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Working Paper
How successful is the G7 in managing exchange rates?
Fratzscher, Marcel (2009)
The paper assesses the extent to which the Group of Seven (G7) has been successful in its management of major currencies since the 1970s. Using an event-study approach, the paper finds evidence that the G7 has been overall effective in moving the U.S. dollar, yen and euro in the intended direction at horizons of up to three months after G7 meetings, but not at longer horizons. While the success of the G7 is partly dependent on the market environment, it is also to a significant degree endogenous to the policy process itself. The findings indicate that the reputation and credibility of the G7, ...
Globalization Institute Working Papers , Paper 24

Report
Time variation in asset price responses to macro announcements
Grisse, Christian; Goldberg, Linda S. (2013-08-01)
Although the effects of economic news announcements on asset prices are well established, these relationships are unlikely to be stable. This paper documents the time variation in the responses of yield curves and exchange rates using high-frequency data from January 2000 through August 2011. Significant time variation in news effects is present for those announcements that have the largest effects on asset prices. The time variation in effects is explained by economic conditions, including the level of policy rates at the time of the news release, and risk conditions: Government bond yields ...
Staff Reports , Paper 626

Working Paper
Can risk explain the profitability of technical trading in currency markets?
Famiglietti, Matthew; Ivanova, Yuliya; Neely, Christopher J.; Weller, Paul A. (2020-06-12)
Academic studies show that technical trading rules would have earned substantial excess returns over long periods in foreign exchange markets. However, the approach to risk adjustment has typically been rather cursory. We examine the ability of a wide range of models: CAPM, quadratic CAPM, downside risk CAPM, Carhart’s 4-factor model, the C-CAPM, an extended C-CAPM with durable consumption, Lustig-Verdelhan (LV) carry-trade factor model, and models including macroeconomic factors, and foreign exchange volatility, skewness and liquidity, to explain these technical trading returns. No model ...
Working Papers , Paper 2014-033

Working Paper
In Search of Dominant Drivers of the Real Exchange Rate
Miyamoto, Wataru; Nguyen, Thuy Lan; Oh, Hyunseung (2022-04-13)
We uncover the major drivers of each macroeconomic variable and the real exchange rate at the business cycle frequency in G7 countries. In each country, the main drivers of key macro variables resemble each other and none of those account for a large fraction of the real exchange rate variances. We then estimate the dominant driver of the real exchange rate and find that (i) the shock is largely orthogonal to macro variables and (ii) the shock generates a significant deviation of the uncovered interest parity condition. We analyze international business cycle models that are consistent with ...
Working Paper Series , Paper 2022-09

Working Paper
Managing Macroeconomic Fluctuations with Flexible Exchange Rate Targeting
Mihov, Ilian; Heipertz, Jonas; Santacreu, Ana Maria (2022-01-16)
We show that a monetary policy rule that uses the exchange rate to stabilize the economy can outperform a Taylor rule in managing macroeconomics fluctuations and in achieving higher welfare. The differences between the rules are driven by: (i) the paths of the nominal exchange rate and the interest rate under each rule and (ii) external habits in consumption, which leads to deviations from uncovered interest parity. These differences are larger in economies, which are very open, which are more exposed to foreign shocks, or in which domestic and foreign goods are highly substitutable.
Working Papers , Paper 2017-028

Working Paper
Geopolitics and the U.S. Dollar's Future as a Reserve Currency
Weiss, Colin (2022-10)
I survey the role of geopolitics and sanctions risk in shaping the U.S. dollar's status as the primary currency used for international reserves. Without changes in the economic incentives for holding FX reserves in U.S. dollar assets, an increased threat of sanctions is unlikely to drastically reduce the dollar share of FX reserves. Currently, around three-quarters of foreign government holdings of safe U.S. assets are by countries with some military tie to the U.S. Even a reduced reliance on the U.S. dollar for trade invoicing and debt denomination by a large bloc of countries less ...
International Finance Discussion Papers , Paper 1359

Discussion Paper
The Perplexing Co-Movement of the Dollar and Oil Prices
Klitgaard, Thomas; Wang, Linda; Pesenti, Paolo (2019-01-09)
Oil prices and the exchange rate of the U.S. dollar against the euro have often moved together over the past decade or so, but it is not at all clear why they should. The standard interpretation of oil price movements as a response to global oil supply and demand shifts makes it unlikely that the correlation stems from the dollar’s effect on oil prices. In addition, the notorious difficulty in predicting currency moves makes it hard to believe that oil prices dictate the dollar’s value. Improbability aside, however, in this blog post we document the tendency for the value of the dollar to ...
Liberty Street Economics , Paper 20190109

Working Paper
Oil Prices, Exchange Rates and Interest Rates
Kilian, Lutz; Zhou, Xiaoqing (2019-11-27)
There has been much interest in the relationship between the price of crude oil, the value of the U.S. dollar, and the U.S. interest rate since the 1980s. For example, the sustained surge in the real price of oil in the 2000s is often attributed to the declining real value of the U.S. dollar as well as low U.S. real interest rates, along with a surge in global real economic activity. Quantifying these effects one at a time is difficult not only because of the close relationship between the interest rate and the exchange rate, but also because demand and supply shocks in the oil market in turn ...
Working Papers , Paper 1914

Journal Article
New summary measures of the foreign exchange value of the dollar
Leahy, Michael P. (1998-10)
The multilateral trade-weighted index of the foreign exchange value of the U.S. dollar against the currencies of the other countries in the Group of Ten (G-10), developed at the Federal Reserve Board in 1971, has played an important role in staff analysis of foreign influences on the U.S. economy for more than twenty-five years. However, changes in international trading relationships and in the structure of international financial markets have led to increased interest in the currencies of U.S. trading partners outside the G-10 countries. Furthermore, the establishment of the European ...
Federal Reserve Bulletin , Volume 84 , Issue Oct

Working Paper
Overborrowing, Underborrowing, and Macroprudential Policy
Arce, Fernando; Bengui, Julien; Bianchi, Javier (2023-05)
In this paper, we revisit the scope for macroprudential policy in production economies with pecuniary externalities and collateral constraints. We study competitive equilibria and constrained-efficient equilibria and examine the extent to which the gap between the two depends on the production structure and the policy instruments available to the planner. We argue that macroprudential policy is desirable regardless of whether the competitive equilibrium features more or less borrowing than the constrained-efficient equilibrium. In our quantitative analysis, macroprudential taxes on borrowing ...
Working Paper Series , Paper WP 2023-20

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