"An FX swap, on the other hand, creates no exchange rate risk for its counterparties. This is because currencies are sold and repurchase at fixed spot and forward rates. In other words, when you sell ...
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3answers
3k views
What is the reason of devaluation in Turkish Lira?
I guess there is a some fundamental issues in the economy but I wonder the apparent reason of the recent devaluation in Turkish Lira?
Does Turkey need to pay debt in very short term? How much is it? ...
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0answers
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Dornbush model - relationship between i and S
In the Dornbush model, when we separate short and long run equilibrium. This is what I apparently have understood:
SR1: an increase in Money Supply ($M_s$) leads to a fall in domestic interest rates (...
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Mechanics of Sterilized Intervention?
I'm looking to see if someone can help improve my understanding of sterilized intervention in FX markets.
My intuition/understanding is:
Assume that the domestic currency is depreciating, perhaps ...
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1answer
170 views
Can increase of NEER cause higher inflation?
I´m trying to find siutable econometrics model for explaining inflation during financial crisis and after. My final model shows that if NEERnominal effective exchange rate) increases, the inflation ...
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0answers
24 views
Is there a quantitative model demonstrating the relationship between balance of payments and exchange rate?
According to conventional analysis, a key factor in exchange rate determination is the state of the balance of payments.
An increase in imports gives rise to an increase in a demand for foreign ...
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1answer
24 views
Normalise historic values given in different currencies
I have historic monetary values given in different currencies and stemming from different points in time. I want to be able to compare them, and for that all must be given in the same currency, and ...
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1answer
30 views
Real exchange rate of India and United State?
According to OECD the price level of India is 29, and that of united states is 113, and nominal exchange rate is 64-1(INR-$). So what is the real exchange rate?
Is it $$RER = NER\times\frac{US_{...
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3answers
2k views
How is it possible that all currency exchange rates are fixed w.r.t. to each other?
I wondered if it would be beneficial to exchange a currency through one or more "in-between" currencies.
For example: instead of trading Russian Ruble (RUB) to Euro's (EUR), one would trade from RUB ...
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2answers
178 views
Dornbusch Sticky Price (Overshooting) model
Stupid question: What do the phi and lambda from the equations above represent?
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3answers
118 views
Theoretical market capitalisation of a crypto currency?
Here’s the context. I want to know what the theoretical market capitalisation (say eg $US / Bitcoin times Q the number of coins - it doesn’t have to be Bitcoin) of a crypto currency? Assume that the ...
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2answers
3k views
Who determines the exchange rate and how?
I have almost no knowledge about economics. However, a question always comes in my mind. How exchange rate really differ? I live in Bangladesh. So how, why, who changing BDT and US Dollar exchange ...
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0answers
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National Capital Outflow Question
I have the following example for an imposed quota on the importing of Japanese cars to Europe and it's relative effects:
I am told that $NX=NCO$ (Net exports are equal to National Capital Outflow). I ...
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1answer
97 views
Solutions for the de-dollarization of the Democratic Republic of Congo
While reading this article, I was wondering about the policies the DRC's government could employ to make the congolese franc appreciate. To appreciate the currency, the DRC by decreased investment in ...
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0answers
140 views
Under what conditions are tariffs or export subsidies expansionary?
Charles Kindleberger writes in the introduction to /The World in Depression/:
The imposition of tariffs should be expansionary for the importing country, if contractive for the countries losing ...
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2answers
793 views
Data on bilateral real exchange rate
Where can I find bilateral real exchange rates? For example per USD?
I can only find real effective exchange rates, but it is an index, not a bilateral rate.
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1answer
127 views
Norway inflation and exchange rates
I am looking at Norway's economy, and I'm trying to make sense of some of the data I see. Norway's economy has a very close relationship to crude oil, and in 2014 crude oil had a massive drop. Looking ...
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1answer
248 views
How can the HKMA peg the Hong Kong dollar at 7.8 HKD/USD for so long?
A lot of pegged exchange rate systems don't stay pegged for so long (e.g. because the central bank run out of reserves to maintain their values)
So far I understand that the HKD is 100% backed by the ...
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3answers
68 views
How to estimate long term exchange rate?
I'am looking for a book or paper that explain (in a theoretical and empirical way) how to estimate the long-run exchange rate for a country. Could someone suggest me one?
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4answers
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In this 3-way currency exchange, who loses, and by how much?
Let's say, hypothetically, we have the following imbalanced exchange rates:
1USD = 1.2EUR
1.2EUR = 1000 JPY
1000 JPY = 1.5 USD
Let's say person A starts off with 1 USD, buys 1.2 EUR from B, then ...
