Currency Manipulation

Weithing Zhang, Thomas Mertens and Tarek Hassan
Additional contact information
Weithing Zhang: University of Chicago
Thomas Mertens: New York University

No 401, 2014 Meeting Papers from Society for Economic Dynamics

Abstract: Many central banks manage the stochastic behavior of their currencies' exchange rates by imposing pegs relative to a target currency. We study the effects of such currency manipulation in a multi-country model of exchange rate determination with endogenous capital accumulation. We find that the imposition of an exchange rate peg relative to a given target currency increases the volatility of consumption in the target country and decreases the volatility of the target currency's exchange rate relative to all other currencies in the world. In addition, currency pegs affect the formation of capital across sectors and countries. For example, an economically smaller country (such as Saudi Arabia) pegging its currency to an economically large country (such at the U.S.) decreases capital accumulation in the larger country and increases its real and nominal interest rate

Date: 2014
New Economics Papers: this item is included in nep-cba, nep-dge, nep-mon and nep-opm
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Citations: View citations in EconPapers (2)

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Related works:
Working Paper: Currency Manipulation (2017)
Working Paper: Currency Manipulation (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed014:401

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