FX Depreciation: Payback Time?

Abstract:     
Three factors have characterized FX returns in the recent round of currency moves, all of which can be thought of as measures of risk: the size of short-term liabilities relative to reserves, the deterioration of the current account in 2005-2007, and the closeness of the relationship with cyclical indicators such as the CRB index or AUD/JPY. The positive effects of reserves accumulation seem to have been less important than these vulnerabilities. Once these factors are taken into account, there was no significant difference in the average returns of G10 and EM currencies.

Number of Pages in PDF File: 5

Keywords: Foreign Exchange, Reserves, Risk Appetite

JEL Classification: F31

Accepted Paper Series