Download or read book Consumption Risk Sharing and the Real Exchange Rate written by Michael B. Devereux and published by . This book was released on 2011 with total page 0 pages. Available in PDF, EPUB and Kindle. Book excerpt: A basic prediction of effcient risk-sharing is that relative consumption growth rates across countries or regions should be positively related to real exchange rate growth rates across the same areas. We investigate this hypothesis, employing a newly constructed multi-country and multi-regional data set. Within countries, we find signifcant evidence for risk sharing: episodes of high relative regional consumption growth are associated with regional real exchange rate depreciation. Across countries however, the association is reversed: relative consumption and real exchange rates are negatively correlated. We identify this failure of risk sharing as a border effect. We find that the border effect is substantially (but not fully) accounted for by nominal exchange rate variability. We then ask whether standard open economy macro models can explain these features of the data. We argue that they cannot. To explain the role of the nominal exchange rate in deviations from cross country consumption risk sharing, it is necessary to combine multiple sources of shocks, ex-ante price setting, and incomplete financial markets.
Download or read book Consumptionrisk sharing and the real exchange rate why does the nominal exchange rate make such a difference written by Michael B. Devereux and published by . This book was released on 2011 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: A basic prediction of effcient risk-sharing is that relative consumption growth rates across countries or regions should be positively related to real exchange rate growth rates across the same areas. We investigate this hypothesis, employing a newly constructed multi-country and multi-regional data set. Within countries, we find signifcant evidence for risk sharing: episodes of high relative regional consumption growth are associated with regional real exchange rate depreciation. Across countries however, the association is reversed: relative consumption and real exchange rates are negatively correlated. We identify this failure of risk sharing as a border effect. We find that the border effect is substantially (but not fully) accounted for by nominal exchange rate variability. We then ask whether standard open economy macro models can explain these features of the data. We argue that they cannot. To explain the role of the nominal exchange rate in deviations from cross country consumption risk sharing, it is necessary to combine multiple sources of shocks, ex-ante price setting, and incomplete financial markets.
Download or read book Consumptiom Risk sharing and the Real Exchange Rate why Does the Nominal Exchange Rate Make Such a Difference written by Michael B. Devereux and published by . This book was released on 2011 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Consumption and Real Exchange Rates in Professional Forecasts written by Michael B. Devereux and published by . This book was released on 2010 with total page 54 pages. Available in PDF, EPUB and Kindle. Book excerpt: Standard models of international risk sharing with complete asset markets predict a positive association between relative consumption growth and real exchange-rate depreciation across countries. The striking lack of evidence for this link the consumption/real-exchange-rate anomaly or Backus-Smith puzzle - has prompted research on risk-sharing indicators with incomplete asset markets. That research generally implies that the association holds in forecasts, rather than realizations. Using professional forecasts for 28 countries for 1990-2008 we find no such association, thus deepening the puzzle. Independent evidence on the weak link between forecasts for consumption and real interest rates suggests that the presence of 'hand-to-mouth' consumers may help to resolve the anomaly.
Download or read book Consumption Dynamics and Real Exchange Rates written by Morten O. Ravn and published by . This book was released on 2001 with total page 48 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Borders and Nominal Exchange Rates in Risk sharing written by Michael B. Devereux and published by . This book was released on 2013 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book International Risk sharing and the Exchange Rate written by Michael B. Devereux and published by . This book was released on 2001 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book International Risk Sharing is Better Than You Think or Exchange Rates are Much Too Smooth written by Michael W. Brandt and published by . This book was released on 2001 with total page 52 pages. Available in PDF, EPUB and Kindle. Book excerpt: Exchange rates depreciate by the difference between the domestic and foreign marginal utility growths. Exchange rates vary a lot , as much as 10% per year. However, equity premia imply that marginal utility growths vary much more, by at least 50% per year. This means that marginal utility growths must be highly correlated across countries -- international risk sharing is better than you think. Conversely, if risks really are not shared internationally, exchange rates should vary more than they do -- exchange rates are much too smooth. We calculate an index of international risk sharing that formalizes this intuition in the context of both complete and incomplete capital markets. Our results suggest that risk sharing is indeed very high across several pairs of countries.
Download or read book Exchange rate determination risk sharing and the asset market view written by Craig Burnside and published by . This book was released on 2012 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt: Recent research in international finance has equated changes in real exchange rates with differences between the marginal utility growths of representative agents in different economies. The asset market view of exchange rates, encapsulated in this equation, has been used to gain insights into exchange rate determination, foreign exchange risk premia, and international risk sharing. We argue that, in fact, this equation is of limited usefulness. By itself, the asset market view does not identify the economic mechanism that determines the exchange rate. It only holds under complete markets, and even then, it does not generally allow us to identify the marginal utility growths of distinct agents. Moreover, if we allow for incomplete asset markets, measures of agents' marginal utility growths, and international risk sharing, cannot be based on asset market and exchange rate data alone. Instead, we argue that in order to explain how exchange rates are determined, it is necessary to make specific assumptions about preferences, goods market frictions, the assets agents can trade, and the nature of endowments or production.
Download or read book Handbook of International Economics written by Gita Gopinath and published by Elsevier. This book was released on 2014-02-22 with total page 773 pages. Available in PDF, EPUB and Kindle. Book excerpt: What conclusions can be drawn from recent advances in international trade and international macroeconomics? New datasets, theoretical models, and empirical studies have resulted in fresh questions about the world trade and payment system. These chapters--six on trade and six on international macroeconomics--reveal the richness that researchers have uncovered in recent years. The chapters on foreign trade present, among other subjects, new integrated multisector analytical frameworks, the use of gravity equations for the estimation of trade flows, the role of domestic institutions in shaping comparative advantage, and international trade agreements. On international macroeconomics, chapters explore the relation between exchange rates and other macroeconomic variables; risk sharing, allocation of capital across countries, and current account dynamics; and sovereign debt and financial crises. By addressing new issues while enabling deeper and sharper analyses of old issues, this volume makes a significant contribution to our understanding of the global economy. Systematically illuminates and interprets recent developments in research on international trade and international macroeconomics Focuses on newly developing questions and opportunities for future research Presents multiple perspectives on ways to understand the global economy
Download or read book Exchange Rate Volatility Trade and Capital Flows Under Alternative Exchange Rate Regimes written by Piet Sercu and published by Cambridge University Press. This book was released on 2000-06-19 with total page 176 pages. Available in PDF, EPUB and Kindle. Book excerpt: Sercu and Uppal examine volatility of exchange rates in the context of dynamic general equilibrium models.
Download or read book Risk Sharing and Real Exchange Rates written by Yavuz Arslan and published by . This book was released on 2017 with total page pages. Available in PDF, EPUB and Kindle. Book excerpt:
Download or read book Incomplete Consumption Risk Sharing and Currency Risk Premiums written by Sergei Sarkissian and published by . This book was released on 2015 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: This article studies the impact of imperfect consumption risk sharing across countries on the formation of time-varying risk premiums in the foreign exchange market and on their cross-sectional differences. These issues are addressed within the framework of the Constantinides and Duffie (1996) model applied to a multi-country world. The paper shows that the cross-country variance of consumption growth rates is counter-cyclical and that this feature of consumption data is mildly helpful for currency pricing. While the new model does not fully account for the forward premium anomaly, it is able to generate currency risk premiums at relatively low values of risk aversion and provide certain explanatory power for cross-sectional differences in currency returns.
Download or read book Consumption Smoothing and Exchange Rate Volatility written by Mr.Bart Turtelboom and published by International Monetary Fund. This book was released on 1995-11-01 with total page 56 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper analyzes exchange rate behavior in a model where consumers trade goods to diversify shocks to their income. A model with traded and nontraded goods is simulated in a multilateral context based upon historical output correlations for the period 1970–92. Simulation results indicate that the observed volatility of multilateral real exchange rates for the United States, Germany and Japan is not inconsistent with exchange rate volatility implied by consumption-smoothing behavior.
Download or read book Real Exchange Rate Levels Productivity and Demand Shocks written by Menzie David Chinn and published by International Monetary Fund. This book was released on 1997-05-01 with total page 33 pages. Available in PDF, EPUB and Kindle. Book excerpt: We investigate the long-run relationship between the real exchange rate, traded and nontraded productivity levels, and government spending for 14 OECD countries, using recently developed panel cointegration tests. The results indicate that under certain assumptions it is easier to detect cointegration in panel data than in the available time series; moreover, the rate of reversion to long-run equilibrium is estimated with greater precision. Using the model augmented by oil prices, we find that in 1991 (the last year productivity data are available) there is less overvaluation of the U.S. dollar than that implied by a naive version of purchasing power parity.
Download or read book When and Why Worry About Real Exchange Rate Appreciation The Missing Link Between Dutch Disease and Growth written by International Monetary Fund and published by International Monetary Fund. This book was released on 2010-12-01 with total page 34 pages. Available in PDF, EPUB and Kindle. Book excerpt: We review the literature on Dutch disease, and document that shocks that trigger foreign exchange inflows (such as natural resource booms, surges in foreign aid, remittances, or capital inflows) appreciate the real exchange rate, generate factor reallocation, and reduce manufacturing output and net exports. We also observe that real exchange rate misalignment due to overvaluation and higher volatility of the real exchange rate lower growth. Regarding the effect of undervaluation of the exchange rate on economic growth, the evidence is mixed and inconclusive. However, there is no evidence in the literature that Dutch disease reduces overall economic growth. Policy responses should aim at adequately managing the boom and the risks associated with it.
Download or read book Real Exchange Rate Volatility and Economic Openness written by Harald Hau and published by . This book was released on 2000 with total page 46 pages. Available in PDF, EPUB and Kindle. Book excerpt:
