Questrom School of Business
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Boston, MA 02115
Institutional Affiliation: Boston University
NBER Working Papers and Publications
|October 2016||Currency Manipulation|
with Tarek A. Hassan, Thomas M. Mertens: w22790
We develop a novel, risk-based theory of the effects of currency manipulation. In our model, the choice of exchange rate regime allows policymakers to make their currency, and by extension, the firms in their country, a safer investment for international investors. Policies that induce a country's currency to appreciate when the marginal utility of inter- national investors is high lower the required rate of return on the country's currency and increase the world-market value of domestic firms. Applying this logic to currency stabilizations, we find a small economy stabilizing its bilateral exchange rate relative to a larger economy can increase domestic capital accumulation, domestic wages, and even its share in world wealth. In the absence of policy coordination, small countries optimall...
|March 2016||Not So Disconnected: Exchange Rates and the Capital Stock|
with Tarek A. Hassan, Thomas M. Mertens
in NBER International Seminar on Macroeconomics 2015, Michael B. Devereux, Francesco Giavazzi, and Kenneth D. West, editors
|August 2015||Not so Disconnected: Exchange Rates and the Capital Stock|
with Tarek Alexander Hassan, Thomas Mertens: w21445
We investigate the link between stochastic properties of exchange rates and differences in capital-output ratios across industrialized countries. To this end, we endogenize capital accumulation within a standard model of exchange rate determination with nontraded goods. The model predicts that currencies of countries that are more systemic for the world economy (countries that face particularly volatile shocks or account for a large share of world GDP) appreciate when the price of traded goods in word markets is high. These currencies are better hedges against consumption risk faced by international investors because they appreciate in "bad" states of the world. As a consequence, more systemic countries face a lower cost of capital and accumulate more capital per worker. We estimate our mo...
Published: Hassan, Tarek A. & Mertens, Thomas M. & Zhang, Tony, 2016. "Not so disconnected: Exchange rates and the capital stock," Journal of International Economics, Elsevier, vol. 99(S1), pages 43-57. citation courtesy of