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Working Paper
The Taylor rule and forecast intervals for exchange rates
This paper attacks the Meese-Rogoff (exchange rate disconnect) puzzle from a different perspective: out-of-sample interval forecasting. Most studies in the literature focus on point forecasts. In this paper, we apply Robust Semi-parametric (RS) interval forecasting to a group of Taylor rule models. Forecast intervals for twelve OECD exchange rates are generated and modified tests of Giacomini and White (2006) are conducted to compare the performance of Taylor rule models and the random walk. Our contribution is twofold. First, we find that in general, Taylor rule models generate tighter ...
Discussion Paper
Exchange rate pass-through into U.K. import prices: evidence from disaggregated data
In this paper we estimate the rate of exchange rate pass-through (ERPT) into U.K. import prices using disaggregated data at the SITC-2 and SITC-3 digit levels. We show that the ERPT varies at the disaggregate level. Because of this heterogeneity at the disaggregate level, the estimate of the ERPT using aggregate data is found substantially upward-biased in our U.K. data. The upward bias exaggerates the impact of exchange rate movements on the competitiveness of imported goods relative to domestically produced goods. Further, we investigate the source of the heterogeneity of the ERPT at the ...
Working Paper
Home bias, exchange rate disconnect, and optimal exchange rate policy
This paper examines how much the central bank should adjust the interest rate in response to real exchange rate fluctuations. The paper first demonstrates in a two-country Dynamic Stochastic General Equilibrium (DSGE) model, that the home bias in consumption is important to duplicate the exchange rate volatility and exchange rate disconnect documented in the data. When home bias is high, the shock to Uncovered Interest-rate Parity (UIP) can substantially drive up exchange rate volatility while leaving the volatility of real macroeconomic variables, such as GDP, almost untouched. The model ...
Journal Article
China's slowdown may be worse than official data suggest
To get a more accurate picture of China?s economy, economists examine other measures of activity that closely track growth but are less prone to political interference than output data. Industrial electricity consumption, a major production input, serves as such a proxy.
Journal Article
Why are exchange rates so difficult to predict?
A quarter-century quest hasn't found the elusive links between economic fundamentals and currency values. ; The U.S. dollar has been losing value against several major currencies this decade. Since 2001-02, the U.S. currency has fallen about 50 percent against the euro, 40 percent against the Canadian dollar and 30 percent against the British pound .
Journal Article
With reforms in China, time may correct U.S. current account imbalance
The U.S. current account deficit has deepened significantly since the late 1990s. This shortfall?the value of net exports of goods and services, international financial investment net income and transfer payments?was $803 billion at its peak in 2006, or 6 percent of U.S. gross domestic product (GDP). Conversely, China, Germany, Japan and the oil-exporting countries have been running current account surpluses that have risen substantially (Chart 1). This divergence has raised concerns among policymakers, economic researchers and private investors about whether these imbalances are sustainable ...
Journal Article
Durable goods and the collapse of global trade
Global trade has experienced a stunning collapse in the current recession, with the World Trade Organization estimating a decrease of roughly 9 percent in 2009--the biggest contraction since the Second World War. The swift decline caused substantial damage to the global economy, hitting Japan and other countries with large trade sectors especially hard. It also raised concerns that the trade collapse would worsen the global recession and delay recovery. ; Several factors contributed to the global trade collapse. However, the ultimate causes are tied to the global financial crisis that started ...
Journal Article
Asia recalls 1997 crisis as investors await Fed tapering
Asian economies now appear better positioned to deal with adverse external financial shocks.
Report
Gauging International Shocks and Their Implications
The Globalization and Monetary Policy Institute cosponsored a conference on ?International Linkages in a Globalized World and Implications for Monetary Policy? with the School of International Business Administration at Shanghai University of Finance and Economics (SHUFE) and Shanghai Institute of Finance and Law. The event was held at SHUFE on June 21?22.
Report
International Conference on Capital Flows and Safe Assets
From just after the Great Depression until the beginning of the 2007?09 financial crisis, the global financial system was relatively quiet, with no major calamity afflicting advanced economies. Although emerging markets periodically confronted crises, these events were usually limited to a small set of countries that tended to recover quickly. The devastating consequences of the financial crisis caught most policymakers and economists off guard. Policymakers and researchers from the U.S., China and Europe who studied triggers of the crisis gathered to discuss global financial industry ...