TY  - JOUR
AU  - Lane,Philip
AU  - Shambaugh,Jay C.
TI  - Financial Exchange Rates and International Currency Exposures
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 13433
PY  - 2007
Y2  - September 2007
UR  - http://www.nber.org/papers/w13433
L1  - http://www.nber.org/papers/w13433.pdf
N1  - Author contact info:
Philip Lane
The Sutherland Centre
Arts Block
Trinity College Dublin
Dublin 2  IRELAND
E-Mail: plane@tcd.ie

Jay C. Shambaugh
McDonough School of Business
Georgetown University
542 Hariri
Washington, DC 20057
Tel: 202/687-6625
E-Mail: jcs264@georgetown.edu
AB  - 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.
ER  -