NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
loading...

Currency Manipulation

Tarek A. Hassan, Thomas M. Mertens, Tony Zhang

NBER Working Paper No. 22790
Issued in October 2016, Revised in September 2019
NBER Program(s):The Asset Pricing Program, The Economic Fluctuations and Growth Program, The International Finance and Macroeconomics Program, The Monetary Economics Program

We develop a novel, risk-based theory of the effects of currency manipulation. In our model, the choice of exchange rate regime allows policymakers to make their currency, and by extension, the firms in their country, a safer investment for international investors. Policies that induce a country's currency to appreciate when the marginal utility of inter- national investors is high lower the required rate of return on the country's currency and increase the world-market value of domestic firms. Applying this logic to currency stabilizations, we find a small economy stabilizing its bilateral exchange rate relative to a larger economy can increase domestic capital accumulation, domestic wages, and even its share in world wealth. In the absence of policy coordination, small countries optimally choose to stabilize their exchange rates relative to the currency of the largest economy in the world, which endogenously emerges as the world's “anchor currency.” Larger economies instead optimally choose to float their exchange rates. The model therefore predicts an equilibrium pattern of exchange rate arrangements that is remarkably similar to the one in the data.

download in pdf format
   (1312 K)

email paper

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w22790

Users who downloaded this paper also downloaded* these:
Glaeser, Huang, Ma, and Shleifer w22789 A Real Estate Boom with Chinese Characteristics
Bai, Hsieh, and Song w22801 The Long Shadow of a Fiscal Expansion
Staiger and Sykes w14600 "Currency Manipulation" and World Trade
Chen, Gao, Higgins, Waggoner, and Zha w22650 Impacts of Monetary Stimulus on Credit Allocation and the Macroeconomy: Evidence from China
Han and Wei w22812 International Transmissions of Monetary Shocks: Between a Trilemma and a Dilemma
 
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