Working Paper

Do China and oil exporters influence major currency configurations?

Abstract: This paper analyses the impact of the shift away from a U.S. dollar focus of systemically important emerging market economies (EMEs) on configurations between the U.S. dollar, the euro and the yen. Given the difficulty that fixed or managed U.S. dollar exchange rate regimes remain pervasive and reserve compositions mostly kept secret, the identification strategy of the paper is to analyse the market impact on major currency pairs of official statements made by EME policy-makers about their exchange rate regime and reserve composition. Developing a novel database for 18 EMEs, we find that such statements not only have a statistically but also an economically significant impact on the euro, and to a lesser extent the yen against the U.S. dollar. The findings suggest that communication hinting at a weakening of EMEs' U.S. dollar focus contributed substantially to the appreciation of the euro against the U.S. dollar in recent years. Interestingly, EME policy-makers appear to have become more cautious in their communication more recently. Overall, the results underscore the growing systemic importance of EMEs for global exchange rate configurations.

JEL Classification: E58; F30; F31; F36; G15;

Bibliographic Information

Provider: Federal Reserve Bank of Dallas

Part of Series: Globalization Institute Working Papers

Publication Date: 2009

Number: 25

Pages: 39 pages

Note: Published as: Fratzscher, Marcel and Arnaud Mehl (2009), "Do China and Oil Exporters Influence Major Currency Configurations?," Journal of Comparative Economics 37 (3): 335-358.