Since the early 1990s, central banks in many emerging markets and developing countries have accumulated foreign reserves at an unprecedented rate. The macroeconomic impact of these official flows has been profound and they have contributed significantly to global imbalances. Providing an explanation for these trends remains a major puzzle in international macroeconomics, and prevailing theories based on trade or debt deliver poor empirical performance. We argue that part of this great reserve accumulation is a response to the threat of financial instability in the context of rapidly expanding financial systems, increasingly mobile capital, and exchange rate objectives. The recent turbulence in global financial markets supports this view.
Economists spend a considerable amount of time thinking about cross-country risk-sharing. It is rare to go through an international macroeconomics conference of more than 4 or 5 papers without seeing some ruminations on the question of whether the international financial system can deliver risk sharing across countries. The ability to diversify and share risks across […]
I watched a fair bit of both US political conventions. Despite a large amount of discussion amongst economists and even people on the street, as far as I could tell, the value of the US dollar – if it is too high or too low, if the changes in its value have meant anything positive […]
A right of passage for many parents is taking their kids to Disney World. I was recently there with my kids and was truly stunned by the number of large tourist groups from Brazil. As far as I can tell, it may have been the start of mid winter school vacation for Brazilian High Schools […]
Much like Mark Twain, reports of the death of fixed exchange rates have been exaggerated. It seems each time a peg collapses, there is a clamoring that “soft pegs” are unsustainable in today’s big bad world of rapid capital movement. Pegs, it is often noted, are fragile. And yet, when we look around, there always […]