Financial exchange rates and international currency exposures
By: Philip Lane, Jay C. Shambaugh.
Contributors: Shambaugh, Jay C.; National Bureau of Economic Research.
Series: NBER working paper series -- no. 13433.; Working paper series (National Bureau of Economic Research) -- working paper no. 13433.
Publisher: National Bureau of Economic Research
Published: 2007
Place of publication: Cambridge, Mass
Language: eng
Number of pages: 52
Subjects: International finance -- Mathematical models
Description: Our goal in this project is to gain a better empirical understanding of the international financial implications of currency movements. To this end, we construct a database of international currency exposures for a large panel of countries over 1990-2004. We show that trade-weighted exchange rate indices are insufficient to understand the financial impact of currency movements. Further, we demonstrate that many developing countries hold short foreign-currency positions, leaving them open to negative valuation effects when the domestic currency depreciates. However, we also show that many of these countries have substantially reduced their foreign currency exposure over the last decade. Last, we show that our currency measure has high explanatory power for the valuation term in net foreign asset dynamics: exchange rate valuation shocks are sizable, not quickly reversed and may entail substantial wealth shocks.
Notes: "September 2007"

Includes bibliographical references (p. 38-41).

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