Tsvetelina Nenova

A major challenge for monetary policy is predicting how exchange rate movements will impact inflation. We propose a new focus: directly incorporating the underlying shocks that cause exchange rate fluctuations when evaluating how these fluctuations “pass through” to import and consumer prices. A standard open-economy model shows that the relationship between exchange rates and prices depends on the shocks which cause the exchange rate to move. We build on this to develop a structural Vector Autoregression (SVAR) framework for a small open economy and apply it to the UK. We show that prices respond differently to exchange rate movements based on what caused the movements. For example, exchange rate pass-through is low in response to domestic demand shocks and relatively high in response to...

Published: Kristin Forbes & Ida Hjortsoe & Tsvetelina Nenova, 2018. "The shocks matter: Improving our estimates of exchange rate pass-through," Journal of International Economics, . citation courtesy of

Large current account deficits, and the corresponding reliance on capital flows from abroad, can increase a country’s vulnerability to periods of heightened risk and uncertainty. This paper develops a framework to evaluate such vulnerabilities. It highlights the central importance of two financial factors: income on international investments and changes in the valuations of those investments. We show how the characteristics of a country’s international investment portfolio – the size of its international asset and liability holdings, their currency denominations, their split between equity and debt, and their return characteristics – affect the dynamics of these financial factors. Then we decompose those dynamics into their drivers, explore how they are affected by domestic and global ris...

Published: Kristin Forbes & Ida Hjortsoe & Tsvetelina Nenova, 2017. "Current Account Deficits During Heightened Risk: Menacing or Mitigating?," The Economic Journal, vol 127(601), pages 571-623. citation courtesy of