Economics Topics
Economics Topics
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Exchange Rates
The dollar/euro exchange rate has followed an interesting cycle since the introduction of the euro in 1999.
In the wake of the of yesterday's turmoil in financial markets, there was growing talk of the possibility that the Fed may cut interest rates to provide a boost to the economy. Surprisingly, almost no one seemed to note the most obvious way that a rate cut would boost the ...
US$ Index - 30 Minute Chart
Readers Question: Do you have any predictions for the AUS$ against the GBP in 2009? Thanks
Both, the Australian and UK economy faces a year of uncertainty and sluggish growth. It is really a question of which will be weakest. However, I think the Australian economy and currency will be hit ...
Dani Rodrik wonders if the era of export-led growth as a path to economic development is coming to an end:
Is Export Led Growth Passé?, by Dani Rodrik, Project Syndicate: For five decades, developing countries that managed to develop competitive export industries have been rewarded with astonishing growth rates: Taiwan and ...
Once the market believes a story, however absurd, the herd instinct guarantees that everybody follows in due course. The logic-defying story at the moment is that the globlal crisis will hit the eurozone much worse than the US economy. The euro yesterday lost further ground and fell to a ...
In a recent speech, Fed Chair Ben Bernanke highlighted the difficulty of obtaining a meaningful gauge for future commodity price movement, noting the inadequacy of forecasts based on commodity futures signals. Looking at exchange rates may be a promising alternative. ...
A random walk is (in)famously a better predictor of short-term exchange rates than models emphasising economic fundamentals. This column explains recent literature that has addressed the puzzle by considering an asset-pricing approach. Fundamentals (and expectations of them) are still relevant.
Full Article: Are exchange rates unpredictable? ...
Exporting industries loathe real exchange rate appreciations that hurt their ability to sell abroad. But this column says that such shocks are also good news, as they may trigger industry restructuring and spur productivity growth.
Full Article: When exchange rate appreciations ...
The huge amount of US Treasury purchases which has sent that ...
Why is the trade deficit, even taking out oil, so large when the dollar is so weak? Maybe some insights can be gleaned from productivity measures.
The U.S. dollar marched higher again on Friday, continuing a development that could ease inflationary pressures but also could slow a U.S. export boom.
The implications of reduced export demand, however, we left for Dean Baker:
The over-valuation of the ...
This is what the headlines of the news articles noting the recent rise in the dollar should have said. Instead, we were told things like "Dollar's Rise Could Dampen Inflation," and "Dollar Rallies Against Euro, Pound on Concerns of Global Slowdown."
The over-valuation of the dollar has been of ...
International Monetary Fund officials said the peg of the Saudi riyal to the U.S. dollar has been a great “anchor” for the Persian Gulf but recommended that Saudi officials consider alternative exchange rate regimes if inflation worsens.
“Most directors considered the benefits of maintaining the peg to outweigh the cost ...
The euro fell the most in almost eight years, pushing the currency to a six-month low against the U.S. dollar, as traders pared bets the European Central Bank will raise interest rates ...
How did the adoption of the euro boost international trade? This column analyses microeconomic evidence from France, showing that fewer firms now export, but those that do export more products to more destinations in Europe.
Full Article: The microeconomic impacts of the euro: Evidence ...
One year after the siege in money markets began, the Federal Reserve’s ground-breaking response has paved the way for the dollar’s biggest rally in years.
From outsized rate cuts — 1.25 percentage points alone in January — to massive liquidity injections and speeches directly addressing the greenback, the ...
Currency conversion is so easy these days. More or less, one US dollar is worth the same as a Canadian dollar, an Australian dollar, a Swiss franc, one hundred yen, one thousand won, and half a British pound.
The latest milestone: a dollar is now worth less than ten ...
This Economic Letter from the Dallas Fed discusses the relationship between exchange rates and economic fundamentals. Can fundamentals predict exchange rate movements? It depends upon how the question is asked, e.g. how far into the future the forecasts extend, but it doesn't look promising.
What about the other way around, ...
Treasury Secretary Henry Paulson said he discussed the situation of global currencies with European Central Bank President Jean-Claude Trichet.
Paulson“We talked about currencies, not just the dollar and the euro, but currencies on a ...
Barry Eichengreen, via Brad DeLong:
There are now fifty countries in the world with inflation rates over 10%. It's like the early 1930s, but just reverse the sign: back then everybody with their currency linked to the dollar imported deflation; now everybody is importing inflation.
...
Let's say it another 200 billion times, the fact that oil is priced in dollars makes no difference whatsoever in terms of the price that people in the U.S. or anywhere else pay for oil. When the dollar falls, the price of oil goes up in dollars, the price of ...
The NYT tells us that "many economists say [the falling dollar] has helped drive up oil and food prices." It doesn't tell us how or give us any names of economists who hold this view.
Again, this one is not very complex -- suppose that shoe prices were falling. Then ...
The NYT told readers today that the European Central Bank (ECB) might raise interest rates because it is concerned about a strong dollar. It also told readers that "European leaders are increasingly impatient about the weak dollar, which is hurting their economies because Europe depends more on exports than ...
The Federal Reserve Chairman is chatting up the dollar these days. On two separate occasions this week, Ben Bernanke made some extraordinary comments about inflation and the greenback. Extraordinary, that is, for a sitting Fed chairman.
Typically, the tired remarks about a strong dollar being in the best interests of the ...
Ben Bernanke made it clear that the Fed does not want to see a weaker dollar, which he blames for the rise in inflation (of course, his own monetary policy had nothing to do with that). The FT made the point that it was highly unusual ...
Fed Chairman Ben Bernanke’s speech Tuesday emphasizing the inflation risk posed by the weak dollar may mark a turning point in Fed rhetoric on currencies away from their positive effect on the economy.
In congressional testimony in February Bernanke said “part of the effect of [dollar] depreciation ...
The ECB forced Slovakia to appreciate their currency on May 29, half a year before the country is about to join the euro area, reports Der Standard. One euro costs now 30,126 koruna, which is 17.65% less than the day before. According to central bank officials ...
Martin Feldstein says to expect more rapid dollar depreciation in coming years:
The US dollar hits an oil slick, by Martin Feldstein, Project Syndicate [alt]: The rapid rise in the price of oil and the sharp depreciation of the dollar are two of the ...
I really don't have a clue on that one, but that's the view that the NYT attributed to the French finance minister.
Let's see a low dollar makes foreign goods imported into the United States more expensive. It also make U.S. exports cheaper for people living in foreign countries. ...
Finally! A good old-fashioned emerging-market currency crisis! Well, possibly, anyway. The WSJ headline says it all:
Argentines Rush to Buy Dollars Amid Fear of a Financial Crisis
This, if it happens, will turn out to be the most-forecasted crisis in the history of emerging markets. Argentina's heterodox economic ...
The Bush administration is leading the international effort to put a floor under the falling dollar.
The conventional wisdom holds that the Europeans, worried that the mighty euro is making their companies less competitive, prodded Treasury Secretary Henry Paulson and other group of seven finance ministers last month ...
The European Commissions report on the future of the euro area has not been getting the deserved attention in European newspapers, which is why we are (unusually) running a special edition summarising, and commenting on, some of its key recommendations.
The others big news yesterday was the now ...
The European Central bank is keeping a close eye on the recent sharp fluctuations in exchange rates, ECB President Jean-Claude Trichet said Thursday. “We’re concerned about the possible implications for financial and macroeconomic stability,” Trichet said, while speaking on the sidelines of a statistics conference in Frankfurt.
He added ...
With the euro having jumped above the mark of 1.60 $ for the first time in history, recent macroeconomic data shows that the strong currency is taking its toll on the continental European economy. The advance manufacturing PMI for the euro-area for April published today fell by 1.2 points to ...
Jean-Claude Juncker, the EU's 'Mr Euro', has given the clearest warning to date that the world authorities may take action to halt the collapse of the dollar and undercut commodity speculation by hedge funds.
"I don't have the impression that ...
According to this article in the Wall Street Journal, the G7 have decided to complain about the dollar's poor performance.
That is in effect what Federal Reserve Board Chairman Ben Bernanke and Treasury Secretary Henry Paulson said when they announced they will intervene in currency markets to keep the dollar from falling further. When the dollar falls, it benefits workers who work in industries subject to international competition (e.g. manufacturing ...
The pound hit a new record low against the euro, when it traded at 80 pence to the euro. Frankfurter Allgemeine reports that the latest bout of speculation was due to speculation that the Bank of England, which has just cut interest rates by a ...
Kenneth Rogoff says it's a good thing the Euro isn't "fully ready for primetime":
Has the moment come to replace the US dollar?, by Kenneth Rogoff, Project Syndicate: As the world's financial leaders meet in Washington this month at the ... International Monetary Fund annual ...
Foreign central banks aren’t dumping dollars, according to new research by Win Thin, senior currency strategist at Brown Brothers Harriman.
He notes that the Federal Reserve’s custodial holdings for foreign official accounts, which primarily represent holdings from Asian central banks, have risen $145 billion since the end of ...
My friend Barry Eichengreen, together with Marc Flandreau, has written a column in today’s Financial Times, that appears under the headline “Why the euro is unlikely to eclipse the dollar.” The body of the article is a claim that network externalities and tipping points are not ...
The euro may surpass the dollar in coming decades to become the leading international currency. This column summarises four major challenges that the euro must survive for that to come true.
Full Article: A long term perspective on the Euro
That's what USA Today told readers. It would be interesting if the article explained to readers how it made this determination.
In fact it seems rather evident that the over-valued dollar was a main cause of the country's economic ills. The high dollar is the main cause of a trade ...
And a bit on the IMF's revised forecast for the US.
From Reuters, "U.S.'s Paulson praises China on currency progress":
Martin Feldstein says we're fortunate, the decline in the dollar is coming at a good time:
The dollar is falling at the right time, by Martin Feldstein, Commentary, Financial Times: The dollar’s recent decline ... triggered numerous calls for exchange rate intervention. ... But intervention ...
Or maybe it's just the people who comment on its gyrations. A Reuters piece from today is a case in point:
Loonie slips on US economic outlook: The Canadian dollar slid lower against the U.S. dollar as investors were loath to bet on the currency, given Canada's heavy ...
In reality, of course, the US does not have a dollar policy – other than letting the market determine its value. The US government does not intervene in the foreign exchange market to support the dollar, and the Federal Reserve’s monetary policy certainly ...
Many have asked why. The answer centers around a dislike of the Euro and British Pound. So before proceeding with thoughts about flexibility, let's stop for ...
In the economic policy debate, Germans tend to extrapolate their current situation indiscriminately into the future. When the economy hardly grew at all in 2002 and 2003, German economists and journalists were quick to estimate potential growth to be "below 1 percent". Now, with exports having grown strongly over a ...
By the end of the week, the US price of oil had ...
We have been hearing a lot of anguished comment about the euro-dollar exchange rate. Some are calling for unilateral intervention in currency markets to stem the euro's rise, cuts in European interest rates to take some pressure away, and even a grand political initiative at the level ...
Meanwhile the prices of gold, oil, and other commodities ...
One of the world’s leading international economists explains how the euro could surpass the dollar as the premier international currency and examines the geopolitical implications of such a shift.
Full Article: 18 MAR The euro could surpass the dollar within ten years
Currently, net exports are one of the few bright spots in the US economy. As Krugman points out, this is the one area where monetary policy is proving effective: by driving down the value of the dollar, expenditure switching is being induced.
"We've taken quite a clear position on this in saying that a strong dollar is in our nation's interest".
Paulson can talk all he wants and it won't matter one iota until Bernanke starts ...
I think that President Bush has a good insight in focusing on long-term growth as a determinant of the dollar's path. In particular, I want to highlight the fact that the ...
Last weeks' news about the Eurogroup meeting and the ECB Board meeting revealed a clear rift between the political leaderships in the eurozone and the European Central Bank. For the first time since the euro started its race for ever new historical heights, all Finance Ministers of the Eurozone agreed ...
Michael Giberson
Out in west Texas you can still see the occasional old-style wind mill on a farm or ranch, dutifully pumping up water when the wind blows. A much more common sight these days is the new, sleek wind power generator. A combination of good fundamentals for wind ...
Europe suffered the collapse of a currency system when countries abandoned the gold-exchange standard in the 1930s. What lessons does that break-up offer for the euro today?
Full Article: What history says about the euro’s future
The Washington Post had a front page article telling readers that the "Weak Dollar Fuels China's Buying Spree Of U.S. Firms." The article then gave accounts of the various investments by Chinese individuals and corporations or its sovereign wealth fund.
There is one problem with the Post's story: the ...