Financial Globalization and Exchange Rates

46 Pages Posted: 31 Jan 2005

See all articles by Philip R. Lane

Philip R. Lane

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

Gian Maria Milesi-Ferretti

International Monetary Fund (IMF); National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

Date Written: November 2004

Abstract

The founders of the Bretton Woods System sixty years ago were primarily concerned with orderly exchange rate adjustment in a world economy that was characterized by widespread restrictions on international capital mobility. In contrast, the rapid pace of financial globalization during recent years poses new challenges for the international monetary system. In particular, large gross cross-holdings of foreign assets and liabilities means that the valuation channel of exchange rate adjustment has grown in importance, relative to the traditional trade balance channel. Accordingly, this Paper empirically explores some of the inter-connections between financial globalization and exchange rate adjustment and discusses the policy implications.

Keywords: Financial integration, capital flows, external assets and liabilities

JEL Classification: F31, F32

Suggested Citation

Lane, Philip R. and Milesi-Ferretti, Gian Maria, Financial Globalization and Exchange Rates (November 2004). CEPR Discussion Paper No. 4745. Available at SSRN: https://ssrn.com/abstract=654529

Philip R. Lane (Contact Author)

Trinity College (Dublin) - Department of Economics ( email )

Trinity College
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Centre for Economic Policy Research (CEPR)

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Central Bank of Ireland ( email )

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Gian Maria Milesi-Ferretti

International Monetary Fund (IMF) ( email )

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National Bureau of Economic Research (NBER)

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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