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Jel Classification:F31 

Working Paper
Missing Import Price Changes and Low Exchange Rate Pass-Through

A large body of empirical work has found that exchange rate movements have only modest effects on inflation. However, the response of an import price index to exchange rate movements may be underestimated because some import price changes are missed when constructing the index. We investigate downward biases that arise when items experiencing a price change are especially likely to exit or to enter the index. We show that, in theoretical pricing models, entry and exit have different implications for the timing and size of these biases. Using Bureau of Labor Statistics (BLS) microdata, we ...
International Finance Discussion Papers , Paper 1040

The emerging market economies in times of taper-talk and actual tapering

The emerging market economies (EME) experienced financial distress during two recent periods, both linked to the prospect of the Federal Reserve starting to slow its asset purchases. This policy change was expected to reverse the capital flows directed to the EME. Despite this aggregate effect, a closer analysis shows that there were significant differences across the EME during the time when talk of the upcoming taper began and the period when the policy was implemented. The author makes use of the literature on currency crises to analyze the different cross-country responses and to identify ...
Current Policy Perspectives , Paper 14-6

Working Paper
Investment and trade patterns in a sticky-price, open-economy model

This paper develops a tractable two-country DSGE model with sticky prices la Calvo (1983) and local-currency pricing. We analyze the capital investment decision in the presence of adjustment costs of two types, the capital adjustment cost (CAC) specification and the investment adjustment cost (IAC) specification. We compare the investment and trade patterns with adjustment costs against those of a model without adjustment costs and with (quasi-) flexible prices. We show that having adjustment costs results into more volatile consumption and net exports, and less volatile investment. We ...
Globalization Institute Working Papers , Paper 28

Gender differences in the labor market effects of the dollar

Although the dollar has been shown to influence the expected wages of workers, the analysis to date has focused on the male workforce. We show that exchange rate fluctuations also have important implications for women's wages. The dominant wage effects for women?like those for men?arise at times of job transition. Changes in the value of the dollar can cause the wage gap between women who change jobs and women who stay on in their jobs to expand or contract sharply, with the most pronounced effects occurring among the least educated women and women in highly competitive manufacturing ...
Staff Reports , Paper 121

Working Paper
Foreign exchange predictability during the financial crisis: implications for carry trade profitability

In this paper, we study the effectiveness of carry trade strategies during and after the financial crisis using a flexible approach to modeling currency returns. We decompose the currency returns into multiplicative sign and absolute return components, which exhibit much greater predictability than raw returns. We allow the two components to respond to currency-specific risk factors and use the joint conditional distribution of these components to obtain forecasts of future carry trade returns. Our results suggest that the decomposition model produces higher forecast and directional accuracy ...
FRB Atlanta Working Paper , Paper 2015-6

Working Paper
Real Exchange Rates and Primary Commodity Prices

In this paper, we show that a substantial fraction of the volatility of real exchange rates between developed economies such as Germany, Japan, and the United Kingdom against the US dollar can be accounted for by shocks that affect the prices of primary commodities such as oil, aluminum, maize, or copper. Our analysis implies that existing models used to analyze real exchange rates between large economies that mostly focus on trade between differentiated ?nal goods could benefit, in terms of matching the behavior of real exchange rates, by also considering trade in primary commodities.
Working Papers , Paper 743

Working Paper
An Analysis of the Literature on International Unconventional Monetary Policy

This paper evaluates the literature on international unconventional monetary policies (UMP). Introducing market segmentation, limits-to-arbitrage, and time-consistent policy in standard models permits a theoretical role for UMP. Empirical studies provide compelling evidence that UMP influenced international asset prices and tail-risk in the desired manner. Calibrated modeling and vector autoregressive (VAR) exercises imply that these policies also improved macroeconomic outcomes. We assess the recent debate on the empirical evidence and discuss central bank assessments of UMP. Despite ...
Working Papers , Paper 2016-021

Working Paper
A sentiment-based explanation of the forward premium puzzle

This paper presents a sentiment-based explanation of the forward premium puzzle. Agents over- or underestimate the growth rate of the economy. All else equal, when perceived domestic growth is higher than perceived foreign growth, the domestic interest rate is higher than the foreign interest rate. At the same time, an econometrician would expect an increase in the home currency value. Together, the model with investor misperception can account for the forward premium puzzle.> ; In addition, it helps explain the low correlation of consumption growth differentials and exchange rate growth and ...
Globalization Institute Working Papers , Paper 90

Journal Article
Treasury and federal reserve foreign exchange operations

During the third quarter of 2001, the dollar depreciated 7.3 percent against the euro and 4.1 percent against the yen. On a trade-weighted basis, the dollar ended the quarter 2.6 percent lower. Economic data released even before the terrorist attacks on September 11 suggested that the U.S. economic slowdown would likely be more protracted than previously expected, which generally weighed on the dollar. The attacks heightened pre-existing concerns about the weakness of the U.S. economy and lent further momentum to the general trends that prevailed earlier in the quarter. The U.S. monetary ...
Federal Reserve Bulletin , Volume 87 , Issue Dec

Working Paper
Accounting for persistence and volatility of good-level real exchange rates: the role of sticky information

Volatile and persistent real exchange rates are observed not only in aggregate series but also on the individual good level data. Kehoe and Midrigan (2007) recently showed that, under a standard assumption on nominal price stickiness, empirical frequencies of micro price adjustment cannot replicate the time-series properties of the law-of-one-price deviations. We extend their sticky price model by combining good specific price adjustment with information stickiness in the sense of Mankiw and Reis (2002). Under a reasonable assumption on the money growth process, we show that the model fully ...
Globalization Institute Working Papers , Paper 07


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