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1. Leaning-against-the-wind intervention and the “carry-trade” view of the cost of reserves

Author:
Eduardo Levy-Yeyati and Juan Francisco Gómez
Publication Date:
10-2022
Content Type:
Working Paper
Institution:
The John F. Kennedy School of Government at Harvard University
Abstract:
For a sample of emerging economies, we estimate the quasi-fiscal costs of sterilized foreign exchange interventions as the P&L of an inverse carry trade. We show that these costs can be substantial when intervention has a neo-mercantilist motive (preserving an undervalued currency) or a stabilization motive (appreciating the exchange rate as a nominal anchor) but are rather small when interventions follow a countercyclical, leaning-against-the-wind (LAW) pattern to contain exchange rate volatility. We document that under LAW, central banks outperform a constant size carry trade, as they additionally benefit from buying against cyclical deviations, and that the cost of reserves under the carry-trade view is generally lower than the one obtained from the credit-risk view (which equals the marginal cost to the country´s sovereign spread).
Topic:
Foreign Exchange, Economy, International Reserves, Trade, and Exchange Rates
Political Geography:
Global Focus

2. Beyond the ‘Tissue of Clichés’?: The Purposes of the Fulbright Programme and New Pathways of Analysis

Author:
Giles Scott-Smith
Publication Date:
07-2022
Content Type:
Journal Article
Journal:
All Azimuth: A Journal of Foreign Policy and Peace
Institution:
Centre for Feminist Foreign Policy
Abstract:
This article critically explores some of the evaluative perspectives and models developed by social science scholars in order to further critical thinking on the function of exchange programmes, and particularly Fulbright, within international relations. It takes the concept of ‘educational exchange’ to mean the movement of individuals or groups between nations for the purpose of training of some kind, ranging from high school visits to professional skills. The Fulbright programme covers both student and scholar exchange and has the added element that academics are moving also to teach, taking their expertise with them. While there are many studies of bilateral exchange programmes, there is more to explore in terms of the function of educational exchange as a vector of transfer (be it of knowledge, material, people, or all three) in transnational or international history. The article first surveys the literature on the Fulbright programme to assess how its purposes in international relations have been presented. It then explores potentially innovative ways to conceptualise exchanges in international and transnational interactions: ‘geographies of exchange,’ ‘brain circulation,’ ‘centres of calculation,’ ‘enlightened nationalism,’ and ‘parapublics’.
Topic:
Education, Foreign Exchange, Fulbright Foundation, and Knowledge Transfer
Political Geography:
Global Focus

3. Analysis of Determinants of Foreign Capital Flow: Focused on Interest Rate and Exchange

Author:
Deok Ryong Yoon, Wongho Song, and Jinhee Lee
Publication Date:
05-2021
Content Type:
Policy Brief
Institution:
Korea Institute for International Economic Policy (KIEP)
Abstract:
As the linkage between domestic and foreign financial markets grows stronger, concerns have been raised about the inflow and outflow of foreign investment capital as a source of financial instability whenever the financial market becomes unstable. Considering that opening the capital market is not an option, it becomes essential to examine the determinants of foreign investment to maximize the benefits of foreign capital inflows and outflows for sound growth in the real sector as well as the financial sector. Accordingly, this study attempts to produce evidence-based policy implications by empirically analyzing the determinants of the inflow and outflow of foreign investment funds.
Topic:
Foreign Exchange, Markets, Capital Flows, Investment, and Interest Rates
Political Geography:
Global Focus

4. Dollar not so dominant: Dollar invoicing has only a small effect on trade prices

Author:
Joseph E. Gagnon and Madi Sarsenbayev
Publication Date:
12-2021
Content Type:
Working Paper
Institution:
Peterson Institute for International Economics
Abstract:
This paper estimates and tests four models of the effects of exchange rate changes on export prices. It supports the Goldberg and Knetter (1997) canonical result that exporters adjust their prices by about half of any movement in exchange rates. A new twist is that exchange rate movements against importing countries account for only three-fifths of this price adjustment, while exchange rate movements against a dominant currency account for the other two-fifths. The dominant currency is the euro in Europe and Africa and the US dollar in Asia and the Western Hemisphere. The recent claim that the dollar is the most important driver of export prices (Gopinath et al. 2020) is shown to be valid only for the smallest exporting economies. For the bulk of international trade, the extra effects of the dollar (or the euro) beyond their effects as exporter or importer currencies are relatively modest.
Topic:
Foreign Exchange, Exports, Currency, Trade, and Dollar
Political Geography:
Global Focus