Financial Exchange Rates and International Currency Exposures

By Philip R. Lane, Jay C. Shambaugh. Social Science Research Network, 2010

177 citations recorded by the source corpus.

Our goal in this project is to gain a better empirical understanding of the international financial implications of currency movements. To this end, we construct a database of international currency exposures for a large panel of countries over 1990-2004. We show that trade-weighted exchange rate indices are insufficient to understand the financial impact of currency movements. Further, we demonstrate that many developing countries hold short foreign-currency positions, leaving them open to negative valuation effects when the domestic currency depreciates. However, we also show that many of these countries have substantially reduced their foreign currency exposure over the last decade. Last, we show that our currency measure has high explanatory power for the valuation term in net foreign asset dynamics: exchange rate valuation shocks are sizable, not quickly reversed and may entail substantial wealth shocks.

Subfields: Accounting, Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/a5aa906883c194c8f6c8446c4905317c2a9445a9

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Citations in the corpus

The Missing Wealth of Nations: Are Europe and the U.S. net Debtors or net Creditors? (2013, methodology): “This model has been used for similar imputation purposes by Lane and Shambaugh (2010). As a benchmark, I start with the exact specification reported in the appendix of Lane and Shambaugh (2010).”
Currency Premia and Global Imbalances (2016, unknown): “…on the original sin (e.g. Eichengreen and Hausmann, 2005) and is akin to a valuation channel for the external adjustment of imbalances whereby the exchange rate facilitates the re-equilibration of external imbalances (see e.g. Gourinchas and Rey, 2007; Gourinchas, 2008; Lane and Shambaugh, 2010).”
Global Exchange Rate Configurations: Do Oil Shocks Matter? (2016, unknown): “In particular, large and persistent exchange rate shocks are not uncommon and may lead to a significant redistribution of wealth across countries, depending on their net foreign currency position (Lane and Shambaugh, 2010a).”
Home bias in open economy financial macroeconomics (2013, unknown): “As shown by Lane and Shambaugh (2009ab), the currency denomination of foreign assets and liabilities are very heterogeneous across countries.”
Exorbitant privilege and exorbitant duty (2010, background): “US external assets are mostly denom-inated in foreign currencies while US external liabilities are in dollars (Tille (2004), Lane and Shambaugh (2007)).”
Fractional Neuro-Sequential ARFIMA-LSTM for Financial Market Forecasting (2020, background): “The rapid development of digital currencies in the ﬁnancial market abrupt impact on the movement of stock price [2].”
The Geographical Composition of National External Balance Sheets: 1980-2005 (2012, unknown): “We follow the approach in Lane and Shambaugh (2007) and use the results reported in those studies to obtain estimates of the currency composition of reserves for countries that are not part of the G-10.”
International Risk Cycles (2011, unknown): “First, Tille (2004) and Lane and Shambaugh (2010) report that US external assets are mostly denominated in foreign currencies while US external liabilities are in dollars.”
The US Dollar Shortage in Global Banking and the International Policy Response (2009, unknown): “11 Lane and Shambaugh (2009a) construct estimates of the currency composition of the external asset and liability positions for a large sample of countries, and show that the effect of exchange rate movements is sizeable.”