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American Economic Review Vol. 100 No. 1 2010

Financial Exchange Rates and International Currency Exposures

Philip R. Lane1; Jay C. Shambaugh2

1 Institute for International Integration Studies, Department of Economics, Trinity College, Dublin 2, Ireland, and Center for Economic Policy Research. · 2 Economics Department, Dartmouth College, 309 Rockefeller Hall, Hanover, NH 03755, and National Bureau of Economic Research.

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Abstract

In order to gain a better empirical understanding of the international financial implications of currency movements, 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 and that our currency measures have 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 redistributions. Further, we show that many developing countries have substantially reduced their negative foreign currency positions over the last decade. (F31, F32, G15)

DOI
10.1257/aer.100.1.518
Volume
100
Issue
1
Pages
518-540
Language
en
Sources
bibtex:phds-export.bib crossref openalex

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