We analyze three related but distinct concepts concerning the renminbi’s role in the globalmonetary system: (i) “internationalization” of the currency; (ii) currency convertibility; and (iii)reserve currency status. Their sequencing in relation to other policy goals such as financialsector...

This paper introduces a theoretical framework for liquidity management under fixed exchange rate arrangement, derived from the price-specie flow mechanism of David Hume. The framework highlights that the risk of short-term money market rates un-anchoring from the uncovered interest rate parity...

This paper identifies the institutional and operational requisites for transitions to floating exchange rate regimes. In particular, it explores key issues underlying the transition, including developing a deep and liquid foreign exchange market, formulating intervention policies consistent with...

We investigate the drivers of daily changes in the exchange value of the Chinese currency (CNY) since early 2016, when a new regime was introduced for setting the fix—the midpoint of the CNY's daily trading range against the U.S. dollar. Daily changes in the fix, which is announced just prior...

This paper uses event study analysis and synthetic control estimation analysis to explore how the trend of the risk premium changes when a country breaks its exchange rate peg. We perform abnormal return and cumulative abnormal return estimations on daily fluctuations of country spread index,...

We investigate the drivers of daily changes in the exchange value of the Chinese currency (CNY) since early 2016, when a new regime was introduced for setting the fix - the midpoint of the CNY's daily trading range against the U.S. dollar. Daily changes in the fix, which is announced just prior...

This paper estimates short horizon exchange rate sensitivity with an event study methodology. We look at stock price reactions to very large, unexpected exchange rate changes: the decisions to allow the Mexican peso and Thai baht to float. For both events, we find evidence of a statistically and...

The perceptions of a central bank’s inflation aversion may reflect institutional structure or, more dynamically, the history of its policy decisions. In this paper, we present a novel empirical framework that uses high-frequency data to test for persistent variation in market perceptions of...

In a country with high probability of default, higher interest rates may render the currency lessattractive if sovereign default is costly. This paper develops that intuition in a simple model andestimates the effect of changes in interest rates on the exchange rate in Brazil using data from...

A key challenge for macroeconomic policy in open economies is how to simultaneously manage exchange rates, interest rates and capital account openness - the trilemma. This paper calculates a trilemma index for India and investigates its evolution over time. We find that financial integration has...