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Exchange Rates and Monetary Spillovers

43 Pages Posted: 19 Jan 2016  

Guillaume Plantin

University of Toulouse 1 - Toulouse School of Economics (TSE)

Hyun Song Shin

Bank for International Settlements

Date Written: January 2016

Abstract

When does the combination of flexible exchange rates and domestic inflation-oriented monetary policy guarantee insulation from global financial conditions? We examine a dynamic global game model of international portfolio flows where, for some combination of parameters, the unique equilibrium exhibits the observed empirical feature that currency appreciation goes hand-in-hand with lower domestic interest rates and higher credit growth. When reversed, tighter monetary conditions go hand-in-hand with capital outflows and currency depreciation.

Keywords: currency appreciation, capital flows, global games

JEL Classification: F32, F33, F34

Suggested Citation

Plantin, Guillaume and Shin, Hyun Song, Exchange Rates and Monetary Spillovers (January 2016). BIS Working Paper No. 537. Available at SSRN: https://ssrn.com/abstract=2717690

Guillaume Plantin (Contact Author)

University of Toulouse 1 - Toulouse School of Economics (TSE) ( email )

Place Anatole-France
Toulouse Cedex, F-31042
France

Hyun Song Shin

Bank for International Settlements ( email )

Centralbahnplatz 2
Basel, Basel-Stadt 4002
Switzerland

HOME PAGE: http://www.bis.org/author/hyun_song_shin.htm

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