Policymaking in crises: Pick your poison

Kristin Forbes, Michael W Klein 24 December 2013

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In 2010, the Brazilian finance minister Guido Mantenga declared a ‘currency war’ because of the harmful effects of the strengthening of the real. He blamed the currency’s appreciation on easy money in advanced countries, and to a lesser extent on reserve accumulation in some emerging markets. More recently, concerns were raised by slides in the values of the Indian rupee – which lost 18% of its value against the dollar between February and August – and by the fall in the value of the Indonesian rupiah – which has lost almost a quarter of its value against the US dollar in 2013.

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Topics:  Exchange rates Macroeconomic policy

Tags:  exchange rates, foreign exchange reserves, India, Indonesia, global financial crisis, capital controls, Brazil, currency war

Overcoming the obstacles to international macro policy coordination is hard

Olivier Blanchard, Jonathan D Ostry, Atish R Ghosh 20 December 2013

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International policy coordination is like the Loch Ness monster – much discussed but rarely seen. Going back over the decades, and even further in history to the period between the two world wars, coordination efforts have been episodic.

Coordination seems to occur spontaneously in turbulent periods, when the world faces the prospect of some calamitous outcome and the key players are seeking to avoid cascading negative spillovers. In quieter times coordination is rarer, though not unheard of – the Louvre and Plaza accords are examples. 

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Topics:  Macroeconomic policy

Tags:  spillovers, fiscal consolidation, financial regulation, policy coordination, unconventional monetary policy, currency war

Tapering talk: The impact of expectations of reduced Federal Reserve security purchases on emerging markets

Barry Eichengreen, Poonam Gupta 19 December 2013

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In May 2013, Federal Reserve officials first began to talk of the possibility of the US central bank tapering its securities purchases from $85 billion a month to something lower. A milestone to which many observers point is 22 May 2013, when Chairman Bernanke raised the possibility of tapering in his testimony to Congress. This ‘tapering talk’ had a sharp negative impact on economic and financial conditions in emerging markets.

Three aspects of that impact are noteworthy:

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Topics:  Exchange rates Monetary policy

Tags:  exchange rates, monetary policy, Federal Reserve, emerging markets, capital controls, Macroprudential policies, Capital inflows, currency war, tapering

Root causes of currency wars

Simon J Evenett 14 February 2013

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Once dismissed as self-serving grandstanding by the Brazilian finance minister in 2010, claims that the world is closer to a currency war have returned. This time the proximate cause appears to be the publicly stated policies of the new Japanese government aimed at shaking off a decades-long economic malaise. Is this another flash in the pan – or are there deeper factors at work (Bordo et al 2012)?

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Topics:  Global economy

Tags:  currency war

An overlooked currency war in Europe

Daniel Gros 11 October 2012

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A current-account surplus is the mirror image of a capital export. A country that is running persistent current-account surpluses is thus persistently exporting capital. An important question to consider is which sector is investing abroad, the private or the public sector? If it is the public sector which invests abroad, in particular if it is done by the central bank via the accumulation of foreign-exchange reserves, this is often called ‘currency manipulation’.

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Topics:  Macroeconomic policy

Tags:  currency war, Swiss franc peg, euro exchange rate

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