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A novel approach to modeling exchange rates is presented based on a set of models distinguished by the drivers of the rate and regime duration. The models are combined into a “meta model” using model averaging and non-nested hypothesis-testing techniques. The meta model accommodates periods of stability and slowly evolving or abruptly changing regimes involving multiple drivers. Estimated meta models for five exchange rates provide a compelling characterization of their determination over the last 40 years or so, identifying “phases” during which the influences from policy and financial market responses to news succumb to equilibrating macroeconomic pressures and vice versa.

This chapter conducts an event study of 30 quantitative easing (QE) announcements made by 21 central banks on daily government bond yields and bilateral US dollar exchange rates in March and April 2020, in the midst of the global financial turmoil triggered by the COVID-19 outbreak. The chapter also investigates the transmission of innovations to long-term interest rates in a standard GVAR model estimated with quarterly pre-COVID-19 data. The authors find that QE has not lost effectiveness in advanced economies and that its international transmission is consistent with the working of long-run uncovered interest rate parity and a large dollar shortage shock during the COVID-19 period. In emerging markets, the QE impact on bond yields is much stronger and its transmission to exchange rates is qualitatively different than in advanced economies. The GVAR evidence that the authors report illustrates the Fed’s pivotal role in the global transmission of long-term interest rate shocks, but also the ample scope for country-specific interventions to affect local financial market conditions, even after controlling for common factors and spillovers from other countries. The GVAR evidence also shows that QE interventions can have sizable real effects on output driven by a very persistent impact on long-term interest rates.

To study the determinants and effects of “Operational” exchange rate exposure resulting from the mismatch between cost and revenues of the firms by using data on 500 Indian firms.

We conduct detailed empirical analysis of the determinants of firm level exposure and their impact using panel regression techniques and conduct several robustness tests to confirm the validity of these results.

Among other factors, exchange rate volatility appears as a significant determinant of average firm level exposure with the direction of relationship supporting the presence of “Moral Hazard” in firm’s risk-taking behavior. Further large “operational” exposure is associated with significantly lower output growth, profitability, and capital expenditure during episodes of large currency depreciation at the firm level.

This paper leaves several questions to be answered. Further research is called for to explore the nature of distortions in the production process encouraged by exchange rate volatility and their impact on firm level productivity. Looking at the relationship between the use of financial and operational hedges is another fruitful area of future research.

Our results have important implications for policy makers worried about mitigating the impact of exogenous shocks. Implicit and explicit guarantees with regards to the value of exchange rate tend to raise the vulnerability of the economy to exchange rate shocks at same time that they encourage capital expenditures and possibly output growth during “normal” times. Our findings indicate that the policy makers must take into account the incentive effects of their intervention in foreign exchange markets.

Unlike the existing papers in the literature, we use a measure of “operational” currency exposure based on foreign currency revenues and costs of firms. In most of the existing papers the focus is on the mismatch between the currency denomination of assets and liabilities. Little attention has been paid to the currency mismatch between costs and revenues of the firms. Such “operational” mismatches are potentially equally important and deserve attention of policy makers and academics alike.

The authors evaluate financial stability and capital flows management objectives of capital controls in the context of four capital control events: removing or imposing controls on capital inflows and removing or imposing controls on capital outflows. The authors use synthetic control method to solve the endogeneity problem stemmed from the timing of capital control implementation. The authors find new evidence that capital controls are not consistently effective in reaching financial stability outcomes but are consistent in reaching capital flows management outcomes. The authors compare our results to estimates using difference-in-difference (DID) and carry out placebo analysis. Finally, we use synthetic DID to correct for the parallel trend bias and show that the results still hold.

The current work studies the cause, process, and effects of financial reform in 10 countries in Eastern Asia for the period of 1993–2002, especially focusing upon comparisons between pre- and post-Asia financial crisis. This study utilizes Mann–Whitney U test and Intervention Analysis to explore the different effects of the changes of GDP, stock index, exchange rate, CPI index, and the changes of the unemployment rate before and after the Asia financial crisis. It shows the consistent relationship between stock index, exchange rate, CPI index, and the changes of unemployment rate.

The aim of this chapter is to provide equilibrium exchange rates values for a large set of currencies and to study the adjustment process of observed exchange rates toward these levels by paying special attention to emerging Asian countries. Relying on panel smooth transition regression models, we show that real exchange rate dynamics in the long run are nonlinear for emerging Asian countries, and linear for the G7 currencies. Especially, there exists an asymmetric behavior of the real exchange rate when facing an over- or undervaluation, the adjustment speed being higher in the case of undervaluation in Asia. Although this result may be explained by the international pressure to limit undervaluation, the undervaluation may still persist over time, as has been observed since the beginning of 1990s.

In September 1999, the Central Bank of Chile eliminated the floating band for the nominal exchange rate, which operated since 1984, and established a free float. This lasted until the burst of the last Argentinean economic crisis in July 2001. Since then, the Central Bank has smoothed out the exchange rate path by selling U.S. dollars and/or issuing U.S. dollar-denominated bonds. We examine the free float period by assessing whether the increase in exchange rate volatility was as sharp as expected. We show that volatility went up, but only slightly.

The aim of this article is to present the influence of exchange rate changes on the price dynamics in Poland. The knowledge concerning exchange rate pass-through to prices allows assessing how exchange rates affect inflation and monetary policy in the country. The article consists of two parts. The first part deals with theoretical analysis of the phenomenon of incomplete exchange rate pass-through to prices, including reasons and factors determining this phenomenon. In the next part the range of exchange rate pass-through to prices in Poland is analyzed by using the vector autoregression (VAR) model.