JEL Code: F31

Sophia Latsos; Gunther Schnabl

Abstract

The paper shows that currencies of countries with persistent current account surpluses and high foreign-currency denominated assets, such as the Swiss franc and the Japanese yen, are under persistent appreciation pressure, particularly when the centres of the world monetary system follow expansionary monetary policies. This limits the choice of exchange rate regime. Given flexible exchange rates, a negative risk premium on the domestic interest rate can emerge. Empirical estimations provide mixed evidence for a negative impact of net foreign asset positions and exchange rate uncertainty on interest rates of international creditor countries at the periphery of the world monetary system.

Keywords: appreciation pressure, exchange rate risk, Japanese yen, negative risk premium, self-fulfilling expectations, Swiss franc.

JEL Codes: F15, F31, F33.

Erschienen in

Int Econ Econ Policy 15, 261–280 (2018).

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Sophia Latsos; Gunther Schnabl

Abstract

The paper shows that currencies of countries with persistent current account surpluses and high foreign-currency denominated assets, such as the Swiss franc and the Japanese yen, are under persistent appreciation pressure, particularly when the centres of the world monetary system follow expansionary monetary policies. This limits the choice of exchange rate regime. Given flexible exchange rates, a negative risk premium on the domestic interest rate can emerge. Empirical estimations provide mixed evidence for a negative impact of net foreign asset positions and exchange rate uncertainty on interest rates of international creditor countries at the periphery of the world monetary system.

Keywords: appreciation pressure, exchange rate risk, Japanese yen, negative risk premium, self-fulfilling expectations, Swiss franc.

JEL Codes: F15, F31, F33.

Erschienen in

CESifo Working Paper No. 5490 (August 2015).

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Pablo Duarte; Gunther Schnabl

Abstract

Since a series of crisis events after 2007, the discussion about the adjustment channels of current account imbalances has been revived. We discuss the effectiveness of exchange rates versus macroeconomic policies to rebalance current accounts for a set of 86 mainly emerging market economies. We find that nominal exchange rates are not a sufficient adjustment channel for (unsustainable) current account positions. Instead, depending on the region, monetary and/or fiscal policies are the main determinants of current accounts. For East Asia and the oil exporting countries sterilization policies, i.e. relatively tight monetary policies, are the main determinants. In contrast the main driving forces for emerging and southern Europe are fiscal policy stances. Only for the Latin American countries the exchange rate seems to play a significant role.

Keywords: exchange rate adjustment, fiscal policy, global imbalances, intra-european imbalances, Monetary policy.

JEL Codes: E42, F31, F43.

Erschienen in

Review of Development Economics, Volume 19, Issue 3, pp 531-544.

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Ansgar Belke; Ulrich Haskamp; Gunther Schnabl; Holger Zemanek

Abstract

We scrutinize the role of capital flows for competitiveness in seven euro-area countries in the context of real convergence and crisis with a specific focus on Greece. The paper extends the seminal Balassa-Samuelson model to include international capital markets. Capital flows are assumed to be able to invert the traditional direction of transmission of real wage increases from the tradable to the non-tradable sector and to cause real wages to increase beyond productivity increases. Panel estimations for the period from 1995 to 2013 show evidence in favour of capital inflow-driven real wage increases in excess of productivity increases in Greece.

Keywords: Balassa-Samuelson Effect, capital inflows, Estonia, exchange rate regime, Greece, inflation, Latvia, Lithuania, panel model, Portugal, productivity differential, Slovak Republic, Slovenia, wages.

JEL Codes: E24, F16, F31, F32.

Erschienen in

CESifo Working Paper No. 5557 (October 2015).

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