Exchange Rates and External Adjustment

External Rebalancing , Structural Adjustment , and Real Exchange Rates in Developing Asia ∗

This paper evaluates the impact of global external rebalancing on Developing Asia and the rest of the world using a multi-country multi-sector quantitative model of production and trade. Developing Asia countries currently running a trade surplus (such as People’s Republic of China or Malaysia) see a substantial rise in relative wages and an appreciation in the real exchange rate. They also see...

Asymmetric Adjustment and Nonlinear Dynamics in Real Exchange Rates

This paper examines whether deviations from PPP are stationary in the presence of nonlinearity, and whether the adjustment towards PPP is symmetric from above and below. Using alternative nonlinear models, our results support mean reversion and asymmetric adjustment dynamics. We find differences in magnitudes, frequencies and durations of the deviations of exchange rates from fixed and time-var...

Exchange Rate Uncertainty and Labour Market Adjustment under Fixed and Flexible Exchange Rates

The standard literature on working time has modelled the decisions of firms in a deterministic framework in which firms can choose between employment and overtime (given mandated standard hours). Contrary to this approach, we follow the real options approach, which allows us to investigate the value to a firm of waiting to adjust labour when the firm ́s revenues in domestic currency are stochast...

Nonlinearity In Exchange Rates and Forecasting

Hot Money And External Adjustment

This paper studies the behavior of international capital flows driven by the portfolio reallocation decisions of international investors; so-called hot money. I develop an open economy model with endowment and preference shocks that can account for the empirical behavior of real exchange rates, interest rates and consumption in the U.S. and Europe. The model includes financial frictions that im...