Abstract

http://ssrn.com/abstract=1240197
 
 

References (26)



 
 

Citations (14)



 


 



The Long or Short of It: Determinants of Foreign Currency Exposure in External Balance Sheets


Philip R. Lane


Trinity College (Dublin) - Department of Economics; Centre for Economic Policy Research (CEPR)

Jay Shambaugh


Dartmouth College - Department of Economics; Georgetown University - Department of Strategy/Economics/Ethics/Public Policy

June 2008

CEPR Discussion Paper No. DP6887

Abstract:     
Recently, there have been numerous advances in modelling optimal international portfolio allocations in macroeconomic models. A major focus of this literature has been on the role of currency movements in determining portfolio returns that may hedge various macroeconomic shocks. However, there is little empirical evidence on the foreign currency exposures that are embedded in international balance sheets. Using a new database, we provide stylized facts concerning the cross-country and time-series variation in aggregate foreign currency exposure and its various subcomponents. In panel estimation, we find that richer, more open economies take longer foreign-currency positions. In addition, we find that an increase in the propensity for a currency to depreciate during bad times is associated with a longer position in foreign currencies, providing a hedge against domestic output fluctuations. We view these new stylized facts as informative in their own right and also potentially useful to the burgeoning theoretical literature on the macroeconomics of international portfolios.

Number of Pages in PDF File: 41

Keywords: exchange rates, Financial globalization, international portfolios

JEL Classification: F31, F32

working papers series





Date posted: August 20, 2008  

Suggested Citation

Lane, Philip R. and Shambaugh, Jay, The Long or Short of It: Determinants of Foreign Currency Exposure in External Balance Sheets (June 2008). CEPR Discussion Paper No. DP6887. Available at SSRN: http://ssrn.com/abstract=1240197

Contact Information

Philip R. Lane (Contact Author)
Trinity College (Dublin) - Department of Economics ( email )
Trinity College
Dublin 2
Ireland
+353 1 608 2259 (Phone)
+353 1 677 2503 (Fax)
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
Jay Shambaugh
Dartmouth College - Department of Economics ( email )
309 Rockefeller Hall
Hanover, NH 03755
United States
603-646-9345 (Phone)
603-646-2122 (Fax)
HOME PAGE: http://www.dartmouth.edu/~economic/faculty/Shambaugh/
Georgetown University - Department of Strategy/Economics/Ethics/Public Policy
Washington, DC 20057
United States

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