Foreword to: The Price, Real and Financial Effects of Exchange Rates

Abstract

A research conference on “The price, real and financial effects of exchange rates” was co-hosted in Hong Kong, on 28–29 August 2017, by the Hong Kong Monetary Authority (HKMA) and the Bank for International Settlements (BIS). This conference was the culmination of the BIS Asian Office’s two-year research programme on exchange rates, as endorsed by the Asian Consultative Council of the BIS in February 2016. The conference brought together senior officials and researchers from central banks, international organisations and academia.

Opening remarks at the conference were provided by HKMA Deputy Chief Executive Arthur Yuen. Sebastian Edwards (University of California, Los Angeles (UCLA)) delivered a keynote address. Six papers were presented, covering exchange rate puzzles; deviations from covered interest parity; devaluations and intraregional trade; exchange rates and corporate risk-taking; FX hedging and creditors’ rights; and a risk-taking channel of FX reserves accumulation.

Four main lessons emerged from the discussions. First, nominal exchange rate fluctuations drive the real exchange rate, although the policy implications of this are not clear-cut. Second, weaker bankruptcy laws are associated with reduced hedging of FX exposures by firms. Third, the appropriate policy response to exchange rate changes depends on the source of the exchange rate change. Finally, definitive estimates of equilibrium exchange rates continue to elude researchers, in part because exchange rates depend on so many factors and their complex interaction.

This volume is a collection of the speeches, papers and prepared discussant remarks from the conference. This foreword summarises the contents of the conference and provides a synopsis of the discussions for time-constrained readers.

Full Publication: The Price, Real and Financial Effects of Exchange Rates