NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Does Exchange Rate Risk Matter for Welfare?

Paul R. Bergin, Ivan Tchakarov

NBER Working Paper No. 9900
Issued in August 2003
NBER Program(s):   CF      CF   CF   IFM

Volatility in exchange rates is a prominent feature of open economies, a fact which has motivated elaborate attempts in many countries at exchange rate management. This paper analyzes quantitatively the welfare effects of exchange rate risk in a general two-country environment. It finds that the effects of uncertainty tend to be small for the types of simplified cases considered in past literature. But it identifies other cases, not considered previously, in which these effects can be significantly larger. These include habit persistence, where agents are more sensitive to risk, and also incomplete asset market structures which allow for asymmetries between countries. The latter case suggests that countries which are hosts to an international reserve currency, such as the U.S. or members of the euro zone, may accrue

download in pdf format
   (434 K)

email paper

This paper is available as PDF (434 K) or via email.

This paper was revised on March 10, 2006

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w9900

Users who downloaded this paper also downloaded these:
Obstfeld and Rogoff w6694 Risk and Exchange Rates
Calomiris and Hitscherich w11333 Banker Fees and Acquisition Premia for Targets in Cash Tender Offers: Challenges to the Popular Wisdom on Banker Conflicts
Mishkin w10646 Can Inflation Targeting Work in Emerging Market Countries?
Forbes w7807 The Asian Flu and Russian Virus: Firm-level Evidence on How Crises are Transmitted Internationally
Grauwe and Verfaille Exchange Rate Variability, Misalignment, and the European Monetary System
 
Publications
Activities
Meetings
NBER Videos
Themes
Data
People
About

National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us