International Currency Exposure (CESifo Seminar Series)

Description

Issues in debates about foreign currency exposure—the denomination of liabilities or assets in foreign currency. The foreign currency denomination of contracts in international transactions can lead to international currency exposure at the country level with important economic and policy implications. When debts are denominated in foreign currency and revenues in domestic currency, exchange rate fluctuations can result in balance sheet effects for countries with either net asset or liability positions. Moreover, currency mismatch between assets and liabilities can be a cause for crises in developing and emerging economies. This book looks at the issues surrounding foreign currency exposure in today's increasingly integrated world economy. The contributors draw on cross-country as well as country-specific data. They consider international currency risk after the Swiss franc ended its one-sided peg with the euro, for example, and the foreign exchange positions of firms in Turkey and Russia. Other contributors take macroeconomic perspectives, examining the potential effects of exchange rate realignment, the pressure to appreciate on countries with current account surpluses, and the currency exposure in international trade. Finally, contributors consider the issue from finance and political economy perspectives, addressing the phenomenon of the forward premium puzzle and discussing geopolitical aspects ascending currencies. Contributors Fatih Altunok, Huseyin Aytug, Agustín S. Bénétrix, Jörg Breitung, Paul De Grauwe, Eiji Fujii, Peter Garber, Juann H. Hung, Signe Krogstrup, Philip R. Lane, Katja Mann, Arif Oduncu, Gunther Schnabl, Maria V. Sokolova, Cédric Tille Contents Series Foreword Introduction Note 1 Toward a Behavioral Theory of the Exchange Rate 1.1 Introduction 1.2 A Behavioral Model 1.3 Stochastic Simulation of the Model 1.4 Sensitivity Analysis 1.5 Numerical Analysis of Deterministic Dynamics 1.6 Sensitivity Analysis of the Deterministic Model 1.7 Why Crashes Occur 1.8 Conclusions Appendix: Numerical Values of the Parameters Used in the Base Simulation Notes References 2 Cross-Country Exposures to the Swiss Franc 2.1 Introduction 2.2 International Currency Exposures 2.3 Swiss Currency Exposures and Valuation Effects 2.4 Cross-Country Exposures to the Swiss Franc: Stylized Facts 2.5 Conclusions Appendix: Country List Data and Sources Notes References 3 On the Roles of Different Foreign Currencies in European Bank Lending 3.1 Introduction 3.2 Related Literature 3.3 Data and Stylized Facts 3.4 Econometric Analysis of Foreign Currency Lending 3.5 Conclusions Appendix: Data sources and definitions Notes References 4 Understanding Exchange Rate Exposure through Net Foreign Exchange Position Channel 4.1 Introduction 4.2 Literature Review 4.3 Data and Methodology 4.4 Results 4.5 Robustness 4.6 Conclusions Notes References 5 Strategic Currency Choice in International Trade 5.1 Introduction 5.2 Conceptual Framework and the Literature 5.3 Data 5.4 Methodology 5.5 Results 5.6 Conclusions Notes References 6 Probability of a Currency Crash and Postcrash Output Performance: Do Exchange Rate Regimes Matter? 6.1 Introduction 6.2 Methods of Identifying Currency Crashes and Measuring Output Performance 6.3 Causes and Effects of Currency Crises: A Synthesis of Theories in the Literature 6.4 Quantitative Analysis 6.5 Conclusions Appendix 1: Advanced vs. Emerging Market Economies Appendix 2: Dating and Severity of Crises and Preexisting Exchange Rate Systems Data Appendix: Definition of Variables and Sources of Data Notes References 7 Foreign Currency Denominated Assets and International Shock Absorption in Europe and East Asia 7.1 Introduction 7.2 A Negative Risk Premium Originating in Foreign Currency Denominated Assets 7.3 International Shock Absorption Channels 7.4 Empirical Evidence 7.5 Conclusions Appendix Notes References 8 External Debt and International Trade: Another Mismatch 8.1 Introduction 8.2 Currency Composition of External Debt 8.3 Fluctuations in Exchange Rates and Debt Burdens 8.4 Implications of the Debt–Trade “Mismatch” 8.5 Conclusions Appendix Sample Period Sample Countries Notes References 9 Assessing the Forward Premium Puzzle: A Factor-Augmented Panel Data Approach 9.1 Introduction 9.2 The Forward Premium Puzzle and the Risk Premium 9.3 A Simple CAPM Perspective 9.4 Factor-Augmented Panel Data Models 9.5 Empirical Analysis 9.6 Factor-Augmented Panel Data Regressions 9.7 Conclusions Notes References 10 The Geopolitics of Ascending Global Currencies 10.1 Summary of the Discussion 10.2 Which Currencies Are Ascending Global Currencies? 10.3 The Two Potentially Ascending Currencies 10.4 Three Grand Projects 10.5 Currencies as Geopolitical Tools: US Dollar as an Example 10.6 Open World vs. Closing Blocs 10.7 Reversing the Dynamic toward a Unified Global System Notes Contributors Index