Financial Exchange Rates and International Currency Exposures

Philip Lane and Jay Shambaugh

No 13433, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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.

JEL-codes: F31 F32 (search for similar items in EconPapers)
Date: 2007-09
New Economics Papers: this item is included in nep-cba, nep-ifn and nep-mon
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (51)

Published as Philip R Lane & Jay C Shambaugh, 2007. "Financial exchange rates and international currency exposures," CGFS Papers chapters, in: Bank for International Settlements (ed.), Research on global financial stability: the use of BIS international financial statistics, volume 29, pages 90-127 Bank for International Settlements.
Published as Philip R. Lane & Jay C. Shambaugh, 2010. "Financial Exchange Rates and International Currency Exposures," American Economic Review, American Economic Association, vol. 100(1), pages 518-40, March.

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Related works:
Journal Article: Financial Exchange Rates and International Currency Exposures (2010)
Working Paper: Financial exchange rates and international currency exposures (2008)
Chapter: Financial exchange rates and international currency exposures (2007)
Working Paper: Financial Exchange Rates and International Currency Exposures (2007)
Working Paper: Financial Exchange Rates and International Currency Exposures (2007)
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